Consolidation in the healthcare sector post-Dalton – key HR & employment issues

By James Froud, Alison Dixon


The NHS looks set, once again, to be a key election battleground. But whichever policies are advanced by the national parties, one thing is clear the NHS must adapt to be sustainable, and the appetite for further top down and legal reforms is limited - a point plainly made in the Dalton Review (published in December 2014).

To meet the challenges presented by an ageing population, funding gaps and the treatment of chronic illnesses, Dalton recommends that NHS organisations embrace alternative structures; federations, joint ventures, service-level chain outsourcing and management agreements are all cited as examples. If the recommendations are adopted widely reorganisations will become endemic, giving rise to various issues of interest to HR professionals and lawyers working in the field:


In a post-Dalton reshape, where organisations look to share resources and professional expertise, secondments are likely to feature prominently. Key issues to consider as between the employee, parent-employer and host include:

  • Apportioning responsibility for pay (including overtime and bonuses), managing discipline, performance and grievance issues, approving annual leave, training costs and other aspects of the employment relationship;
  • Minimising the risks of an implied employment contract arising between the employee and the host;
  • Assignment of IP ownership where a seconded employee is likely to be creating intellectual property;
  • Protecting business assets from employee competition and/or interference with the stability of a workforce;
  • Addressing the consequences of the various termination permutations scenarios will need to be dealt with upfront to avoid dispute.

It will be essential that secondment agreements are carefully considered and tailored to the specific circumstances to regulate the tri-partite relationship - and reduce the risk of disputes, which would only serve to undermine any efficiencies gained from these arrangements.


Implementing the various organisational forms may give rise to transfers of staff under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). Assessing whether TUPE does in fact apply in a specific scenario can be notoriously difficult and requires careful analysis of all of the facts. If TUPE applies, diligent planning will be required to correctly identify the staff populations which will transfer and to ensure that obligations to inform and consult with affected staff are properly followed. On the commercial side, the parties will need to agree on the apportionment of liabilities associated with the transferring staff.


Private sector contractors should be cognisant of the pension protections enjoyed by NHS staff. Prior to 2014, under the so-called "retention of employment" model, NHS staff whose work was outsourced to the private sector were entitled to remain employed by the NHS (and thus stay in the NHS Pension Scheme) through the use of secondments. However, following the introduction of the New Fair Deal in April 2014 these arrangements are no longer possible without the consent of the Secretary of State. Instead, private sector companies shall be entitled to participate in the NHS Pension Scheme provided certain conditions are met.


Organisational models which promote efficiencies through sharing of resources may lead to redundancies. If an employer proposes 20 or more redundancies within a 90-day period it shall need to consider whether the statutory collective consultation regime is triggered. Failure to comply with the statutory requirements can lead to heavy sanctions. However, this area of law is currently in a state of uncertainty.

In February this year, the Advocate General gave his (non-binding) opinion on the famous Woolworths case which has gone before the European Court of Justice on the question of whether the 20 redundancies need to take effect in "one establishment" to trigger the collective duties. The A-G has said that they should (thereby potentially narrowing the application of the legislation). However, this conflicts with the current position in the UK; domestic law will prevail pending a decision from the UK but the uncertainty serves only to add to the complexity. Whatever the ultimate state of the law, this is an area in which careful planning is always recommended.

Employee Relations

Organisational change can be a deeply unsettling experience for staff. It can adversely affect morale and productivity, and even lead to industrial action in extreme cases. Some staff and unions may be particularly sensitive to organisational change in the NHS, especially where change sees the private sector creeping into the provision of national healthcare services. Employers are well advised not to ignore these issues. There are various strategies available to navigate through the minefield but the best ones have effective communication at their heart. Ensuring that internal and external messaging is clear, meaningful and consistent is vital and will play a central role in ensuring a smooth reorganisation process.

A final thought…

Many of the organisational forms explored in the Dalton Review are already used within the NHS, however, the guidance is clear: such models should become more prevalent if financial and clinical stability is to be achieved within the NHS. If this goal remains an aspiration and Dalton's proposals are adopted, the HR considerations, some of which we have identified above, will assume greater significance and should be at the top of senior management's agenda from the outset of any organisational change project.