6.1 PFI has allowed for considerable innovation in workforce practices, but the value for money that PFI can deliver should not be achieved at the expense of staff terms and conditions. The Government has taken a range of steps to strengthen worker protection and ensure the fair and reasonable treatment of those working under PFI contracts.
6.2 Prior to 1997, there were limited safeguards in place to protect the terms and conditions of public sector workers transferred to the private sector as a result of PFI contracts. Each project was treated independently and the attitude of private sector employers bidding for contracts was a major input into the standard of staff treatment, which resulted in practices varying widely from project to project and contract to contract with no clear pattern across Departments or over time.
6.3 The main form of protection then available for transferees was the Transfer of Undertakings (Protection of Employment) Regulations 1981 (TUPE). In broad terms, TUPE protects employees' terms and conditions of employment when the business in which they work is transferred from one employer to another. The TUPE Regulations were designed to safeguard employees' rights when compulsorily transferred between firms. TUPE:
• guarantees transferees "no less favourable" terms and conditions at the time they transfer from one employer to another.
• applies to second-, third- and fourth-generation transfers as well as to the initial shift from the public to private sectors.
• is augmented by a Cabinet Office Statement Of Practice, see Box 6.1, which requires that transferees from the public to the private sector be given "broadly comparable" occupational pension rights as well.
6.4 Public sector employers were guided by advice that there was some risk of legal challenge if transferred staff suffered a material detriment to general terms and conditions as a result of the transfer. This resulted in court cases to establish that TUPE applied, not only to transfers within the public sector, but also to transfers from the public to the private sector. It is therefore accepted today that the measure applies to the public sector workers compulsorily transferred under PFI contracts.
6.5 However, contract terms relating to membership of occupational pension schemes were not required to be novated when staff transferred. Frequently, staff were denied any option to transfer their accrued service, and in some cases the pension scheme made available by the new employer was materially inferior to the scheme from which the staff were transferring. The treatment of pensions showed little consistency. In a few projects primary legislation was used to give special protection to pension scheme membership for the transferred workforce, far in excess of any protection enjoyed by other workforces in the private sector, or any workforce remaining in the public sector. At the other extreme, sometimes staff who had transferred from the public sector where they were members of a good quality defined benefit pension scheme were given no pension plan at all by their new employer.