Employment Rights Act Update #26 – two tier code dropped again?

• First introduced under the last Labour Government, its purpose was to avoid the emergence of a two-tier workforce on outsourced public sector service contracts. Employees transferred to work on outsourced contracts from the public sector would often have more favourable terms and conditions than employees of the contractor who are then employed to do the same kind of work. For more details, read our blog here.

• The Government promised regulations which would outline what provisions had to be included in relevant outsourcing contracts to ensure that no workers on the contract were treated less favourably than others. Contracting authorities would then have to take all reasonable steps to include these provisions within their outsourcing contracts. Where these provisions were included, they could then be enforced by the contracting authority against any supplier or contractor who failed to implement them. 

• Despite a promise that these changes would take effect from October 2026, no draft regulations giving more details have been published.   

• The roadmap for the implementation of the ERA 2025 was updated earlier this week. No mention was made of the implementation of the two-tier code - it had fallen off the list of measures to be implemented from 30 October and has not been added to further measures for 2027. 

• This is where we are left in a frustrating place - no announcement has been made at the time of writing, only the absence of the measure on a list! 

• Even without seeing the details of the proposed updated code, the measure would have had a dramatic impact on outsourcing contracts. The savings that public authorities used to make and rely on when transferring out services to contractors would be greatly diminished and it could have led, in many circumstances, to a turning of the tide of outsourcing that we have seen for two decades.   

• So for the foreseeable future, the status quo remains - TUPE will still apply in many service provision changes, preserving existing terms and conditions but contractors will be free to use their own standard terms for staff working alongside transferred staff.   

Please contact the employment and pensions team if you would like further information or advice on this case.