Finance: Transfers of the future could be less painful

Public sector employees lost out when they were excluded from legislation protecting workers' rights. The Government will now compensate them, Paul Gosling reports, but the story does not end there.

The Government will have to pay millions of pounds in compensation to at least 1,500 public service workers whose employment rights were illegally removed by the previous government. The High Court was told last week that the new government accepts liability, marking an important step towards the final resolution of a dispute that has festered for 16 years.

Conservative governments pushed a privatisation programme on the National Health Service and local authorities during the 1980s. But the statement made to the High Court says that during much of this time the former government knew that some of the effects of its privatisation legislation were in breach of European law.

The European Union's 1977 Acquired Rights Directive required member states to recognise that employment conditions were transferred when an enterprise was taken over by another organisation. This was enacted in British law in 1981 by the Transfer of Undertakings (Protection of Employment) regulations (TUPE) which, it has now been accepted, illegally excluded public sector workers from its provisions.

The result of the public sector exclusion has been dire for some workers. Dave Bradley is one of the plaintiffs in the current High Court action against the former Department of Employment, and was an employee of Doncaster council until its refuse collection service was privatised in 1991. The new contractors, Sita GB, cut Mr Bradley's monthly wages from pounds 800 to pounds 540; holiday leave was cut from 25 days a year to 15; sick pay was abolished; his occupational pension arrangements ended; and his union, the Transport and General Workers Union, was de-recognised.

No decision has yet been taken about the level of compensation to be paid to Mr Bradley and the other 1,500 plaintiffs involved in the case currently being considered. The unions have until next week to prepare dossiers for each plaintiff detailing the losses incurred. A spokesman for the General & Municipal Union says that each claim is likely to be in the thousands, but less than tens of thousands of pounds. Once these claims are accepted, one of the unions involved, Unison, is considering submitting claims on behalf of other members - possibly involving thousands more public service workers.

"We don't know how long it will take [to finalise]," says Richard Arthur, one of the lawyers involved in the case for Unison. "It will depend on the Government, and whether they will sit round the table to resolve it. The ramifications are pretty far-reaching."

Nor will the difficulties end with agreement on the compensation arrangements. The Court of Appeal has decided that the loss of membership of a pensions scheme is not covered by the Acquired Rights Directive, even though a pension is an important element of a worker's conditions of employment. While the unions have accepted that they are unlikely to be successful in appealing against this judgment, they believe they will be successful if they pursue action under fair pay law.

The contractors are relaxed about the High Court action and the Government's concession, having expected it. Cliff Davis-Coleman, secretary of the Public Contractors' Association, says his members are more worried by the threat of having to maintain pension contributions, though he believes any legal action on this would be unsuccessful. There has been talk of the contractors also suing the Government for compensation, but this is unlikely.

Employment Minister Ian McCartney is expected to make a statement regarding TUPE within the next few days. Resolving current problems is seen as necessary to the success of future public/private partnerships in the NHS and local government. Contractors want him to give a clear commitment to general TUPE protection being maintained "in perpetuity".

Many contractors now accept the principle of a transfer of employees' rights. "Don't underestimate the fear of the private sector of the Government saying that TUPE doesn't apply," says Mr Davis-Coleman. "Some companies would then go into liquidation."

Just as councils' and NHS trusts' own direct service organisations had difficulty in competing against companies operating on lower overheads, so the contractors fear an influx of new companies not bound by existing employment conditions. Not only would companies lose contracts, but they would be bound to make large redundancy payments without having the reserves to pay them.

Unions, too, are looking to Mr McCartney for progress, by bringing pensions within the scope of TUPE for new transfers. Jack Dromey, public services national secretary for the TGWU, believes that advice from the former government now protects pensions in the event of transfers. He adds: "It would be helpful if TUPE explicitly covered pensions, but there is now a settlement that does cover pensions, so that they are not now at risk.

"The Government is neutral as to who provides public services, and the future clearly lies in a pluralism of service delivery. The employees feel scarred by their memory of the 1980s, and still fear the consequences of transfers. The public interest and the interests of employees will best be served, therefore, if new measures are taken which reassure those that we represent that pensions will be safe post-transfer."