Employment issues – Fragmentation

Employment issues – This is the fifth of a series of articles highlighting the employment law implications of the hand-over of commissioning responsibilities to CCGs.

What is Fragmentation?

Fragmentation occurs when the service or services being transferred are split up into various different components and distributed amongst several different transferees.

A common scenario where the issue of fragmentation may arise is when a service, which was previously provided by one contractor, is subsequently provided by a panel of contractors. Alternatively, services provided by a panel to a client may be re-tendered, and contractors who were previously on the panel are replaced or the number of contractors on the panel is reduced. Contractors who lose out will find their responsibilities are gradually taken over by other panel contractors and the question arises as to what will happen to employees who worked in that transferring service.

How will it affect CCGs?

The recent ‘Transforming Community Services’ program is an example of how services that were once provided by one organisation, are split up and thereafter run by different organisations.

The same situation will apply in the transfer of commissioning services from PCTs to CCGs, and in any further contracting out of the same services, by CCGs.

As has been discussed in previous editions, in order for the TUPE Regulations to apply, there needs to be a relevant transfer and this requires that the transferring service retains its identity as a separate economic entity. When services are fragmented, the TUPE Regulations will only apply to transfer staff if each individual component of the service is identifiable.

Like any relevant transfer, it will be important to determine whether employees are assigned to the transferring service. In a situation where there are several transferees, the test for assignment will determine which transferee the employee will move to.

Case law has established that the TUPE Regulations can still apply if a service is split up and distributed amongst more than one transferee. In short, the fact that a service contract has been divided, and split between various contractors, is insufficient evidence to prevent a relevant transfer. What is important is that the transferring service is fundamentally or essentially the same as the service provided pre-transfer, although there may be a change in the way those services are delivered, post-transfer.

From time to time a service becomes so fragmented that it is impossible to determine whether, or where, a service has transferred. As a result, this also means it is not possible to determine which transferee an assigned employee will move to.

An example of this is if a panel of 4 contractors provide various services to a client. Following a re-tendering exercise, only 3 of those contractors remain on the panel. The losing contractor would cease to carry out services and they would gradually be taken over by the other 3 successful contractors. It may not be possible to identify exactly to which contractor those services are allocated, where the services of the losing contractor are spread amongst the remaining 3 contractors.

It may even be the case that there is no discernable pattern of reallocation iof services after re-tendering. In such situations, there will be no identifiable economic entity and any transfer will not fall into the remit of the TUPE Regulations. Consequently, this would deny the protection, offered by the Regulations, to those who would otherwise be affected employees. This also poses a problem for transferors who may no longer deliver a service, but find that they retain the staff who previously worked in that service – they have excess staff, and no work to supply them with. This will inevitably lead to redundancy situations. For transferees, there is an element of uncertainty with regards to how many staff, if any, they will acquire, and they may find that they are under-staffed and ill-equipped to carry out their newly acquired roles, or, once again, that they are overstaffed, and have to consider making redundancies.

In cases of fragmentation, the question of assignment remains crucial in determining not just whether an employee will transfer with a service, but to which transferee that employee moves to.