The transfer of services can bring some tricky redundancy issues. Divya Guha investigates the legal implications.
In tough times, streamlining a business and managing change can be a torturous experience. Where redundancies are necessary, the exercise can be a legal minefield. The liability for compensation in most jurisdictions will far exceed clear-cut redundancy pay and claims should only arise where there the process has been mismanaged. So a service provider can reasonably argue that while it will absorb redundancy payments, it should be reimbursed for all or part of the liability for compensation claims.
Suppliers are keen to close deals at the moment. Employee-related liability is up for negotiation and taking on risk could be a significant factor in winning a contract. Redundancies can be made immediately post-transfer, but this approach carries its own risks and service providers bear this in mind when pricing a contract.
Providers are normally ready to take on key benefits like salaries and bonuses, but less willing to bear the costs of benefits such as sick leave entitlements and insurance schemes. Understanding which party would bear the redundancy risk in the first and subsequent transfer of services is central to assessing the commercial gains to be had from the whole exercise.
The European Union Acquired Rights Directive (ARD), implemented as the Transfer of Undertakings (Protection of Employment) Regulations (TUPE) in the UK in 2006, protects employees’ positions when services are outsourced, in-sourced or assigned to a new contractor. In the event that certain business processes are transferred, the most important terms and conditions of the affected employees’ contract are preserved, and they cannot be dismissed without ‘economic, technical or organisational’ reasons.
Under English law TUPE is triggered even when employees transfer at the end of the outsourcing relationship. However, it is quite possible that one, or both, service providers will not require all of the affected employees. Redundancies therefore have to be considered again.
TUPE is hard to shake off. “Often when outsourcers and service providers try to harmonise the law internally with their own terms and conditions,” says Daniel Ellis, a partner at legal firm Baker & McKenzie, “any changes made to a TUPE or ARD transfer will be invalid – even if the employee agrees to them.”
The process may be punctuated by a knowledge transfer when staff from the new service provider will come and work alongside the client’s staff, who may ultimately be made redundant. This can be a tense process and clients must ensure that they have incentivised staff enough to stay and help in a transition period which could last for up to 18 months.
Ellis says that while consultation is important, “There’s no need to announce plans before a deal is signed. I’ve seen a number of deals fall through and unnecessarily affect staff morale.” Even after the transition, “the best deals are those where the new employer helps the transferred workforce to adjust by putting enough time and effort into speaking and welcoming them into the organisation.”
Many companies have taken union leaders to offshoring centres to dispel misconceptions about how workers might be exploited overseas. Service providers are often customer-oriented and will endeavour to provide a personal, professional and cultural fit for employees. Employees facing a transfer should be made aware of the potential benefits of moving from a poorly motivated back office to a specialised environment with clearer, more exciting career prospect.
Although the outsourcing may be unwelcome at first, in time, staff will find their own coping strategies.
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