Welcome to the first edition of our Global Outsourcing Employment Handbook!
Outsourcing transactions can be complex processes raising a variety of legal and regulatory challenges. These warrant careful consideration early in the process by both the outsourcing party (Customer) and the third party service provider (Service Provider). As most jurisdictions do not have in place outsourcing-specific laws and regulations other than in certain regulated industries (such as financial services), the rules governing outsourcing transactions are generally scattered amongst general laws and regulations such as privacy, tax and employment laws.
From an employment law perspective, one of the challenges that frequently arises in an outsourcing transaction relates to the Customer employees that work in functions to be outsourced (In-scope Employees). Commonly, the Customer no longer needs or wants to retain those In-Scope Employees unless it can redeploy them within its business. But can these In-scope Employees be dismissed on the basis that the Customer no longer needs them following the outsourcing? If so, are they entitled to severance payments? Or do they automatically transfer to the Service Provider by operation of law meaning that the Service Provider has no choice but to employ them and, if so, on what terms and conditions? Or are there compelling reasons for the Customer and the Service Provider to commercially agree such employee transfer? What if the In-scope Employees object to such transfer and ask to remain employed by the Customer? What consultation obligations apply to the Customer/ Service Provider in these scenarios?
These are only some of the questions that arise. And they are not answered easily, nor are they answered uniformly across different jurisdictions. For example, in Europe, the Acquired Rights Directive protects employees in the event of a transfer of business scenario. In very simplified terms, it provides that, in the event of a business transfer, employees of the vendor transfer automatically to the purchaser by operation of law with the latter being obliged to take on the vendor employees on their existing terms of employment. The concept of “business transfer” is very broad and can be triggered in an outsourcing scenario. Most Asian and South American countries, on the other hand, do not recognise the concept of “employee transfers by operation of law”. Consequently, in those countries, an outsourcing only results in a “transfer of employees” through termination / rehire if and as commercially agreed between the parties and there might be more room for dismissals. While the Customer and Service Provider would most likely welcome the flexibility that this approach offers compared to the European approach, various aspects would need to be considered in practice. For example, obligations to pay severances or standard market practices might make dismissals an unattractive option.
This Handbook provides high-level answers to these and other questions for 19 jurisdictions. It is intended to help gain a basic understanding of the key issues to consider and to provide an overview of how these issues are dealt with in the different countries.