This article was included in the spring/summer 2011 issue of People - the employment and pensions newsletter.
The Coalition Government wishes to introduce employee ownership into a wide range of public services. Employees in the public sector have a tremendous opportunity to become co-owners of the businesses for which they work. There are also challenges for the private sector: it will need to get used to contracting and competing with alternative delivery models.
Field Fisher Waterhouse LLP advised pioneers of these new business models: Sunderland Home Care Associates (20-20) Limited, Central Surrey Health Limited and, in Hull, City Health Care Partnership CIC. We are currently advising other such fledgling enterprises, including the recently established Community Dental Services CIC in Bedfordshire and the Hillingdon Schools HR Service Co-operative. Building on these successes we have co-authored, together with the Employee Ownership Association, OPM and Baxi Partnership, a guide designed to help employee-led mutuals succeed.
At the recent House of Commons launch of the guide, the Minister for the Cabinet Office, Frances Maude said:
"There is a real enthusiasm and momentum gathering around mutuals from public sector workers, who for so long have been able to see how things could be done better, but have been held back by bureaucracy and haven't been able to do anything about it... We are absolutely committed to supporting public sector workers to form their own employee-led organisations and through our Mutuals Taskforce, Pathfinder programme and Mutuals Support Programme, we are doing everything we can to make sure they have the help they need."
The guide identifies six important stages to consider for a successful transfer of ownership:
- Options appraisal
- Building a viable business
- Planning, leadership and engagement
- Legal and technical considerations
- Ownership and governance
- Securing a strong mutual future.
In relation to the legal transfer of ownership the guide identifies the following main elements:
(a) Choosing a legal vehicle and ownership structure that is fit-for-purpose
Decisions are needed, for example, on whether the new organisation has a specific social or community purpose "locked in" to its constitution and whether the new owners should receive financial benefits as a result of their ownership stake.
(b) Exercising due diligence to enable informed decisions
This is a valuable exercise. It avoids the new organisation being "set up to fail" by being lumbered with, for example, excessive liabilities and risks or significant gaps in infrastructure or financing.
(c) Transferring staff
A key concern of staff is whether their existing terms and conditions will be maintained in accordance with TUPE regulations, and any changes to working conditions or arrangements which might result from the transfer. An important part of the process is determining the approach to take in relation to the maintenance of pension rights, and pension scheme provision for new recruits.
(d) Documenting the transfer
The transfer needs to be formalised through a binding legal transfer agreement so that the new organisation has legal title to its assets and can enforce any rights it has negotiated with its predecessor owner. Additional legal documents are needed to deal with, for example the transfer or leasing of real property.
(e) Contracts and procurement
In many cases the services that would need to be commissioned are "Part B" services (e.g. health, education, cultural services) that fall outside the full EU procurement rules, but the organisation making the transfer and commissioning the service will still need to comply with EU Treaty principles and have regard for its own, and central government, guidelines.
A copy of the guide is available to download at: How to Become an Employee-owned Mutual – an Action Checklist for the Public Sector.
For further information please contact Graeme Nuttall, Neil Palmer or James Warren.
Sign up to our email digest