A
host of legislation kicks in when an outsourcing deal is under way. Learn from the most common mistakes, to make
sure that everyone – and everything – is covered. Helen jerry reports
Outsourcing
– which involves the transfer of employees between a customer and supplier –
presents complex legal issues. When a business unit changes hands a host of
legislative issues relating to employment rights arise. But practical actions
can prevent or overcome a number of nightmare situations.
The
terms and conditions of employment for outsourced staff in the UK are protected
by the Transfer of Undertaking (Protection of Employment) Regulations (TUPE),
which are derived from European legislation under the Acquired Rights Directive
(ARD).
The
ARD places unexpected restrictions on employers when outsourcing staff and
prevents the outsourcing of workforces without employers taking proper steps to
inform and consult with staff about the expected impact.
–
Mixing business transfers with business downsizing and redundancies
In
some instances, economics may require an employer to undertake an outsourcing
project and cut jobs at the same time. Business transfers of employees and
redundancies can clash. To avoid the clash, employers needs to be clear on the
facts behind its strategy. Will the downsizing and business transfer be
simultaneous? If so, are the two related? If there is a relationship, then the
employer may face claims because job losses connected with the TUPE transfer
may automatically be unfair. Consequently, the employer faces an expensive and
messy situation – and a public relations crisis.
If
the employer can show the two issues are not inherently related, however, it
may have a statutory defence to the claims, an ETO (economic, technical or
organisational) reason entailing changes in the workforce, which should defuse
the crisis.
To
show the transfer and redundancies are unrelated, a paper trail, proving the
ETO, is important. But to avoid the necessity of proving the ETO at all
requires effective communication with the workforce. Properly informed staff
are less motivated to make claims.
Ideally,
communication begins before the formal consultation processes. An employer has
legal duties to inform and consult under TUPE and in mass redundancy
situations. This can mean managing several streams of parallel and possible
overlapping consultation (under TUPE, collective redundancy legislation and on
individual redundancies) at the same time.
The
human resources department will need to ensure employee representatives are in
place, that the right people are consulted on the right matters, and that the
aims (commercial and legal) of each consultation are borne in mind throughout.
Early, transparent communication will alleviate the stress of this.
–
Failing to spot the impact of the deal’s employee dimension on timeframes
An
employer may be wholly unaware that the TUPE regulations require consultation
with employees – and that these duties must be factored into the outsourcing
timetable. Early liaison between HR and the commercial team is essential so
that the facts of the outsourcing can be established and the risks of failure
to inform and consult staff flagged.
Furthermore,
HR’s early involvement enables that team to understand the scope of the deal
and the headcount involved as well as identifying the necessity to consult, if
applicable. Any changes to staff conditions or benefits mean consultation must
go ahead.
The
actual impact on timing will depend on all the facts. If there is a
simultaneous downsizing exercise, and multiple jurisdictions are involved,
consultation on the outsourcing may involve a period of up to a year or more in
some European countries with criminal, as well as civil, penalties for failure
to comply with the law. For unprepared employers, this can mean an unacceptable
level of delay in deal timeframes and frequently “difficult” European countries
are removed from scope at short notice where insufficient planning has been
provided for. Commercially, this is usually an undesirable outcome.
–
Failing to look at the end from the beginning
An
outsourcing company must think now about what will happen at the end of its
outsourcing contract. When the contract is about to expire, and the services
are offered for tender to new suppliers, the customer must identify the
provisions, if any, which will assist a potential retransfer either back
in-house or on to a new supplier.
Without
the right contractual framework, the employer may be unable to identify
accurately how many people will be transferring, what their terms and
conditions are and also what potential claims are lurking that will transfer
with the staff; under TUPE, the liability for most claims transfers to the new
employer. This onus of responsibility can be amended by tight contractual
drafting. Therefore, what liabilities the parties are prepared to accept, both
at the beginning and end of a contract, must be established when the contract
is initially drafted. Specific termination assistance should be included, such
as a requirement for the provision of:
–
Employee information
–
A hands-off period for key, and potentially transferring, staff
–
Transfer of key individuals who may not be covered by TUPE
–
Indemnities for apportionment of risk
–
Obligations impacting successor suppliers.
The
supplier will only be prepared to discuss these terms at the beginning of a
contract, rather than at the end when it risks losing out to a competitor.
–
Ignoring third-party employees
A
TUPE outsourcing may unexpectedly involve the movement of staff in addition to
the obvious dedicated workforce. To avoid difficulties with both claims from
unidentified additional transferring employees, as well as the difficulties
posed by the non-transfer of key individuals, an employer should carefully
identify as soon as possible who is in scope and who they work for – and
whether they are likely to transfer under TUPE.
Four
sets of people to consider are: the employer’s own employees; those who are
dedicated to a service that has already been outsourced; any subcontractor
employees; and individual contractors. The complications of failing to identify
the actual transferring workforce are many.
For
instance, thought needs to be given as to which party picks up the costs of
failing to inform and consult with any additional employees who transfer.
Further, in Europe, subcontractor staff do not normally transfer across under
the Acquired Rights Directive. However, if the subcontract under which they
work allows the customer control over their day-to-day working then they may
claim co-employment by the customer and, as an employee, they could claim they
transfer across to the customer’s supplier. And so on.
To
iron out any co-employment issues that may arise in Europe, local legal advice
should be taken early on.
–
Ignoring a European Works Council
In
the rush to contract-out services, a company may misunderstand the role of its
Works Council. Lawyers will normally use this term to refer to the European
Works Councils set up under European legislation, but in many organisations the
term is actually commonly used to refer to local employee representative fora.
The
confusion becomes a problem when a company believes it is complying with its
duties to consult with its Works Council, but it is actually talking only to
local employee representatives in each country. Both sorts of works councils
will need to be involved in consultation, both in accordance with their
constitutions.
–
Failure to understand the impact of data protection law
There
is a prevalent misconception about how much information can be shared with a
potential supplier at each stage before completion of an outsourcing. If an
employer gives away too much specific personal information (such as salary)
during due diligence without express consent of an individual, it is likely to
be in breach of the European Data Protection Directive. To avoid this, ensure
personnel information is anonymous and relates to bands of employees. Be
certain that detailed information cannot be specifically linked to any one
person. Immediately before completion,
more specific information can be shared, for instance, to facilitate seamless
payroll provision.
–
Failing to consider the effects of an outsourcing that covers more than one
country
When
an outsourcing covers more than one country it may be complicated by mixing
various legislative frameworks together. Problems arise with an agreement that
has been drafted with the legislation of one country in mind but which is then
rolled-out and applied to a number of countries.
Wise
outsourcing companies will factor in the time and cost of getting local advice
about whether the contract terms are lawful or enforceable in each specific
jurisdiction. It is vital to make any necessary local variation agreements to
ensure contractual certainty. This process can be complicated by differences of
opinion between local lawyers taking a purist approach and in-house human
resources departments that have local understandings and agreements with staff.
Factor
in the time necessary to get the necessary advice and to ensure the advice
received is consistent and accepted locally. If not, multi-million euro
transactions may be held up at the last minute for lack of agreement in a
jurisdiction with only a handful of affected staff.
Conclusion
To
summarise, the common pitfalls encountered in the people aspects of an
outsourcing deal can all be minimised in most cases by: early fact-finding; a
realistic approach to the timing needed to ensure compliance with the statutory
regime; and an open, and open-minded, approach to communication with staff.
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Affected
employees are real people with real jobs – and while they rarely have the
opportunity to stop a company doing what it wants, they will have the power to
make the process as easy – or as painful – as the company makes it for them.
Helen
Jerry is head of employment law at Shaw Pittman UK
