24 September 2010 #Employment
Since the election, there has been a considerable increase in media and political interest in the involvement of the Third Sector in public service provision. The impact of the recession, a rise in the demand for services and a reduction in public and corporate income has created a challenging environment for charities and voluntary groups. Despite claims that the UK is emerging from the recession, cuts to public spending mean that we are probably just entering the most painful phase of uncertainty and job reductions.
Unfortunately, there is no clear picture on the extent of private sector reliance, in general, on public sector contracts and the number of jobs at risk down the supply chain. This issue is "the big unknown" and the impact on jobs is likely to be more significant than anyone is able yet to calculate. As part of this, the Third Sector has an above average risk as in many instances the Third Sector may have less protection against the impact of cuts on employment.
Pressures on public spending are very likely to result in councils reviewing the services that they contract out to other organisations. Many of these organisations, such as those in the Third Sector (providing housing, transport, education and training services etc), are heavily dependent on income from contracts delivered for their local authority and the effect on these organisations if they lose a contract may be severe (particularly if this is its major source of income). It is therefore important that organisations in the Third Sector consider the human and financial implications of this happening and plan ahead in order to minimise the possible consequences.
If cuts in spending are envisaged, there are a number of options that are available to a public sector organisation in relation to the future of a contract including (but not limited to):
It is never too soon for a Third Sector organisation that is worried about risks of this sort to act quickly and to establish ways in which it can try to limit its likely financial exposure if contracts are ended or reduced. In particular, if an organisation is made aware that it may lose all or part of a contract, it is important for it to ascertain from an early stage whether it is dealing with a redundancy situation, a TUPE transfer or both to ensure that the organisation complies with its legal obligations and to minimise its financial risk.
Points to consider if TUPE does apply
Points to consider if redundancies are anticipated
In addition to the above, very careful attention must be paid to any terms contained within the contract as to the arrangements upon termination. It is important to ensure that any such terms are complied with so as to safeguard any rights to indemnity or reimbursement that may exist.
Who will bear the cost?
When entering into public service contracts, many organisations will have assumed that TUPE would apply at the end of the contract and as such, may not have negotiated specific terms dealing with non-TUPE situations or the shutting down of a particular service.
Consequently, organisations may find themselves in a position where they are not protected against redundancy costs if TUPE does not apply. Costs may be significant if an organisation has inherited a number of public sector employees when they first took on the contract, many of whom might have generous redundancy entitlements (including enhanced redundancy/pension rights).