Introduction
For many businesses, outsourced services are part of the landscape, helping companies to manage cost and focus on key business areas. However, TUPE transfers arising from outsourcing and insourcing can still create challenges. A recent decision of the Employment Appeal Tribunal (‘EAT’) in Anne & Others v Great Ormond Street Hospital for Children NHS Foundation Trust provides an important reminder that where a TUPE transfer creates a situation in which employees are employed on different terms across a workforce, the fact of the TUPE transfer does not automatically shield an employer from claims arising from discriminatory differences.
Most employers are aware that TUPE ordinarily prevents changes to contractual terms post-transfer and often attempts to change terms and conditions will be met with resistance. However, employers can be unaware of the fact that failure to address inequalities arising from inherited terms which put a group of employees at a disadvantage, may expose them to liability.
Although the case has some NHS-specific facts, its implications are much broader. Any employer bringing services in‑house, or acquiring a workforce through a TUPE transfer, should carefully consider how they handle post-transfer harmonisation. This case emphasises that while TUPE protects terms upon transfer, it does not justify creating long-term, discriminatory pay disparities between transferred staff and existing NHS employees.
Background
The case concerned a group of cleaners who transferred to Great Ormond Street Hospital under TUPE when cleaning services were brought in‑house from an outsourced provider. Prior to the transfer, the workers had been paid the London Living Wage rather than NHS Agenda for Change (‘AfC’) rates (AfC is a collectively agreed pay structure within the NHS). After the transfer, they remained on their inherited contractual terms for a period of five months, while other employees who had been engaged directly by the Trust and were performing comparable work were on AfC terms.
The claimants alleged indirect race discrimination, relying on evidence showing that the transferred cleaning workforce was overwhelmingly from a Black and Minority Ethnic (‘BAME’) background, whereas the comparator AfC workforce was significantly less so. The core allegation was that the Trust applied a practice which made access to AfC pay and benefits dependent on not having transferred in under TUPE and this put the claimants at a particular disadvantage.
At first instance, the Employment Tribunal dismissed the claims, heavily influenced by earlier case law (The Royal Parks Limited v Boohene) concerning the limits of discrimination claims by contract workers. On appeal, however, the EAT drew a critical distinction between the pre‑transfer and post‑transfer periods.
The EAT confirmed that, as a matter of law, contract workers cannot generally bring indirect discrimination claims against the ultimate ‘client’ in relation to pay set by their employer prior to transfer. That part of the claim therefore failed.
However, the legal position materially changed once the workers transferred from the outsourced provider to the client and became employees of the Trust. From that point onwards, the Trust was fully responsible for their terms and conditions. The EAT found that the Tribunal had erred in treating the post‑transfer position as legally equivalent to the period during which the employees were engaged by the contractor.
The EAT held that:
- A provision, criterion or practice can exist even if it applies only to a subset of employees (here, transferred cleaners)
- The correct comparator pool post‑transfer was other Trust employees performing comparable work – not all outsourced workers across the organisation
- The disparity between the proportion of BAME employees working for the outsourced provider (78%) versus the Trust in comparable positions (51%) was sufficient to establish a case of indirect race discrimination
The Trust sought to justify its approach by reference to TUPE, arguing that the regulations prevent immediate harmonisation. However, the transferred contracts contained an express contractual variation clause. This meant the Trust could lawfully have moved the employees onto AfC terms from day one, or shortly thereafter, without breaching TUPE. The failure to do so coupled with a slow and contested harmonisation process meant the discriminatory impact could not be objectively justified.
The EAT therefore substituted a finding that the post‑transfer indirect discrimination claim succeeded in relation to the period during which the employees were directly engaged by the Trust.
What This Means for Employers
This decision is not about forcing employers to harmonise terms immediately following every TUPE transfer. Nor does it undermine the fundamental protections TUPE provides. What it does do is expose a common misconception: that TUPE automatically justifies prolonged differences in pay and benefits post‑transfer.
- TUPE is not a shield against discrimination claims: Once employees transfer, they fall squarely within the employer’s equality law obligations. If the retained differences in terms disproportionately affect a protected group, the employer must be able to justify that impact with evidence
- Delay increases the risk: The EAT was clearly influenced by findings that the employer had been slow to harmonise terms, despite knowing the roles mapped onto AfC bands and having contractual mechanisms available to implement change. In a commercial context, this means that integration timetables need to be defensible, documented and actively managed
- Variation clauses matter: Many employers overlook inherited contractual flexibility when assessing TUPE risk. This case shows that where a lawful route to change exists, a decision not to use it can undermine any reliance on TUPE as justification
- It is important to understand the workforce: The fact that the employer did not intend to discriminate was irrelevant; the effect was what mattered
Key Takeaways
- Plan TUPE integration early: Harmonisation strategy should be considered before transfer, not after problems arise
- Do not over‑rely on TUPE: TUPE restrictions are nuanced; they do not automatically justify ongoing inequality
- Audit inherited contracts: Variation clauses and flexibility may allow lawful, earlier alignment of terms
- Monitor equality impact: Pay and benefit disparities post‑transfer should be tested for disproportionate impact on protected groups
- Document business rationale: If differences must remain, ensure there is a clear, evidence‑based reason and a realistic timetable for resolution
This case found that there should have been harmonisation at an early stage (even on day one) and therefore any organisation bringing services in-house should give careful consideration to whether the TUPE process may result in a particular group of employees with a protected characteristic suffering a negative pay disparity compared to other employees. Both the due diligence process and the information and consultation process may provide crucial insights into the incoming workforce.
