The Government has recently announced that The Code of Practice on Workforce Matters in Public Sector Service Contracts ("the Code"), known as the "Two Tier Code", has been withdrawn with immediate effect.

The Code previously applied to all public sector service contracts which involved a transfer of staff from the public sector to a service provider or, on a re-tender of the contract to a new service provider, a transfer of staff, who had originally been employed in the public sector. The purpose of the Code was to prevent the emergence of a two-tier workforce.

The philosophy behind the Code was that the provision of public services should not be undermined by poor employment practices. Partnerships with private service providers should drive up service standards and not drive down employment terms and conditions. The Code sought therefore to avoid a situation where a supplier hires new joiners on less generous terms than those of the former public sector employees alongside whom they would be working. Those new recruits had to be offered employment on terms and conditions "no less favourable" than the transferred employees. However, it is understood that the Government felt that the Code had increased the costs of public sector outsourcing and acted as a barrier to small and medium sized employers bidding for public sector contracts.

The Code has been replaced by a statement of Principles of Good Employment Practice for Government, Contracting Authorities and Suppliers. It provides guidance on good practice and compliance is stated to be voluntary. The Principles dilute the terms and conditions requirement to an expectation that new joiners will have "fair and reasonable" pay, terms and conditions. The statement still suggests that suppliers should consult with unions on the terms and conditions to be offered to new joiners. Critics have suggested however that the high level and voluntary nature of the principles may mean that they are not implemented in many cases. The terms and conditions of transferring public sector staff will, of course, remain protected by TUPE.

The Cabinet Office has also indicated that the Government will consider the status of the statutory Code of Practice on Workforce Matters in Local Authority Service Contracts, which applies when Local Authorities in England and Wales enter into contracts for the provision of services. But in the meantime, the anti two-tier provisions in that guidance remain in force. Scottish public sector organisations should note that the anti-two tier provisions set out in the PPP Protocol and the statutory Guidance for Local Authorities under the Local Government in Scotland Act also remain in force for now.