Outsourcing is becoming increasingly common across Europe as a means of cost saving and improving performance by focussing on core activities.

Staffing issues are often, if not the driver, central to these restructuring plans. The Acquired Rights Directive, incorporated throughout Europe at a domestic level in many different guises, is intended to protect the local workforce. Employees are protected against dismissal, substantial changes to their terms and conditions of employment and there are minimum obligations to inform and consult representatives of employees. This brief guide highlights some of those key issues in France, Germany, Italy, Spain and the United Kingdom.

Automatic Transfer

In every jurisdiction, absent any commercial agreement and indemnification of claims between the parties (or, in some jurisdictions, objection by the employee – summarised below), the contract of employment will automatically transfer, as a matter of law, to the party who will be providing the services (the transferee). A key question then is who transfers? This is essentially those employees who are exclusively assigned to that part of the business which is transferring. Difficult issues often arise around “group” employees such as finance or human resources.

Collective Consultation and Information

The transferring employer’s (the transferor’s) obligations are usually more extensive than those of the transferee since the transferor is, at the relevant time, the employer. Information and consultation must begin (and, in France, be completed) before any agreement in relation to the outsourcing is signed and completed. Depending upon numbers of employees (for example in Italy if the transferor has 15+ employees) information may need to be given to the works council and trade unions. In addition to collective consultation, in Germany it is important to remember that employees must receive certain information on an individual basis, as well as the part of the collective process. Consultation, for example in the UK, is “with a view to reaching agreement.” It is not imperative that agreement is actually reached. In France it is important only that the works council gives its opinion; even if that opinion is “no” the transaction may still proceed.

Penalties for non-compliance with information and consultation obligations

France  - Fine up to €3,750 for company manager and €18,750 for company and/or imprisonment. Works council can also delay and, in extreme circumstances, veto the transaction.

Germany - Fine up €10,000. Works council may also apply for an injunction to prevent or delay the transaction.

Italy - Criminal offence; possible injunctive proceedings to delay or declare the transfer null and void.

Spain - Fine ranges from €626 to €6,250.

UK - Up to 13 weeks’ uncapped pay to each affected employee.

Does an employee have a Right to object to the transfer?

Please click here to see table.

Collective Dismissals

Is there a fair reason to dismiss? The transfer itself is not a sufficient reason and so, for example, in France, an outsourcing alone may not amount to a dismissal on economic grounds. Each country also has a threshold level above which a dismissal is considered to be collective; some are very low: 5+ dismissals within a 120 day period in Italy. Collective dismissals trigger additional collective rights – separate from outsourcing consultation – with separate penalties for non-compliance.

Selection for dismissal is a key distinguishing factor in each jurisdiction: for example in Germany, older workers enjoy a higher level of protection against selection; in the UK such a criteria would fall foul of the age discrimination legislation. Getting the process wrong in some jurisdictions also has consequences beyond the mere financial: in both Spain and Germany in certain circumstances dismissals can be deemed to be null and void and authorities can rule an employee must be reinstated.

Key issues list for HRHR

  • Which employees are in scope to transfer?
  • Is there a mechanism to be able to get information about the terms and conditions of employment for those transferring employees?
  • Who to consult – works council, employees’ representatives and/or individual employees?
  • Who pays the termination costs if collective dismissals are planned?
  • What are the penalties for non-compliance with consultation requirements?
  • Can terms and conditions be harmonised post-transfer?