• Outsourcing transactions warrant careful consideration early in the process by both the outsourcing party and the third party service provider
  • In-scope employees pose a frequent challenge
  • New Handbook provides insight from a global and local perspective, covering 19 jurisdictions

The growing complexity of outsourcing transactions raises a variety of legal and regulatory challenges for large customer-orientated organisations and third party service providers, particularly when it comes to customer employees that work in outsourced functions (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.  

With the rules governing outsourcing transactions scattered amongst general laws and regulations such as privacy, tax and employment laws, Baker & McKenzie has launched its first Global Outsourcing Employment Handbook to provide an overview of how these issues are dealt with in different countries.  

As the employment aspects of outsourcing are scattered around a variety of laws, we summarized them in a concise and comparable way for 19 countries, which is of great benefit for companies planning outsourcing transactions. The basis of this summary is the vast experience of Baker & McKenzie's labor, employment and benefits lawyers in advising companies on the intricacies of employment aspects of outsourcing, in particular in a multijurisdictional context - Guenther Heckelmann, Baker & McKenzie’s Employment Practice Group Chair.

In Europe, the Acquired Rights Directive protects employees in the event of a transfer of business scenario, 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.   

“Organisations are under increasing pressure to deliver increased services while competing with a reduced workforce so outsourcing transactions gives those companies a level of agility,” said Anne-Marie Allgrove, Global Chair of the Baker & McKenzie Global IT/C Steering Committee. “Most jurisdictions do not have in place outsourcing-specific laws and regulations other than in certain regulated industries, such as financial services, so our new Handbook intends to help those organisations gain a better understanding of the key issues within their jurisdiction.”  

Each country chapter addresses the following questions:

  • Are there laws/regulations / precedents excluding or limiting outsourcing?
  • Is Service Provider under certain circumstances obliged to employ the in-scope employees?
  • Is the concept of “automatic employee transfers” recognised?
  • In case of automatic employee transfers, is Service Provider in principle required to honor existing terms and conditions/ seniority?
  • Do preconditions (e.g., information and consultation duties) apply in an automatic employee transfer scenario?
  • If no automatic transfer applies, are there other ways for employees to transfer (e.g., by way of a termination/ rehire)?

 To view the full Global Outsourcing Employment Handbook please click here or contact Elmie.Gonzales@bakermckenzie.com.

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