UK firms future proof post TUPE outsourcing models after EAT ruling

The Employment Appeal Tribunal has handed down a helpful TUPE ruling, highlighting the longer-term risks employers may inherit when outsourced workers transfer into their organisation. With greater workforce transparency and new regulation on the way,  the ruling signals that employers may need to take a more strategic view of outsourcing, and the disparities it can create. We’ll ask a TUPE expert what that means in practice. 

The case involved a group of around 80 cleaners who transferred to Great Ormond Street Hospital after many years working on site for an external contractor. During that time they were paid less than directly employed hospital staff performing comparable roles, creating a longstanding disparity within the wider workforce. The EAT confirmed the Trust was not responsible for those historic pay arrangements. However, once the workers transferred and became employees, they were entitled to compare themselves with the existing workforce, and the continuation of that pay gap was capable of giving rise to indirect discrimination risk, particularly given the transferring group was predominantly from Black, Asian and minority ethnic backgrounds.

Against that backdrop, the ruling raises some broader strategic questions for employers. What risks might organisations inherit when outsourced workers move in-house? How far can existing pay differences be sustained once those employees join the workforce? And why is this issue becoming particularly significant now, as policymakers focus increasingly on workforce transparency and seek to address the challenges associated with two-tier workforces?

Earlier I caught up with Gillian Harrington who joined me by phone from the Aberdeen office to discuss the case and what it means for employers involved in outsourcing:  

Gillian Harrington: “Certainly this case, I thought, was quite interesting because it did confirm that outsourced workers don't necessarily need to have the same terms as the principal's workforce until there's an insourcing, and I think that is the key element here. It is possible to have different terms when they're employed by different people but, actually, soon as they transfer over they will be compared with the new employers workforce. So I think that the takeaway, for me anyway, was that employers should be doing their due diligence. They should be looking at the terms and conditions of the outsourced workers initially, just to see if there are any potential issues there and dealing with those really quickly because in terms of any potential defence, if there's a material factor, for example, from a TUPE element, that won't really apply for very long and there might potentially be a risk there from an indirect discrimination perspective.”

Joe Glavina: “Why is this decision particularly significant for employers now, Gillian, given the transparency and regulatory changes coming through?”

Gillian Harrington: “Yes, it's quite interesting, Joe, because there is going to be some change with regards to transparency and also, as well, two tier workforces. The Employments Rights Act which was given Royal Assent in December 2025 is going to be bringing in place a statutory code of practice which is going to be looking to prevent two tier workforces where ex-public sector and private sector employees work side by side on different terms and conditions. I think that's something that's going to be really important for clients to be looking out for and that's going to be coming into place on 1 October 2026. Also, as well, in 2027 there is going to be an obligation on principals, the companies that outsource workers, to include outsourced workers in their gender pay gap reporting so that is going to be something that is very significant and will probably place quite a big burden on principals who do outsource workers and it is likely that upcoming ethnicity and disability gap pay reporting regimes will also require the same. So there is a greater movement towards pay transparency in the workforce and I think this is something that employers should definitely have on the forefront of their mind going forward, particularly when they are outsourcing workers and potentially bringing them in-house as well.”

Joe Glavina: “So, is the takeaway from this case that employers need to think more strategically about the long-term impact of outsourcing decisions, particularly, as you said, as greater workforce transparency is on the way and that's going to make disparities even harder to justify.”

Gillian Harrington: “I think that's right, Joe. Traditionally, companies may have outsourced work, perhaps to get better value in order to make it a little bit cheaper, for example, and I think this case highlights, and also the upcoming changes to the pay transparency legislation as well, that actually that value may not necessarily always be there and actually we should be looking at potentially having higher terms for outsourced workers. So it's just something that companies should be bearing in mind. That’s not to say that it's not going to be possible to outsource workers and still get value there but I think it's just something to be bearing in mind going forward that it potentially may not be as easy going forward to pay outsourced workers less than current employees.”

If you would like to read more about this case you can. The employment team has written about the case in some detail for Out-Law and we’ve put a link to it in the transcript of this programme for you.

- Link to Out-Law article: ‘Tribunal clarifies approach to pay disparities for transferred workers’

- Link to judgement: Anne v Great Ormond Street Hospital (EAT)