UK prepares to introduce two-tier worker protections across public sector outsourcing

The UK, Scottish and Welsh governments are preparing reforms under the Employment Rights Act (ERA) that would create new statutory duties for contracting authorities, imposing enhanced obligations on private‑sector suppliers bidding for public contracts.

The new framework will enable the UK and devolved governments to make regulations prescribing contractual terms to protect workers which will be included in public sector service contracts. The aim is to prevent the emergence of a ‘two-tier workforce’ - where one group of workers is employed on less favourable terms and conditions than another doing similar work.

• Read more: What the Employment Rights Act means for your business

The move, due to come into effect in October 2026, marks the first UK-wide approach to the issue since the withdrawal of the Code of Practice on workforce matters in public sector service contracts, although Wales has continued with its own code of practice.

Helen Corden, an employment law expert with Pinsent Masons, said the new standard, which will require ‘no less favourable treatment’ of protected workers, may prove broader than just the equalisation of contractual terms and conditions usually experienced by employees moving through TUPE to a new company.

“In practice, it may reach into non-contractual workplace benefits, treatment, access to facilities and day‑to‑day working practices. Once we see draft wording, that will become clearer,” she explained.

“The detail may vary between sectors, with regulations capable of tailoring required contractual language for specific types of contract, potentially based on value, service type or strategic importance. Exemptions may apply in limited circumstances, but these have not yet been defined.”

The reforms will apply where services or functions previously delivered directly by a public body are transferred to an external supplier or subcontractor. While unlikely to apply retrospectively to existing contracts, they will impact on second‑generation outsourcing, where outsourced services are re‑tendered and transferred from one supplier to another.

This means the measures will have a significant effect on reshaping procurement approaches across a broad range of existing public services, as contracts come up for renewal.

The breadth of the protections means they extend to all workers, not just employees, potentially capturing categories of staff whose employment rights had previously been more limited.

Whether TUPE applies to workers has been a point of debate. Although one employment tribunal case has expressed the view that workers are protected, employers do not tend to treat workers as such in practice. By contrast, the new rules explicitly extend to workers and require that those transferring to a supplier be treated no less favourably than when they were engaged by the contracting authority.

Certain non‑transferring workers who fall within a defined category – which is likely to include existing or new hire supplier staff who are assigned to the service delivery - must also be treated no less favourably than those transferring.

Gillian Harrington, an employment law expert with Pinsent Masons, explained the new obligations will apply throughout the life of the contract, which will place greater emphasis on the oversight responsibilities of the contracting authority and makes supplier compliance a core part of public sector risk management.

“This represents a significant shift, placing authorities under an active enforcement duty rather than relying on suppliers to self‑monitor,” she said.

“Authorities may need to expand monitoring processes, build compliance reviews into contract management cycles and work more closely with suppliers around workforce matters than many currently do.”

The obligations will be statutory, requiring authorities to take ‘all reasonable steps’ to ensure the correct no less favourable treatment provisions are included in outsourcing contracts. Authorities must then take ongoing ‘all reasonable steps’ to ensure suppliers comply with these obligations throughout the life of the contract.

For bidding suppliers, the incoming regime brings substantial practical and commercial considerations. Employers will need to identify all individuals who will be “working on the contract”, meaning they will also need to conduct an early comparison of terms and conditions to understand the baseline for compliance, to factor into bid pricing – risking increasing costs where there is a wide gap between public sector and private sector terms.

‘Suppliers will also need to coordinate across HR, legal, procurement and commercial teams to ensure the requirements are understood and embedded at bid stage,” warned Harrington.

“Once a contract is awarded, employers will need to train managers to avoid inadvertent breaches, pay particular attention to pension arrangements and ensure obligations flow down to any subcontractors engaged in delivering the service.”

These changes come alongside the UK’s evolving social value procurement regime, which already requires bidders to demonstrate commitments around employment standards. However, while social value procurement criteria allow flexibility, the new two‑tier protections will reduce employers’ ability to tailor workforce models in competitive bids.

The UK, Scottish and Welsh governments will also publish statutory codes of practice setting out detailed expectations. Contracting authorities must “have regard” to these codes, giving them considerable practical influence.

Corden added that the shift in protections may trigger wider discussions within businesses and with trade union representation about compliance.

“If workers on a public sector contract receive enhanced protections or more favourable terms than colleagues in the wider workforce, employers could face internal pressure around parity of treatment,” she said.

“Comparisons between groups may generate concerns about pay disparity, fairness or alignment with existing collective agreements. Employers may therefore need to engage with trade unions early to discuss how the new requirements will operate alongside existing bargaining arrangements.”