2016 Global Outsourcing Employment Handbook
2016 Baker & McKenzie
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Global Outsourcing Employment Handbook
Foreword
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,
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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. If you have any questions or comments, please get in touch with any of the contributors to this Handbook or your usual Baker & McKenzie contact.
Anne-Marie Allgrove
Global Chair IT & Communications Group +61 2 8922 5274 Anne-Marie.Allgrove@bakermckenzie.com
Anna von Dietze
Sr. Professional Support Lawyer, Global IT & Communications +49 211 3 11 16 0 Anna.vonDietze@bakermckenzie.com
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Baker & McKenzie's Global IT/C Outsourcing Leadership Team
Anne-Marie Allgrove (Sydney) +61 2 8922 5274 Anne-marie.Allgrove@bakermckenzie.com
Sonia Baldia (Washington, D.C.) +1 202 452 7096 Sonia.Baldia@bakermckenzie.com
Lorenzo de Martinis (Milan) +39 02 76231 334 Lorenzo.deMartinis@bakermckenzie.com
Anthony Foley (Sydney) +61 2 8922 5289 Anthoney.Foley@bakermckenzie.com
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Peter George (Chicago) +1 312 861 6587 Peter.George@bakermckenzie.com
David Halliday (London) +44 207 9191 459 David.Halliday@bakermckenzie.com
Sergio Legorreta-Gonzalez (Mexico) +52 55 5279 2954 Sergio.Legorreta-Gonzalez@bakermckenzie.com
Editor-in-Chief
Anna von Dietze Sr. Professional Support Lawyer, Global IT & Communications +49 211 3 11 16 0 Anna.vonDietze@bakermckenzie.com
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Contributing Lawyers
Australia
Bryony Binns Sydney +61 2 8922 5192 Bryony.Binns@bakermckenzie.com
Aran Alexander Singapore +65 6434 2716 Aran.Alexander@bakermckenzie.com
Austria
Simone Liebmann-Slatin Vienna +43 1 2 42 50 530 Simone.Liebmann-Slatin @bakermckenzie.com
Brazil
Tricia Oliveira Sao Paulo +55 11 3048 6997 Tricia.Oliveira@trenchrossi.com
Giovanna Parga Sao Paulo +55 11 5091 5908 Giovanna.Parga@trenchrossi.com
Chile
Andres Valdes Santiago +56 2 2367 7036 Andres.Valdes@bakermckenzie.com
Constanza Contreras Santiago +56 2 2367 7082 Constanza.Contreras @bakermckenzie.com
Czech Republic
Alexandr Cesar Prague +420 236 045 001 Alexandr.Cesar@bakermckenzie.com
Zuzana Ferianc Prague +420 236 045 001 Zuzana.Ferianc@bakermckenzie.com
France
Nadge Dallais Paris +33 1 44 17 53 60 Nadege.Dallais@bakermckenzie.com
Germany
Hagen Koeckeritz Frankfurt +49 69 2 99 08 152 Hagen.Koeckeritz@bakermckenzie.com
Hong Kong
Rowan McKenzie Hong Kong +852 2846 2103 Rowan.McKenzie@bakermckenzie.com
Italy
Uberto Percivalle Milan +39 02 76231 330 Uberto.Percivalle@bakermckenzie.com
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Japan
Tomohisa Muranushi Tokyo +81 3 6271 9532 Tomohisa.Muranushi @bakermckenzie.com
Genichiro Ito Tokyo +81 3 6271 9753 Genichiro.Ito@bakermckenzie.com
Malaysia
Wei Kwang Woo Kuala Lumpur +603 2298 7898 WeiKwang.Woo@wongpartners.com
Mexico
M Rosario Lombera-Gonzalez Mexico City +52 55 5279 2936 MRosario.Lombera-Gonzalez @bakermckenzie.com
Javiera Medina-Reza Mexico City +52 55 5351 4135 Javiera.Medina-Reza @bakermckenzie.com
Netherlands
Mirjam de Blcourt Amsterdam +31 20 551 7466 Mirjam.deBlecourt@bakermckenzie.com
Anna van Bracht Amsterdam +31 20 551 7562 Anna.vanBracht@bakermckenzie.com
Poland
Piotr Rawski Warsaw +48 22 445 3133 Piotr.Rawski@bakermckenzie.com
Bartlomiej Babaczyk Warsaw + 48 22 445 3212 Bartlomiej.Babanczyk @bakermckenzie.com
Paulina Labecka Warsaw +48 22 445 3186 Paulina.Labecka@bakermckenzie.com
Russia
Evgeny Reyzman Moscow +7 (495) 787-2700 Evgeny.Reyzman@bakermckenzie.com
Singapore
Kelvin Poa Singapore +65 6434 2524 Kelvin.Poa@bakermckenzie.com
Ng Zhao Yang Singapore +65 6434 2701 Zhao.Yang.Ng@bakermckenzie.com
Nicole Wong Singapore +65 6434 2273 Nicole.Wong@bakermckenzie.com
Taiwan
Seraphim Ma Taipei +886 2 2715 7252 Seraphim.Ma@bakermckenzie.com
Pamela Tsai Taipei +886 2 2715 7396 Pamela.Tsai@bakermckenzie.com
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UK
Daniel Ellis London +44 20 7919 1498 Daniel.Ellis@bakermckenzie.com
Paul Harrison London +44 20 7919 1320 Paul.Harrison@bakermckenzie.com
USA
Carole Spink Chicago Tel: +1 312 861 8065 Carole.Spink@bakermckenzie.com
Elizabeth Ebersole Chicago Tel: +1 312 861 8272 Elizabeth.Ebersole@bakermckenzie.com
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Table of Contents
Foreword............................................................................................... i Baker & McKenzie's Global IT/C Outsourcing Leadership Team .......iii Contributing Lawyers ........................................................................... v Australia............................................................................................... 1 Austria.................................................................................................. 5 Brazil.................................................................................................... 9 Chile................................................................................................... 15 Czech Republic.................................................................................. 19 France................................................................................................ 23 Germany ............................................................................................ 29 Hong Kong......................................................................................... 35 Italy .................................................................................................... 39 Japan ................................................................................................. 45 Malaysia............................................................................................. 51 Mexico ............................................................................................... 55 Netherlands ....................................................................................... 61 Poland................................................................................................ 67 Russia................................................................................................ 71 Singapore .......................................................................................... 77 Taiwan ............................................................................................... 83 United Kingdom ................................................................................. 87 United States ..................................................................................... 93 Baker & McKenzie Offices................................................................. 97
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Questions Countries
Are there laws/ regulations / precedents excluding or limiting outsourcing?
Is Service Provider under certain circumstances obliged to employ the inscope 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)?
Australia
No
No
No
N/A
N/A Yes
Austria
No
Yes Yes Yes
Yes Yes
Brazil
Yes
No
No
N/A
N/A Yes
Chile
No
Yes Yes Yes
No
Yes
Czech Republic
No
Yes Yes Yes
Yes Yes
France
No
Yes Yes Yes
Yes Yes
Germany
No
Yes Yes Yes
Yes Yes
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Questions Countries
Are there laws/ regulations / precedents excluding or limiting outsourcing?
Is Service Provider under certain circumstances obliged to employ the inscope 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)?
Hong Kong
No
No
No
N/A
N/A Yes
Italy No
Yes Yes Yes
Yes Yes
Japan
No
Yes Yes Yes
Yes Yes
Malaysia
No
No
No
N/A
N/A Yes
Mexico
Yes
No
Yes Yes
Yes Yes
Netherlands
Yes
Yes
Yes
Yes
Yes Yes
Poland
Yes
Yes
Yes
Yes
Yes Yes
Russia
Yes
No
No
N/A
N/A Yes
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Questions Countries
Are there laws/ regulations / precedents excluding or limiting outsourcing?
Is Service Provider under certain circumstances obliged to employ the inscope 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)?
Singapore
No
Yes Yes Yes
Yes Yes
Taiwan
No
No
No
N/A
N/A Yes
United Kingdom
No
Yes Yes Yes
Yes Yes
United States No No No N/A
N/A Yes
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Australia
Bryony Binns Sydney Tel: +61 2 8922 5192 Bryony.Binns@bakermckenzie.com
Alexander Aran Singapore Tel: +65 6434 2716 Aran.Alexander@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, there are specific regulations that must be complied with, depending on the nature or type of outsourcing, including complying with data privacy requirements, etc.
In-scope employees do not automatically transfer to Service Provider but an employee transfer can be effected by way of a termination/ rehire.
In-scope employees that reject Service Provider's employment offer will need to be redeployed or dismissed with notice, severance and other termination-related payments by Customer.
The risk of a court finding there to be a dual employment is minimal.
1. Existence of laws or regulations excluding / limiting outsourcing
There are specific regulations and requirements that will need to be complied with, depending on the nature or type of outsourcing. Such regulations and requirements will not prevent Customer from outsourcing certain functions or services, however they need to be addressed in any proposed outsourcing arrangement.
2. Obligation of Service Provider to employ in-scope employees
There is no obligation on Service Provider to employ in-scope employees but the parties may reach a commercial agreement with respect to the form of any employment offer by Service Provider to in-scope employees. In this regard, it is common for Customer to require Service Provider to make offers of employment to in-scope employees on terms which are no less favourable, when considered on an overall basis, than the employee's terms of employment with Customer, and with recognition of employee's prior service with Customer. This is for Customer to avoid the obligation to make statutory redundancy payments if the offers of employment are rejected by employees.
Customer cannot compel the employees to accept any offer. If an in-scope employee rejects the offer, Customer must make a decision as to whether it wishes to redeploy the employee or terminate the employment. Rejection of the offer does not constitute an automatic termination of the employment. If Customer cannot redeploy rejecting employees, their employment will terminate for reason of redundancy, and the obligation to make redundancy payments will depend on the applicable terms of employment and the standard of offers made by Service Provider (see above).
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3. Mechanism of employee transfer (automatic vs. termination and offer)
Employees do not transfer automatically. Any employee transfer from Customer to Service Provider requires a termination by Customer and acceptance of an offer of employment made by Service Provider.
4. If automatic transfer applies, any preconditions for such transfer
N/A.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
Service Provider is not required to credit seniority, or honor Customer terms and conditions of employment. But this is frequently commercially agreed, in particular, for critical employees, and also to minimise the risk of Customer having to make statutory redundancy payments (see 2 above).
Please note that if there is a collective labor agreement (such as an enterprise agreement) in place, the terms of the industrial instrument may be binding on the new employer.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
No.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer should avoid exercising complete control over Service Provider's employees and also avoid treating Service Provider's employees the same as its own employees. The risk of a court/tribunal finding there to be dual employment is minimal but existent.
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8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Australian courts will permit a high degree of direction and guidance from the previous employer and even a third party provided the employing entity is clearly defined and agreed. Customer should avoid extending employment benefits it provides to its own employees to the employees of Service Provider.
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Austria
Simone Liebmann-Slatin Vienna Tel: +43 1 2 42 50 530 Simone.Liebmann-Slatin@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy requirements and consultation with works councils.
If the outsourcing constitutes a transfer of business, the in-scope employees transfer automatically to Service Provider (on existing terms and conditions of employment and crediting of service), unless they exercise their right to object in which case they remain employees of Customer.
In principle, in-scope employees cannot be made redundant, and any dismissals will likely be subject to unfair dismissal claims.
In order to minimise the risk of co-employment, Customer must not act as though it was the employer of Service Provider employees.
1. Existence of laws or regulations excluding / limiting outsourcing
Austrian law does not per se limit or exclude the outsourcing of functions or services. Although there are certain legal requirements that have to be complied with in any proposed outsourcing arrangement (e.g., data privacy, employee notification and works council consultation requirements, etc.), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
If the outsourcing constitutes a transfer of business, Service Provider is required to employ in-scope employees. A transfer of business requires the transfer of a defined business unit and the continuation of that business unit post-transfer. A business unit is defined as a unit of persons and/or assets that perform business activities over a longer period with a defined economic objective (i.e., "economic business unit"). The mere continuation of some activities by the Service Provider post-outsourcing is not sufficient to trigger a business transfer. For assuming a business transfer, generally, Service Provider would have to continue the same or similar business activities and take over material and/or immaterial assets, the major part of core staff and/or customers. The importance of each single parameter depends on the nature of the business. For example, if no assets are used in the business unit to be transferred, an outsourcing can constitute a transfer of business even if no assets are transferred.
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Unilateral terminations of employment of in-scope employees as a result of a business transfer are void unless they are based on other reasons.
If the outsourcing does not constitute a transfer of business, Service Provider is not required to assume in-scope employees but the parties may agree such transfer by way of a tripartite agreement. Non-transferring employees stay with Customer who has then to decide whether to re-deploy or terminate them.
3. Mechanism of employee transfer (automatic vs. termination and offer)
If the outsourcing constitutes a business transfer, in-scope employees transfer automatically by operation of law, unless they validly object to the transfer. Inscope employees have a very limited right to object to the transfer if Service Provider does not take over specific protections resulting from any existing applicable collective bargaining agreement or pension arrangement. In addition, there might be other comparable cases, where the right to object might apply in analogy.
If there is no business transfer, employees do not transfer automatically. Usually, the parties enter a tripartite agreement to provide for a transfer by way of termination and rehire.
4. If automatic transfer applies, any preconditions for such transfer
In case of an automatic transfer, in-scope employees will have to be informed in advance. If there is a works council, the works council has to be notified before any decision is made and, if requested, the employer has to consult with the works council.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In case of an automatic transfer, Service Provider must honor existing terms and conditions of employment and credit seniority. Nevertheless, a different collective bargaining agreement might apply following the transfer. In that case, statutory law protects the prior salary to some extent. If Service Provider is genuinely unable to honor specific terms and conditions of employment (e.g. specific bonus arrangements, stock options etc.), Service Provider must grant comparable benefits or compensation instead.
If there is no business transfer, employees transfer by way of agreement, as described above. In such cases the parties are free in line with statutory
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laws - to negotiate new terms and conditions as well as the crediting of seniority.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
If there is no transfer of business, the replacement of customer employees by employees of Service Provider will not provide leverage to redundant employees to claim a higher severance or re-instatement with Customer. Reinstatement can be requested if the individual notice is socially unjustified and there are at least five employees.
If there is a transfer of business, replacement of Customer employees by employees of Service Provider will not provide leverage to redundant employees to claim a higher statutory severance payment. However, it does provide leverage to claim re-instatement. Therefore, in order to obtain a mutual termination agreement with the affected employees, higher (voluntary) payments will most likely be required.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
As a general rule, Customer must be careful not to act as though it was the employer of Service Provider employees. In particular, Customer should not (i) integrate Service Provider employees in the daily workflow, (ii) provide company equipment to them, (iii) give direct instructions regarding the fulfilment of Service Provider tasks or organisational issues (e.g., implement internal reporting lines), or (iv) involve Service Provider employees in any services or tasks provided by Customer's staff.
Further, in order to minimise the risk of violating illegal labor lending/ personnel leasing rules, any agreement between Customer and Service Provider must be structured so that Service Provider is required to deliver a specific result/ success.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Customer can provide general information and instructions as required for Service Provider employees to perform the services under the service contract. Customer can also audit compliance of contractually owed services. Customer can (and has to) comply with general safety regulations.
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Brazil
Tricia Oliveira Sao Paulo Tel: +55 11 3048 6997 Tricia.Oliveira@trenchrossi.com
Giovanna Parga Sao Paulo Tel: +55 11 5091 5908 Giovanna.Parga@trenchrossi.com
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Key Takeaways
In Brazil, it is prohibited to outsource activities that are directly related to a company's core business. Further, care must be taken that Service Provider employees are not directly subordinated to Customer or render services to Customer on a personal basis.
Under Brazilian law, in an outsourcing scenario, Service Provider is not obliged to employ in-scope employees and employees do not transfer automatically from Customer to Service Provider but such transfer may be effected by way of a termination and rehire.
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid employment misclassification risk. Customer shall request on a regular basis evidence that Service Provider is complying with labor taxes, social security contributions, compensation and benefits to avoid being held secondarily liable for claims of Service Provider employees.
1. Existence of laws or regulations excluding / limiting outsourcing
In Brazil, no specific outsourcing laws or regulations exist, however, Labor Courts have established some rules.
Firstly, Labor Court precedents preclude Customer from outsourcing activities that are directly related to its core business. The term "core business" is not defined and what constitutes a company's "core business" is a matter of case law. Some courts take the restrictive view that a company's core business comprises only those activities listed in its corporate documents, whereas other courts apply a broader view and consider all steps of a company's "production chain" to form part of its core business.
Secondly, care must be taken in an outsourcing scenario that Service Provider employees are not directly subordinated to Customer or render services to Customer on a personal basis. The latter would be the case if Customer requests for a specific individual to render services to it.
In the above cases, there is a high risk that Customer is considered the employer of the Service Provider employees assigned to render services to Customer. Please note that in these cases Customer may also be exposed to collective claims filed either by the Worker's Union and/or Labor District Attorney Office (depending on the number of individuals involved) and administrative fines imposed by the Labor and Employment Ministry.
It is also worth noting that, in an outsourcing scenario, Customer will be secondarily liable for any labor/ employment obligations not paid by Service Provider in relation to the employees rendering services to Customer.
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Customer should ask Service Provider to regularly send it the payment forms of social security contributions and FGTS for outsourced workers as it will be able to present such forms to the court as evidence of payments in case of an employee bringing a claim against Customer and therefore reduce its financial exposure.
2. Obligation of Service Provider to employ in-scope employees
In an outsourcing scenario, Service Provider is under no circumstances required to employ in-scope employees. But a transfer of in-scope employees from Customer to Service Provider may be commercially agreed.
3. Mechanism of employee transfer (automatic vs. termination and offer)
Under no circumstances do employees transfer automatically from Customer to Service Provider in an outsourcing scenario. But in-scope employees may transfer from Customer to Service Provider by way of a termination/ rehire procedure.
4. If automatic transfer applies, any preconditions for such transfer
N/A.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In a termination/ rehire scenario, generally Service Provider is not required to credit seniority or honor Customer terms and conditions of employment as, in principle, a new employment relationship will be formed.
However, if employees continue to render services to Customer postoutsourcing in a way similar to the situation pre-outsourcing (e.g., they perform the same/similar activities in the same work place), there is a risk that a court will assume "labor succession" and, as a consequence, a continued employment relationship between Customer and outsourced workers (i.e. encompassing their period of employment by Customer and their period of assumed employment by Service Provider). In case of a "labor succession", terms and conditions of employment must not be changed to the employee's detriment.
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6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
In principle, no. In Brazil, employees may be terminated at any time with or without cause (except where employees are entitled to provisory job tenure by law or collective bargaining agreement).
Redundancies due to an outsourcing would be considered a termination without cause. While such termination does not entitle the redundant employees to claim reinstatement, they will be entitled to a severance payment.
It is worth noting that in case of "mass lay-offs", Customer would be required to consult with the Union prior to affecting the terminations in order to mitigate any adverse effects. In the absence of such consultation, terminated employees may challenge their termination.
Brazilian labor courts have established the following criteria for mass lay-offs:
(i) terminations are conducted for economic, technological, structural or similar reasons to reduce the workforce in the company/establishment or sector;
(ii) the terminations affect 5% or more of the workforce (although this number is indicative on); and
(iii) terminations are conducted in a period of less than 60 days.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Post-outsourcing, there is a real risk that Service Provider employees deployed to work for Customer bring a claim for employment misclassification and/or joint liability between Customer and Service Provider for taxes, social security contributions and compensation and benefit claims. The threshold question is whether Service Provider employees can be seen as directly subordinated to Customer and substance prevails over form in this regard. To minimise such risk, Customer must not:
demand Service Provider to provide services exclusively to Customer or otherwise cause Service Provider to be economically dependent on Customer;
include Service Provider employees in internal Customer organization, reporting structure and directories;
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give Service Provider employees Customer business cards, Customer business e-mail addresses and/or telephone numbers;
allow Service Provider employees to use Customer company systems such as time recording and other attendance systems, travel booking systems, etc.;
provide any form of compensation and benefits to Service Provider employees;
provide Service Provider employees with Customer-operated production equipment or personal assistance;
request that specific Service Provider employees render the services or object to the substitution of individual Service Provider employees; or
give direct working instructions or guidelines to Service Provider employees or supervise, or impose targets on, them.
Violation of these rules may not only result in claims for employment misclassification and or joint liability but may also trigger administrative fines for lack of compliance with labor legislation (e.g., not properly registering one's workforce). Further, repeated assessments may lead to investigations by the Labor District Attorney Office.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Interfaces may be established between Customer personnel and Service Provider personnel to exchange information and products. However, Customer instructions related to the services provided should be directed to a single point or multiple points of contact at Service Provider and not directly to the outsourced employees.
Customer may provide unique tools to Service Provider in the rare case that Service Provider cannot be expected to have equivalent tools and such tools are essential to maintain the standard/quality of the services provided /products developed.
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Chile
Andres Valdes Santiago Tel: +56 2 2367 7036 Andres.Valdes@bakermckenzie.com
Constanza Contreras Santiago Tel: +56 2 2367 7082 Constanza.Contreras@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy requirements.
Personnel supply or temporary staffing is subject to several restrictions.
If the outsourcing constitutes a business (unit) transfer, the in-scope employees transfer automatically to Service Provider (on existing terms and conditions of employment and subject to crediting of service). In other cases, a transfer may be executed by way of a termination/ rehire.
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid co-employment risk.
1. Existence of laws or regulations excluding / limiting outsourcing
In Chile, the outsourcing of functions or services is not per se limited or excluded. Although there are certain legal requirements that must be complied with in any proposed outsourcing arrangement (e.g., data privacy requirements), such limitations should not preclude Customer from outsourcing certain functions or services. Temporary staffing may only be executed by specialized companies called "EST", which should be enrolled in a special registry of the labor authority and pay a monetary deposit. Additionally, it is only permitted for specific temporary events listed in the Labor Code.
2. Obligation of Service Provider to employ in-scope employees
If the outsourcing constitutes a business (unit) transfer, the in-scope employees would transfer automatically to Service Provider by operation of law and Service Provider would be required to employ them. In all other cases, Service Provider is not obligated to employ in-scope employees but it may be commercially agreed between the Customer and the Service Provider. No tripartite agreements are advisable nor customary in Chile.
3. Mechanism of employee transfer (automatic vs. termination and offer)
Only if an outsourcing triggers a business (unit) transfer, the in-scopeemployees will be transferred automatically by operation of law to Service Provider. In all other cases, the only way to transfer in-scope employees is by terminating the employment relationship with Customer and rehiring by Service Provider.
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4. If automatic transfer applies, any preconditions for such transfer
There are no preconditions for an automatic transfer. As a matter of best practice, affected employees should be notified of the transfer and an annex to the employment agreement indicating the new employer should be executed.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
If an outsourcing triggers a business (unit) transfer, Service Provider will be required to maintain employees' previous conditions and credit seniority. In case of a transfer by way of a termination/ rehire, Service Provider is not required to honor existing terms and conditions of employment or credit seniority unless this is commercially agreed between the parties.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
Replacement of Customer employees by employees of Service Provider would not provide leverage to redundant employees to claim a higher severance because outsourcing a whole area in order to reduce operational costs may be a reasonable and valid justification of a dismissal. Reinstatement would not be a valid claim in case of unjustified dismissal, unless the terminated employee has dismissal protections (e.g. maternity protection, union leaders, etc.).
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer must not:
(a) include transferred employees in internal Customer organization, reporting structure and directories;
(b) give transferred employees Customer business cards, Customer business e-mail addresses, telephone numbers and/or any other Customer working tool;
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(c) allow transferred employees to use Customer company systems such as time recording and other attendance systems, travel booking systems, etc.;
(d) provide any form of compensation and benefits to transferred employees;
(e) provide transferred employees with Customer-operated workplaces, production equipment or personal assistance; or
(f) give direct working instructions to transferred employees.
If Customer violates these rules, employees could claim to be employed by Customer and Customer could be held liable for social security contributions, compensation and benefits which could be claimed by the employees (even retrospectively). In addition, establishing a co-employment could be a violation of mandatory labor lending regulations and trigger administrative fines.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
This will depend on the type of service that will be outsourced and a case-bycase-basis analysis will be required. In any case, Customer instructions should be directed to a single point or multiple points of contact at Service Provider and not directly to the outsourced employees.
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Czech Republic
Alexandr Cesar Prague +420 236 045 001 Alexandr.Cesar@bakermckenzie.com
Zuzana Ferianc Prague Tel: +420 236 045 001 Zuzana.Ferianc@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy and notification/ consultation requirements.
If the outsourcing constitutes a transfer of (part of) tasks or business activities, the in-scope employees transfer automatically to Service Provider (on existing terms and conditions of employment and subject to crediting of service), unless they exercise their right to terminate their employment.
In case of an automatic transfer, notification and consultation duties arise.
Czech law does not recognize the concept of co-employment. However, care needs to be taken to avoid illegal labor-lending.
1. Existence of laws or regulations excluding / limiting outsourcing
In Czech Republic, the outsourcing of functions or services is not per se limited or excluded. Although there are certain legal requirements that must be complied with in any proposed outsourcing arrangement (e.g., data privacy and notification/ consultation requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Service Provider is required to employ in-scope employees if the outsourcing constitutes a transfer of (part of) tasks or business activities, unless the inscope employees file a termination notice in connection with the transfer before the transfer date. If the outsourcing does not constitute a transfer of (part of) tasks or business activities, there is no obligation on Service Provider to take on in-scope employees.
Czech law does not specify any conditions/requirements for the transfer of (part of) tasks or business activities. Tasks or business activities may be transferred during the transfer of an enterprise as a going concern, or separately by an agreement between the parties.
3. Mechanism of employee transfer (automatic vs. termination and offer)
If an outsourcing constitutes a transfer of (part of) tasks or business activities, the in-scope employees transfer automatically from Customer to Service Provider by virtue of law (including their rights and obligations ensuing from
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their labor relationships with Customer). The parties cannot exclude the automatic transfer through a contractual arrangement.
Employees have no right to object to the automatic transfer. However, they may file a termination notice in connection with the transfer before the transfer date in which case their employment will terminate as of the day immediately preceding the transfer. No severance payment is applicable in such case.
If there is no valid legal ground for an automatic transfer of employees, the only option for in-scope employees to transfer from Customer to Service Provider is by way of a termination / rehire.
4. If automatic transfer applies, any preconditions for such transfer
30 days prior to an automatic transfer, Customer and Service Provider must notify, and consult with, the employee representatives about the transfer. In case there are no employee representatives, all employees to be transferred must be informed individually.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In case of an automatic transfer of in-scope employees, Service Provider is required to credit their seniority and honor their existing terms and conditions of employment. A transferred employee whose employment terminated within 2 months from the effective date of the transfer (by notice or by mutual agreement) is entitled to file a court petition claiming that such termination of the employment relationship was caused by a substantial deterioration of working conditions (including, inter alia, conditions of remuneration) in relation to the transfer. If the court declares that the employment relationship was terminated due to substantial deterioration of working conditions, such employee will be entitled to a statutory severance payment.
In the absence of an automatic transfer, Service Provider is not required to credit seniority or honor existing terms and conditions of employment of transferring employees.
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6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
No, assuming that there is a genuine redundancy situation and a fair process is followed.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Czech law does not recognize the concept of co-employment. To avoid any potential issues with illegal labor-law lending, Service Provider (and not Customer) should be responsible for assigning work to, and instructing, the outsourced employees, and for organizing, managing and supervising the outsourced employee's work. Further, the following should be reflected in the services agreement between Customer and Service Provider:
the outsourced services should be described in detail;
the service fees should be calculated on the basis of the services provided rather than being calculated as the repayment of costs for the outsourced employees with a margin; and
the services agreement should not state that the outsourced employee will be assigned to the Customer.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Interfaces may be established between Customer personnel and Service Provider personnel to exchange information and products. However, Customer instructions should be directed to a single point or multiple points of contact at Service Provider and not directly to the outsourced employees.
Customer may provide unique tools to Service Provider in the rare case that Service Provider cannot be expected to have equivalent tools.
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France
Nadge Dallais Paris Tel: +33 1 44 17 53 60 Nadege.Dallais@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy requirements and consultation with works councils and health and safety committees (CHSCT).
If the outsourcing involves the transfer of an "autonomous economic entity", the in-scope employees transfer automatically to Service Provider (generally on existing terms and conditions of employment and subject to crediting of service). Any dismissal by Customer of an in-scope employee would be null and void.
Any works council CHSCT of Customer and Service Provider must be informed and consulted before any binding decision to outsource is made.
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid co-employment risk.
France has a highly-regulated labor environment and implementation of outsourcing projects is generally difficult from a labor law perspective.
1. Existence of laws or regulations excluding / limiting outsourcing
Although there are certain legal requirements that have to be complied with in any proposed outsourcing arrangement (e.g., data privacy requirements, consultation with works councils and health and safety committee (CHSCT)), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Service Provider would be required to employ in-scope employees if the outsourcing constitutes a transfer of an autonomous economic entity. Article L. 1224-1 of the French Labor Code (which reflects transfer of business legislation) provides that if an "autonomous economic entity" is transferred in such a way that it retains its identity and is operated as such by the purchaser, then the employment contracts of those employees working in such entity are automatically transferred to the purchaser. An "autonomous economic entity" is an organized group of persons with its own assets, clients and line of business. Whether an outsourcing scenario leads to the transfer of an "autonomous economic entity", which in turn leads to an automatic transfer of in-scope employees, needs to be examined on a case- by-case basis. If a
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transfer of an "autonomous economic entity" takes place, any dismissal by Customer of in-scope employees will be null and void.
3. Mechanism of employee transfer (automatic vs. termination and offer)
In the case of a transfer of an autonomous economic entity, the employees will transfer automatically by operation of law to Service Provider. They cannot object to the transfer (if transferring employees refuse to transfer they should be considered as having resigned or abandoned their work position). No offers of employment need to be made by Service Provider. However, if "protected employees" (such as works council members, union members) are included in the in-scope employees, their transfer to Service Provider will be subject to the prior approval of the labor inspector. Customer will be required to file an application with the local labor inspector at least 15 days before the proposed date of transfer. The local labor inspector will verify that the transfer of the "protected employee" is not discriminatory (i.e., the transfer has not been organized to eliminate the protected employees from the company) and grant/refuse authorization accordingly.
If the outsourcing does not satisfy the criteria of a transfer of an autonomous economic entity, employees could only transfer by way of a termination and re-hire.
4. If automatic transfer applies, any preconditions for such transfer
The respective works councils CHSCT of Customer and Service Provider will need to be informed and consulted before any binding decision to outsource can be made.
With regard to the employees, there are no preconditions for such transfer to occur if the automatic transfer applies as indicated above (subject to the approval procedure in respect of "protected employees" outlined above). Although it is not legally required, an information letter is usually sent by Service Provider a few days before the effective date of the transfer.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In a termination/rehire scenario, Service Provider is not obliged to credit seniority with Customer or honor Customer terms and conditions of employment.
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In case of an automatic transfer of employees, Service Provider's obligations with regard to benefits enjoyed by in-scope employees with Customer depend upon whether the benefits derive from individual employment contracts, collective bargaining agreements, in-house agreements negotiated with union delegates, "atypical" agreements or custom and practice.
(a) Individual employment contracts
The employment contracts of in-scope employees are automatically transferred to Service Provider meaning that Service Provider is bound by the substantive obligations under the individual employment contracts as they existed on the day of the transfer (e.g., obligations in respect of remuneration, place of work and seniority).
However, Service Provider may - with caution - offer new terms and conditions of employment to in-scope employees individually which the inscope employees are free to accept or reject. If an in-scope employee rejects such an offer, Service Provider must either renounce the offer and employ the in-scope employee on the Customer terms and conditions or dismiss the employee. Such a dismissal risks being construed as an unfair dismissal (triggering the payment of damages to the employee) if Service Provider is not able to justify its decision to dismiss the employee by a valid economic reason. Moreover, a specific procedure (including consultation with the works council and the CHSCT) must be followed in proposing the modification of the employment contract based on economic grounds. Service Provider bears the post-transfer dismissal liability unless otherwise agreed with Customer. Customer cannot undertake to support the costs of the damages granted to the employees in the event of an unfair dismissal or the costs of a settlement indemnity as this would be considered a violation of the French regulations regarding the automatic transfer of employees.
(b) Collective bargaining agreements
If the collective bargaining agreement applicable to Service Provider is the same as the collective bargaining agreement applicable to Customer, there will be no need to negotiate a harmonization of the benefits under the respective companies' collective bargaining agreements.
However, if the agreements are different (which will probably be the case when "non-core" functions such as IT or HR functions are outsourced), the inscope employees will entirely fall into the collective bargaining agreement of Service Provider after a 15 month transition period, during which time they will continue to benefit from the provisions of the Customer collective bargaining agreement, if more favorable.
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(c) In-house agreements, custom and practice, unilateral employer's practices
Benefits resulting from in-house agreements, custom and practice and unilateral employer's practice, automatically bind Service Provider, but they may be "denounced" subject to complying with a specific procedure.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
The replacement of in-scope employees by Service Provider employees does provide leverage to redundant employees to claim re-instatement or a higher severance as the ostensibly redundant position would in fact not be redundant.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
It is very important that Customer does not continue to "manage" the outsourced activity post-transfer because this would refute the transfer of an autonomous economic entity and potentially create a "co-employment" situation.
In particular, Customer must not:
include transferred employees in internal Customer organization, reporting structure and directories;
give transferred employees Customer business cards, Customer business e-mail addresses and/or telephone numbers or any work clothing with the Customer's name;
allow transferred employees to use Customer company systems such as time recording and other attendance systems, travel booking systems, etc.;
provide any form of compensation and benefits to transferred employees;
provide transferred employees with Customer-operated workplaces, production equipment or personal assistance; and
give direct working instructions to transferred employees.
If Customer violates these rules, employees could claim to be employed by Customer and Customer could be held liable for taxes, social security
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contributions and compensation and benefit claims by the employees (even retroactively). In addition, this could trigger administrative fines for not properly registering its workforce.
The violation of these rules could also trigger criminal offences as it might constitute profit-driven workforce supply and illegal lending of workforce prohibited pursuant to articles L. 8231-1 and following of the Labor Code, wherever it causes any prejudice to any of the employees concerned (e.g., the latter receiving less compensation, benefits or other social rights or profits from Service Provider than they would have been entitled to, had they been directly employed by Customer). This risk will be higher if the benefits or collective status are less favourable with Service Provider than with Customer.
These criminal offences are subject to a maximum fine of Euros 30,000 (Euros 75,000 if several employees are subject to this violation) and a maximum imprisonment of 2 years (5 years if several employees are involved) for individuals. The legal entity can also be sanctioned by a maximum fine of Euros 150,000. The courts may also prohibit the "workforce" supplier from performing any activity for 5 years and have the judgment published in the newspapers.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Interfaces may be established between Customer personnel and Service Provider personnel to exchange information and products. However, Customer instructions should be directed to a single point or multiple points of contact at Service Provider and not directly to the outsourced employees.
Customer may provide unique tools to Service Provider in the rare case that Service Provider cannot be expected to have equivalent tools.
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Germany
Hagen Koeckeritz Frankfurt Tel: +49 69 2 99 08 152 Hagen.Koeckeritz@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy and consultation with works councils requirements.
If the outsourcing constitutes a transfer of undertaking, the in-scope employees transfer automatically to Service Provider (on existing terms and conditions of employment and subject to crediting of service), unless they exercise their right to object in which case they remain employees of Customer.
In principle, in-scope employees cannot be made redundant, and any dismissals will likely be subject to unfair dismissal claims.
In case of automatic transfers, strict notification requirements apply.
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid co-employment risk.
1. Existence of laws or regulations excluding / limiting outsourcing
German law does not per se limit the outsourcing of functions or services. Although there are certain legal requirements that have to be complied with in any proposed outsourcing arrangement (e.g., data privacy requirements, works council consultation requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Service Provider is required to employ in-scope employees if the outsourcing constitutes a transfer of undertaking ("Betriebsbergang"), unless the in-scope employee objects to the transfer and opts to remain with Customer within one month from the time the employee receives a properly drafted transfer notice. In principle and subject to the below, employees cannot be made redundant on the basis of a transfer of undertaking. Terminations "due to a transfer of undertaking" are explicitly prohibited under German law.
If the outsourcing does not qualify as a transfer of undertaking, no employees transfer automatically from Customer to Service Provider.
A transfer of undertaking occurs if (a) the outsourced function forms a separate business unit or a part of an identifiable business unit within Customer with an inner-organizational structure, and (b) Service Provider assumes a certain amount of assets and/or personnel associated with the outsourced function. Relevant assets do not only include tangible assets such
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as real estate, production and office facilities, equipment, or inventory but also customer contracts, a customer data base, IP rights, know-how and other intangible assets. There is no one-size-fits-all test as to whether a transfer of undertaking occurs, rather a case-by-case consideration is required.
In-scope employees (i.e., those that automatically transfer to Service Provider in a transfer of undertaking scenario) are primarily those employees that are part of, or fully assigned to, the business unit (or part thereof) to be transferred. Employees in overhead areas servicing multiple business units or departments are typically not considered in-scope employees for the purpose of transfer of undertaking regulations and do therefore not enjoy the protection of the transfer of undertaking regulations. Whether or not employees are inscope employees needs to be assessed on a case-by-case basis.
To the extent employees are not in-scope employees, they do not automatically transfer to Service Provider and Customer can issue redundancy terminations provided that the generally applicable requirements of German law are satisfied. In particular, Customer must be able to prove that the job of the particular employee will in fact be redundant, that there is no alternative position in the company which the employee could assume, and that the proper social selection criteria are met.
Finally, although the transfer of undertaking rules are mandatory, the individual situation may offer room for interpretation and allow the parties to find a pragmatic solution that accommodates the needs of both sides as long as certain risks are accepted and financial burdens are properly allocated.
3. Mechanism of employee transfer (automatic vs. termination and offer)
If the outsourcing triggers a transfer of undertaking, the in-scope employees transfer automatically by operation of law (subject to their right to object to a transfer and remain employees of Customer). Service Provider effectively steps into Customer's shoes with regard to the in-scope employees. No offers of employment need to be made by Service Provider.
If the outsourcing does not trigger a transfer of undertaking, employees may be transferred by a termination/ re-hire procedure.
4. If automatic transfer applies, any preconditions for such transfer
German law sets out very strict notification requirements for the employer towards all employees affected by a transfer of business. Accordingly, either Customer or Service Provider or frequently both parties jointly are obliged to inform each employee affected by the transfer in writing about the date or purported date of the transfer, the reasons for the transfer, the legal,
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economic and "social" consequences of the transfer for the employee, and the measures envisaged towards the employee.
If the information that is provided to the employees is incorrect, incomplete or misleading, the one-month objection period will not start to run and employees can object to the transfer and sue their way back into Customer several months or even years later. The financial risks resulting from such improper information should be addressed in the outsourcing agreement.
Generally, the transfer of a business does not trigger an obligation to notify or consult with works councils or unions. However, exceptions may apply. For example, if the transfer entails operational changes (e.g., relocation of employees, split of operations, etc.), such operational changes may be implemented only after completion of consultations with works councils or unions.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In accordance with mandatory transfer of undertaking regulations Service Provider has to recognize the employees' seniority with Customer and, in principle, has to honor existing terms and conditions of employment. Service Provider's ability to change terms and conditions of employment is very limited (and subject to restrictive legal requirements) and depends on whether the terms and conditions are based on an employment agreement, a works council agreement or a collective bargaining agreement.
As a general rule, where terms and conditions of employment are governed by works council agreements ("Betriebsvereinbarungen") or collective bargaining agreements ("Tarifvertrge"), as of the date of transfer, the works council agreements and collective bargaining agreements in force at Service Provider will typically prevail over the works council agreements and collective bargaining agreements in force at Customer to the extent they cover the same subject matter. A case-by-case assessment is necessary.
If Service Provider does not have works council agreements in place and/or is not bound by collective bargaining agreements, terms and conditions of employment that, prior to the transfer, arose from works council agreements and/or collective bargaining agreements will, in principle, be converted into individual contractual entitlements at the level of the employment agreement. In such a case, these terms and conditions must not be modified to the employee's detriment during the first year after the date of the transfer of business. Any change after the first year has to be effected either by mutual
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agreement or by unilateral termination with the intent to change the terms and conditions.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
If the outsourcing constitutes a transfer of undertaking, terminated Customer employees whose positions are filled with Service Provider employees will have significant leverage to challenge the termination and claim for reinstatement or negotiate a higher severance payment on the basis that their position was not redundant.
If the outsourcing does not constitute a transfer of undertaking, Customer employees whose functions are outsourced to a Service Provider that uses its own personnel and does not assume any assets or operate on-premise, will not have additional leverage to claim re-instatement or a higher severance.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer must not:
include transferred employees in internal Customer organization, reporting structure and directories;
give transferred employees Customer business cards, Customer business e-mail addresses and/or telephone numbers;
allow transferred employees to use Customer company systems such as time recording and other attendance systems, travel booking systems, etc.;
provide any form of compensation and benefits to transferred employees;
provide transferred employees with Customer-operated workplaces, production equipment or personal assistance; and
give direct working instructions to transferred employees.
If Customer violates these rules, employees could claim to be employed by Customer and Customer could be held liable for taxes, social security contributions, and compensation and benefit claims by the employees (even retrospectively). In addition, establishing a co-employment could be a violation of mandatory labor lending regulations and trigger administrative fines.
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8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Interfaces may be established between Customer personnel and Service Provider personnel to exchange information and products. However, Customer instructions should be directed to a single point or multiple points of contact at Service Provider and not directly to the outsourced employees.
Customer may provide unique tools to Service Provider in the rare case that Service Provider cannot be expected to have equivalent tools.
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Hong Kong
Rowan McKenzie Hong Kong Tel: +852 2846 2103 Rowan.McKenzie@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements such as data privacy requirements must be met.
Hong Kong does not recognize automatic transfers of employees. Inscope employees only transfer from Customer to Service Provider by way of a termination/ rehire if and as commercially agreed by all parties.
The risk of co-employment is low.
1. Existence of laws or regulations excluding / limiting outsourcing
In Hong Kong, the outsourcing of functions or services is not per se limited or excluded. Although there are certain legal requirements that must be complied with in any proposed outsourcing arrangement (e.g., data privacy requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Service Provider is not required to employ in-scope employees but the parties may commercially agree a transfer of the in-scope employees to Service Provider by way of a tripartite agreement.
If no transfer is agreed, the in-scope employees remain with Customer unless their employment is validly terminated with notice. In case of a termination, Customer must honor employee entitlements such as payment of unpaid wages and bonus entitlements, payment for accrued leave and payment of statutory severances. That said, in an outsourcing scenario, statutory severances must not be paid if Customer and Service Provider are "associated companies" and an employee refuses an offer by Service Provider to recognize past service and employ him/her on terms and conditions that are no less favourable than the existing Customer terms (which offer must be made at least seven days prior to the intended transfer date).
3. Mechanism of employee transfer (automatic vs. termination and offer)
There is no automatic transfer of employees in Hong Kong. The transfer must be carried out by Customer terminating the employment of the in-scope employees and Service Provider making an offer of employment to those employees (termination/ re-hire). The relevant employees should be provided with a letter terminating their employment with Customer, and a letter offering
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new employment with Service Provider. To simplify the process, one tri-party transfer letter may be used. This letter would be jointly issued by Customer and Service Provider and, once signed by the employee, the terms of the transfer would be agreed. There is no mandated or formal procedure for the transfer of employment. Specifically, there is no obligation to consult with employees prior to termination, or any notification requirements to local government or unions.
4. If automatic transfer applies, any preconditions for such transfer
N/A.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
Service Provider is not required to credit seniority or honor customer terms and conditions of employment. However this is frequently commercially agreed, in particular, for critical employees. As per response to question (2) above, if Customer and Service Provider are associated companies, Service Provider should recognize past service and offer employment to the employees on terms and conditions that are no less favourable than the existing Customer terms in order to avoid being liable to pay statutory severance.
However, while there is no requirement to credit seniority or honor customer terms and conditions of employment, in-scope employees must consent to the transfer and might refuse such consent in case of variations to their terms and conditions of employment. If a substantive change is made and consent is not obtained then there is a risk that constructive dismissal claims may be brought and any restrictive covenants are likely to be unenforceable as a result.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
No.
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7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
If Customer employees are working for Service Provider post-outsourcing this should not be problematic as long as the identity of their employer is clear. If Service Provider engages agency workers or independent contractors for long periods then this could present employment status challenges later on but this would not impact on Customer.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Hong Kong courts will permit a reasonable degree of direction and guidance from the previous employer and even a third party provided the employing entity is clearly defined and agreed.
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Italy
Uberto Percivalle Milan Tel: +39 02 76231 330 Uberto.Percivalle@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met (e.g., relating to data privacy and national collective agreements).
If the outsourcing constitutes a transfer of undertaking, the in-scope employees transfer automatically to Service Provider (including on existing terms and conditions of employment and subject to crediting of service). In-scope employees cannot be made redundant for the reason of a transfer of undertaking.
Any works councils or unions of Customer and Service Provider must be consulted on the planned outsourcing if it constitutes a transfer of undertaking.
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid co-employment risk.
1. Existence of laws or regulations excluding / limiting outsourcing
Although there are certain legal requirements that must be complied with in an outsourcing context (such as consultation of unions, occupational safety precautions and more general precautions addressing employment law concerns), Italian law does not limit the outsourcing of functions or services per se. That said, specific provisions may apply and require consideration in particular cases (e.g., outsourcing of call centres outside the European Union).
2. Obligation of Service Provider to employ in-scope employees
Service Provider is required to take on the in-scope employees if the outsourcing as a whole constitutes a transfer of undertaking. According to article 2112 of the Italian Civil Code, which implements the European Transfers of Undertakings Directive, a "transfer of undertaking" occurs if:
an undertaking/ business (or an autonomous part thereof), whether or not operating for profit,
is transferred from one entity to another regardless of the nature of the transaction or the instrument effecting the transfer (including usufruct or leasing of an undertaking), and
the identity of the undertaking/ business (or part thereof) is retained throughout the transfer.
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Employees cannot be made redundant for the sole reason of a transfer of undertaking. This does not exclude redundancies for a different, genuine reason, but any termination in the context of an outsourcing transaction requires careful consideration.
If the outsourcing does not constitute a transfer of undertaking, Service Provider is not required to employ in-scope employees according to the law on transfers of undertakings. However, the national collective agreements of many industries in which outsourcing transactions are common, include socalled "social clauses" which commonly require Service Provider in an outsourcing scenario to offer employment to in-scope employees and/or consult with unions.
Finally, even in the absence of a requirement for Service Provider to employ in-scope employees, it is not unusual for Customer and Service Provider to contractually agree that Service Provider will employ at least part of the inscope employees.
3. Mechanism of employee transfer (automatic vs. termination and offer)
If the outsourcing triggers a transfer of undertaking, the in-scope employees transfer automatically by operation of law. In-scope employees do not have a right to object to being transferred to Service Provider except that they may challenge the existence of a transfer of undertaking itself. They can also choose to resign prior to the transfer taking effect.
Employees whose working conditions have been materially affected to their detriment, may resign for just cause within three months of the transfer and would then be entitled to receive an indemnity in lieu of notice.
If the outsourcing does not constitute a transfer of undertaking, an employee transfer may be effected by a termination and re-hire procedure, frequently executed through a tri-partite assignment of employment agreements.
4. If automatic transfer applies, any preconditions for such transfer
In case of automatic transfers, article 47 of Law No. 428/1990 provides a mandatory consultation procedure between the employers and works councils/ unions if the transferor has more than 15 employees (regardless of the number of employees that are being transferred). To start with, in an outsourcing scenario, Customer and Service Provider must provide a written notification of their intention to carry out a transfer of undertaking to their respective works councils and/ or the unions that concluded the collective agreements applicable to the employees affected by the transfer.
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Within seven days of receiving the transfer of undertaking notice, the works councils/ unions may request a joint review of the planned transfer. Within seven days of receiving such request (if any), Customer and Service Provider must start the joint review of the planned transaction with the representatives of the works councils/ unions. The procedure is deemed completed within 10 days even if no agreement is reached (which would be unusual in practice).
Breach of the notice and joint review duties does not invalidate the transfer of undertaking. Unions may, however, react by filing a judicial petition for socalled anti-union behaviour, in which case courts have a broad discretion to order the measures deemed adequate to remedy the breach (e.g., suspending the effects of the transaction until completion of the joint review).
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In case of an automatic transfer of in-scope employees by operation of law, Service Provider must credit the employees' seniority with Customer and honor existing terms and conditions of employment. In case of special terms such as incentive plans, corporate health and life insurance plans, stock options or RSU plans, that cannot be continued, a common solution is to replace them with equivalent plans or benefits of Service Provider (usually negotiated with the unions/ works councils). If it is not possible to replace a plan or other benefit with an equivalent one, it is customary to reach an agreement with the unions/ works councils (or at individual level) to financially compensate employees for losses.
Special attention needs to be paid to the fact that, in case of an automatic transfer of in-scope employees, collective agreements applicable to the transferring employees are replaced by collective agreements applicable to Service Provider. Resulting changes are generally a major reason of concern for unions and employees and often bear strategic consequences which should be analysed prior to the transaction.
In a termination/ re-hire scenario, Service Provider is not required to credit seniority or honor Customer terms and conditions of employment. However, in practice, this is frequently commercially agreed (or negotiated with unions or required by collective agreements).
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6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
Bearing in mind that employees cannot be made redundant for the sole reason of a transfer of undertaking, should a claim be raised for unlawful dismissal on the basis that the employee is being replaced by a lower paid Service Provider employee, this would not entitle the dismissed employee to reinstatement or a higher severance package, on the assumption that outsourcing and redundancies have been completed in compliance with the law.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
The law provides that in order for a services agreement to be deemed genuine, the Service Provider has to bear the relevant business risk and manage the relevant human and other resources. In practice, depending on circumstances, it may be advisable for Customer to not:
include transferred employees in internal Customer organization, reporting structure and directories;
give transferred employees Customer business cards, Customer business e-mail addresses and/or telephone numbers;
allow transferred employees to use Customer company systems such as time recording and other attendance systems, travel booking systems, etc.;
provide any form of compensation and benefits to transferred employees;
provide transferred employees with Customer-operated workplaces, production equipment or personal assistance; and
give direct working instructions to transferred employees.
Breach of the above could cause confusion regarding the actual employer, with the consequence that the outsourced employees could claim to be employed by Customer. In addition, this may trigger issues regarding the lending of workmanship from one company to another, something that is prohibited under Italian law except where temporary workers are supplied by a duly authorised work agency.
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8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Interfaces may be established between Customer personnel and Service Provider personnel to exchange information and products. However, Customer instructions should be directed to a single point or multiple points of contact at Service Provider and not directly to the outsourced employees.
Customer may reasonably provide unique tools to Service Provider in the rare case that Service Provider cannot be expected to have equivalent tools.
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Japan
Tomohisa Muranushi Tokyo Tel: +81 3 6271 9532 Tomohisa.Muranushi@bakermckenzie.com
Genichiro Ito Tokyo Tel: +81 3 6271 9753 Genichiro.Ito@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy and consultation requirements. That said, Japan has a highly-regulated labor environment and implementation of outsourcing transactions is generally difficult.
The mechanism for employee transfers will depend on whether the outsourcing is structured as a business transfer or corporate split. In a corporate split scenario, in-scope employees transfer automatically (generally on their existing terms and conditions), unless they validly object to the transfer. In a business transfer scenario, employees only transfer if and as commercially agreed.
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid violating labor lending rules.
1. Existence of laws or regulations excluding / limiting outsourcing
There are no general laws or regulations that broadly limit or exclude the outsourcing of functions or services in Japan. Although there are certain legal requirements that have to be complied with in any outsourcing arrangement (e.g., data privacy and consultation requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Whether or not Service Provider has an obligation to employ in-scope employees depends on the structure of the outsourcing arrangement.
If the outsourcing is structured as a transfer of business ("Jigyo Joto"), Service Provider has no obligation to take on in-scope employees. But the parties may commercially agree the transfer of the in-scope employees. Those employees that do not consent to the transfer will remain with Customer.
If the outsourcing is structured as a corporate split ("Kaisha Bunkatsu"), in principle, the employees will transfer automatically along with the business and Service Provider is obliged to employ in-scope employees except if employees have, and exercise, a right to object to being transferred (see below under 4. regarding objection rights). Any employees that enforce a valid right to object remain with Customer.
Those employees that remain with Customer may generally not be terminated on the basis that their functions were transferred to Service Provider and no longer exist at Customer. Under the Labor Contract Act and relevant court precedents, a unilateral termination will be invalid if there is no justifiable
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reason and is generally very difficult to justify. If there is no strong ground for unilaterally terminating the remaining employees, an alternative approach would be to ask the employees to voluntarily resign by offering severance payments. In practice, this voluntary approach is safer and more common than a unilateral termination.
3. Mechanism of employee transfer (automatic vs. termination and offer)
If the outsourcing is structured as a corporate split, the in-scope employees transfer automatically subject to certain procedures being complied with. No consent from the employee is required.
If the outsourcing is structured as a transfer of business, the employees will only transfer if agreed by the parties. Such transfer will take place either by way of a transfer of contract or by way of a termination/ rehire. Either way, consent from each of the transferring employees will be required.
4. If automatic transfer applies, any preconditions for such transfer
An automatic transfer requires Customer to consult with the employee representative (or the union representing the majority of the employees of Customer's workforce) and the employees who engage in the business to be transferred.
Once these consultations are completed, Customer must notify in writing those employees who primarily provide services to the transferred business or who are otherwise being transferred. The purpose of the notifications is to formally offer employees the opportunity to object to being transferred or not being transferred, and such notifications are required separately from the consultations.
The following classes of the employees have a right to object to either being transferred or not being transferred:
the employees who do not primarily provide services to the transferred business but are being transferred (if any) will have a right to object to being transferred;
the employees who primarily provide services to the transferred business but are not being transferred (if any) will have a right to object to not being transferred.
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5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In the business transfer scenario, Service Provider is not required to credit seniority or honor existing Customer terms and conditions but this may be commercially agreed.
In the corporate split scenario, in principle, the terms and conditions of employment must be kept unchanged upon transfer. If Service Provider wants to change the terms and conditions of employment, it will need to follow separate procedures depending on whether the terms and conditions form part of an individual employment contract or are provided under the work rules or their ancillary rules.
In order to change the terms and conditions set forth in an individual employment contract, the employer is required to obtain employee consent.
In order to change terms and conditions provided under work rules or their ancillary rules, Service Provider must follow certain procedures prescribed under the Labor Standards Act. However, even if such procedures are followed, a detrimental change to working conditions is only valid if consented to by the affected employee or if it is reasonable considering the totality of the circumstances. In determining whether a change is reasonable, a court would generally consider (a) the necessity for the change, (b) the degree of detrimental impact on the employee, (c) the reasonableness of the working conditions after the change, and (d) whether there have been sufficient consultations with the labor union/employee representative.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
Replacement of terminated employees by Service Provider employees does provide leverage to redundant employees to claim re-instatement or a higher severance as this would support an argument that their termination was not necessary.
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7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer must not retain direct "supervision and control" over the outsourced employees as this might violate labor lending rules. The lending of employees from Service Provider to Customer would only be permissible if Service Provider has a dispatching license (or in certain situations, registration). In the absence thereof, it must be ensured that Service Provider has supervision and control over the outsourced employees.
In determining whether Service Provider has such direct supervision and control the court will consider whether Service Provider:
gives instructions as to how the work should be assigned and performed;
evaluates the employee's work;
controls working hours, breaks, holidays and leave of the employees;
gives instructions when overtime work or holiday work is required;
controls discipline of the employees at the work place;
decides the physical location where the employees work;
pays any expense necessary for performing work at its responsibility;
remains solely and independently responsible for any responsibility under the labor laws as the employer of the employees.
Not all of the above factors must be met. However, the more of those factors are not met, the higher the risk of the arrangement being seen as labor supply.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Generally, it is important to make sure that work orders go through Service Provider as opposed to being given directly to outsourced employees. In other words, work orders should be routed to an authorized team leader who receives the orders on behalf of Service Provider. The team leader can instruct each of his team members to perform his/her work based on that.
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Malaysia
Wei Kwang Woo Kuala Lumpur Tel: +603 2298 7898 WeiKwang.Woo@wongpartners.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, there are specific regulations that must be complied with, depending on the nature or type of outsourcing, including complying with data privacy requirements, etc.
The only way for in-scope employees to transfer from Customer to Service Provider would be by way of termination and rehire, and Service Provider is under no circumstances required to take on in-scope employees.
The law is not completely clear as to what constitutes co-employment liability. Post-outsourcing, Customer needs to ensure not to provide outsourced employees with benefits or subject them to actions as though Customer is the employer.
1. Existence of laws or regulations excluding / limiting outsourcing
Malaysian law does not per se limit the outsourcing of functions or services. Although there are certain legal requirements that have to be complied with in any proposed outsourcing arrangement (e.g., data privacy requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Under no circumstances, Service Provider is required under Malaysian law to employ in-scope employees.
3. Mechanism of employee transfer (automatic vs. termination and offer)
Malaysia does not recognise automatic transfers of employees as individuals have the constitutional right to choose their employer. The only way for employees to transfer from Customer to Service Provider is via termination / rehire. This requires the employee's consent.
Employees that reject an employment offer by Service Provider which recognises past service with Customer and includes terms and conditions no less favourable than the existing Customer terms and conditions, will not be entitled to termination benefits (i.e., severances), where there is also a change in the ownership of business to Service Provider. The position is not clear where no such ownership change occurs. Post-outsourcing, Customer will
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need to re-deploy remaining employees or terminate them on grounds of redundancy.
4. If automatic transfer applies, any preconditions for such transfer
N/A.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
Service Provider is not obliged to credit seniority or honor Customer terms and conditions of employment. However, employees are free to reject any offers of employment that do not recognise past service with Customer or contain terms and conditions less favourable than the existing Customer terms and conditions. In that case, the employee would either stay employed by Customer, or, if terminated, would be entitled to severances.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
The replacement of Customer employees by Service Provider employees will not, in itself, mean that Customer is automatically liable for unfair dismissal on account of Customer employees' redundancy. The individual facts will need to be considered, i.e., whether Customer had sought to procure Service Provider to make offers to Customer employees and, if so, the nature of those offers.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer must avoid treating, and being seen to be treating, Service Provider employees akin to Customer employees. Customer employment benefits, badges, email addresses and so on must not be provided to Service Provider employees, and under no circumstances should Customer undertake any disciplinary and / or performance management action against Service Provider employees as though they were Customer employees.
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8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
There are no legally-prescribed benefits or entitlements which Customer may or may not provide in order to avoid co-employment risks. As a general guide, Customer must not provide benefits or entitlements to outsourced employees similar or comparable to what Customer provides to its own employees and Customer should not provide anything to, or interact with, outsourced employees above and beyond what is necessary for outsourced employees to carry out the relevant tasks. To the extent, benefits from Customer to outsourced employees are unavoidable, it is advisable to channel them through Service Provider.
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Mexico
M Rosario Lombera-Gonzalez Mexico City Tel: +52 55 5279 2936 MRosario.Lombera-Gonzalez@bakermckenzie.com
Javiera Medina-Reza Mexico City Tel: +52 55 5351 4135 Javiera.Medina-Reza@bakermckenzie.com
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Key Takeaways
While outsourcing is generally permissible, certain conditions imposed by labor law must be met. and care must be taken to avoid an outsourcing to constitute a rendering of personnel services. Other general requirements, such as data privacy obligations, must be met.
Depending on the circumstances, in-scope employees may transfer from Customer to Service Provider by way of an employer substitution or a termination/ rehire.
In case of an employer substitution, affected employees must be provided with an employer substitution notice and Service Provider must honor seniority and existing Customer terms and conditions of employment.
Customer should refrain from directing or controlling the outsourced employees in order to avoid co-employment risk or joint liability for employment and social security related obligations.
1. Existence of laws or regulations excluding / limiting outsourcing
(a) Labor Law
While Mexican labor law does not distinguish between "core functions" and "non-core functions", it provides that outsourced functions and services must:
not cover the totality of the Customer activities;
be specialized in nature; and
not include assignments equal or similar to those performed by Customer employees.
If not all these three conditions are fulfilled, there is a risk that Customer will be considered the employer of Service Provider personnel deployed to work on Customer assignments, and as such will be responsible to comply with all labor and social security obligations (including profit sharing) in relation to those employees.
Non-compliance with the above conditions for outsourcing might also result in the Labor and Social Welfare Department ("STPS") imposing fines on Customer. Fines may range from 50 to 5,000 times the minimum wage in effect (currently, approximately US$206- US$20,617) and may be imposed for each affected employee.
Further, any outsourcing agreement must be in writing and Customer must verify by way of audits that Service Provider has its own and sufficient
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resources to comply with all labor, health and safety and social security obligations.
To reduce the above mentioned risks, it is advisable that:
(i) the subject matter of the agreement bereferred to as the delivery of services rather than the provision of personnel services;
(ii) the agreement states that Service Provider has autonomy in managing the provision of services; and
(iii) the consideration not be calculated based on payroll cost.
(b) Social Security Law
The Mexican Social Security Law does not prevent or limit outsourcing but strictly regulates the rendering or receiving of personnel services. In terms of this law, if a company (i.e., Customer) receives services from the employees of a third party contractor (i.e., Service Provider) and directs and supervises the activities to be performed, the Social Security Institute will consider that the services are performed under a subcontracting regime. In this event, Customer and Service Provider would be required to file a specific form and provide information in connection with the agreement executed by the parties, the identity of the parties, the type of services to be rendered, the number of employees involved in the activities and the cost of the particular services. Therefore, from a social security law perspective, it is also advisable to clarify that the subject matter of the service agreement is the delivery of services, rather than the provision of personnel services.
(c) Other
Certain other, more general legal requirements have to be complied with in an outsourcing context (e.g., data privacy requirements), but such requirements do not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
There is no obligation on Service Provider to employ in-scope employees.
3. Mechanism of employee transfer (automatic vs. termination and offer)
In-scope employees may transfer from Customer to Service Provider by way of an employer substitution or a termination and rehiring mechanism. In order for an employer substitution to be valid, a transfer of assets must take place between the substituted employer to the substitute employer.
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In either case, the transfer needs to be formalized before the Social Security Institute.
(a) Employer Substitution
In an employer substitution scenario, in-scope employees transfer automatically from Customer to Service Provider. In principle, the employee cannot object to the employer substitution and Service Provider effectively steps into the shoes of Customer.
According to Mexican legislation, if an employer substitution takes place, the substituted employer will be jointly liable with the substitute employer for a period of six months from the effective date of the employer substitution for any employment and social security related obligations.
(b) Termination and rehiring
The transfer of employees pursuant to a termination/ rehire procedure requires the consent of each affected employee. In case an employee does not consent to the transfer, he/she will be entitled to the payment of a severance as provided in the Federal Labor Law.
4. If automatic transfer applies, any preconditions for such transfer
If an employer substitution scenario, there is no need to execute new employment contracts. Rather, affected employees (or the Union, if applicable) need to be provided with an employer substitution notice in which the new employer recognizes that all existing labor conditions and benefits as well as seniority will be honored. Further, a specific notification to the Social Security Institute may be required.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In case of an employer substitution, Service Provider is required to credit seniority with Customer and honor Customer terms and conditions of employment.
If employees transfer by way of a termination/ rehire, Service Provider is not required to credit seniority with Customer or honor Customer terms and conditions of employment. However, this may be advisable in order to avoid severance payments. If Service Provider does not credit seniority with Customer and honor Customer terms and conditions of employment, in-scope employees are unlikely to consent to the transfer and would then be entitled to a mandatory severance.
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6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
No. However, employees cannot be forced to terminate their labor relationship with Customer and if they refuse to consent to the transfer, they may file a labor claim arguing an unfair dismissal, and either the reinstatement in their job, or the payment of the constitutional indemnification as provided by the Federal Labor Law.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
The outsourced employees must not be subject to Customer control or subordinated to Customer employees and must not receive instructions from Customer employees.
Customer must not provide working tools to outsourced employees postoutsourcing.
Customer must not provide e-mail addresses, uniforms, presentation cards, benefit plans, etc. to outsourced employees.
Overall, Customer must not direct or supervise the outsourced employees. This may increase the risk that Customer is deemed to be the actual employer or that Customer and Service Provider are jointly liable towards the employees.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
It is advisable that Service Provider employees remain absolutely independent from Customer.
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Netherlands
Mirjam de Blcourt Amsterdam Tel: +31 20 551 7466 Mirjam.deBlecourt@bakermckenzie.com
Anna van Bracht Amsterdam Tel: +31 20 551 7562 Anna.vanBracht@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy requirements and consultation with works councils.
If the outsourcing constitutes a transfer of business, the in-scope employees transfer automatically to Service Provider (including existing terms and conditions of employment and crediting of service). In principle, in-scope employees cannot be made redundant.
If Customer has a works council, it is required to seek the works council's prior advice about the intended outsourcing. If there is no works council but the intended outsourcing would affect at least 25% of Customer's workforce, the prior advice of a personnel meeting or employee representative body is required.
1. Existence of laws or regulations excluding / limiting outsourcing
In the Netherlands, the outsourcing of functions or services is not per se limited or prohibited. Although there are certain legal requirements that have to be complied with in an outsourcing arrangement (e.g., data privacy requirements and works councils consultation requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Service Provider is required to take on the in-scope employees that are associated with an outsourced function if the outsourcing as a whole constitutes a transfer of business (in Dutch: "Overgang van Onderneming"). Employees who are subject to a transfer of business can, in principle, not be made redundant as it is prohibited to give notice of termination due to a transfer of business.
A transfer of business occurs if - in short - the activities transferred can be seen as an economic entity (i.e., an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary) that will retain its identity after the transfer (to the third party). An economic entity must be sufficiently structured and autonomous but is not required to have tangible or intangible operations of any significance. In case of a transfer of business all employees dedicated to the transferring activities will transfer to the acquirer by operation of law. The key question in deciding whether there has been a transfer of business of an economic entity is whether the business in question retains its identity and is carried on by the acquirer post-transfer, i.e. the identity is considered to be retained in particular
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if Service Provider actually continues or resumes the same or similar operations. In considering that question, however, all relevant facts will be taken into account and no one factor is conclusive.
There is no one-size-fits-all test as to the amounts of assets and/or the number of employees that - if assumed by Service Provider - establish a transfer of a business. However, a continuation of service functions within Customer premises and within pre-existing organisational and working structures, regardless of whether personnel is assumed, is typically a strong argument for a transfer of business.
Whether employees in shared service functions that - to a certain extent - also provide services to the economic entity that will be transferred, also transfer to Service Provider by operation of law in case of a `transfer of business', will depend on the facts and circumstances of the case. Courts may, for example, take the position that these employees do not transfer since the respective corporate service department does not transfer. In that case, with regard to these employees, Customer could seek termination of the employment contract (provided that the applicable conditions and restrictions of Dutch law are met, in particular that Customer is able to prove that it has a reasonable ground for terminating the employment contract, that redeployment of the employee in an alternative suitable position, whether or not with the help of schooling, is not possible or appropriate and that the proper objective social selection criteria for redundancies are met).
If the outsourcing does not constitute a transfer of a business, service provider is not required to employ in-scope employees but the parties and employees may commercially agree a "transfer" of the in-scope employees to service provider by way of a tripartite agreement, i.e. the employment contract will be terminated with the Customer and the employee will enter into service of the Service Provider.
3. Mechanism of employee transfer (automatic vs. termination and offer)
If the outsourcing triggers a transfer of business, the employees transfer automatically by operation of law. An unambiguous refusal of an employee to transfer to Service Provider results in a termination of his/her employment with Customer by operation of law effective as of the date of the transfer of business.
If the outsourcing does not constitute a transfer of business, in-scope employees can only transfer by way of a termination/ rehire.
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4. If automatic transfer applies, any preconditions for such transfer
Depending on the facts and circumstances the following preconditions apply:
(a) If Customer has a works council in place, Customer is, in principle, required to seek prior advice of its works council regarding the intended outsourcing.
(b) To the extent that Customer does not have a works council in place, but the intended outsourcing affects at least 25% of Customer's workforce, the prior advice of the personnel meeting (consisting of all personnel working in the company) or employee representative body (if any) is required.
(c) In case the situations above under (a) and (b) do not apply, Customer is legally required to inform its employees in good time before the transfer about:
the intended transfer of the business (or the business unit);
the intended date of the transfer;
the reason(s) for the transfer;
the legal, economic and social consequences of the transfer for the employees; and
the measures for the employees considered in connection with the transfer.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
As a general rule, in case of an automatic transfer the terms and conditions of employment with Customer remain unchanged and have to be continued after the transfer meaning that Service Provider has to honor all existing (collective) terms and conditions of employment. Specific rules, however, apply with regard to pension benefits.
Changing terms and conditions of employment following the transfer is only permissible for economic, technical or organisational reasons (`ETO reasons'). In addition, changing employment conditions would generally require consent of the individual employees.
Seniority rights will only transfer to the extent that seniority is linked to terms and conditions that transfer to Service Provider, meaning that the employee
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cannot invoke his seniority built up with Customer for employment conditions that only apply in the organisation of Service Provider (for example a service anniversary) unless agreed to by Service Provider.
If employees transfer by way of commercial agreement (rather than by operation of law), Service Provider is not required to credit seniority or honor terms and conditions of employment.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
If a Customer employee is terminated in a transfer of business situation and his/ her position is filled by a Service Provider employee, the dismissed Customer employee will have significant leverage to challenge the termination and/or claim employment with Service Provider.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Dutch law generally does not recognise a risk of co-employment, as long as Customer does not directly pay any salary to the `insourced' employees from Service Provider and the primary relationship of employment related authority lies with Service Provider (following the employee transfer).
All companies in the Netherlands that assign employees for (financial) consideration must request the Dutch Chamber of Commerce to register them as such in the Commercial Register (even if the assignment activities do not qualify as the company's core activities).
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
This is not an issue in the Netherlands.
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Poland
Piotr Rawski Warsaw Tel: +48 22 445 3133 Piotr.Rawski@bakermckenzie.com
Bartlomiej Babaczyk Warsaw Tel: + 48 22 445 3212 Bartlomiej.Babanczyk@bakermckenzie.com
Paulina Labecka Warsaw Tel: +48 22 445 3186 Paulina.Labecka@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy requirements and consultation with trade unions/works councils.
If the outsourcing constitutes a transfer of business, the in-scope employees transfer automatically to Service Provider (on existing terms and conditions of employment and subject to crediting of service). Since a transfer of undertaking itself cannot constitute a basis for termination, neither Customer nor Service Provider (if outsourcing in fact constitutes a transfer of business) may terminate in-scope employees before or after a transfer solely because of it occurring.
In case of an automatic transfer, notification and consultation obligations apply.
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid violating labor rules.
1. Existence of laws or regulations excluding / limiting outsourcing
In Poland, the outsourcing of functions or services is not per se limited or excluded. Although there are certain legal requirements that must be complied with in any proposed outsourcing arrangement (e.g., data privacy and notification/consultation requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
If the outsourcing constitutes a transfer of business, Service Provider is required to employ the in-scope employees by operation of law. No new employment agreements need to be executed.
The automatic transfer is governed by several conditions, including: (a) there must be a factual base of transfer (transfer of assets, functions, leasing, other); (b) all employees assigned to a particular enterprise or part thereof must transfer (i.e., no cherry picking is allowed); (c) employees transfer on the existing terms and conditions; and (d) employees transfer at the same time as assets/functions.
If the outsourcing does not constitute a transfer of business, Service Provider is not required to employ in-scope employees but the parties may commercially agree a transfer of the in-scope employees to Service Provider by way of a tripartite agreement.
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3. Mechanism of employee transfer (automatic vs. termination and offer)
If the outsourcing constitutes a transfer of business, the employees transfer automatically. In-scope employees have no right to object to the transfer. However, they have a right to terminate their employment within two months of the transfer date by providing seven days' notice. If the employees terminate their employment following the transfer on the basis of material adverse changes to their work/remuneration conditions, they may be entitled to severance payments. In an automatic transfer scenario, both Customer and Service Provider would be jointly and severally liable for the duties resulting from the employment relationship (unless Customer is entirely transferred to Service Provider in which case Service Provider would be solely liable).
If the outsourcing does not constitute a transfer of business, employees may be transferred by way of a termination and rehire which may be effected by a tripartite agreement between Customer, Service Provider and employee.
4. If automatic transfer applies, any preconditions for such transfer
Both Customer and Service Provider must notify relevant trade unions about the intended transfer in writing and, if they intend to change in-scope employees' terms and condition of employment (to the extent this is permissible), they must negotiate these changes with the trade unions. In the absence of trade unions, the written notice of the intended transfer (providing, among others, its anticipated dates, reason and consequences for in-scope employees) must be provided to the employees directly. Notices must be issued no later than 30 days prior to the intended transfer date.
Relevant works councils (if any) must also be notified and consulted about the intended transfer. While the law does not prescribe a specific notice period, notice is typically given 30 days prior to the intended transfer to allow works councils sufficient time to analyse the information provided.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In case of an automatic transfer, Service Provider must credit seniority and honor Customer terms and conditions of employment (i.e. the employees transfer on their current terms and conditions of employment).
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In a termination/rehire scenario, Service Provider is not required to credit seniority or honor Customer terms and conditions of employment, but this is frequently done in practice.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
If Customer employees are replaced by employees of Service Provider, they may be entitled to a statutory severance payment since such terminations would be considered as taking place due to reasons not related to an employee. In this case, whether a severance payment will be due or not, will depend on the Customer's headcount these severance rules apply only to entities with at least 20 employees.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer must not retain direct "supervision and control" over the outsourced employees as this might violate labor lending rules. The lending of employees from Service Provider to Customer would only be permissible if Service Provider has a licence (registration with the authorities is required). In the absence thereof, it must be ensured that Service Provider has supervision and control over the outsourced employees.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Generally, it is important to make sure that work orders go through Service Provider as opposed to being given directly to outsourced employees. In other words, work orders should be routed to an authorized team leader who receives the orders on behalf of Service Provider. The team leader can instruct each of his team members to perform his/her work based on that.
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Russia
Evgeny Reyzman Moscow Tel: +7 495 787 2700 Evgeny.Reyzman@bakermckenzie.com
Nina Mogutova Moscow Tel: +7 495 787 2700 Nina.Mogutova@bakermckenzie.com
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Key Takeaways
Russian legislation differentiates the concepts of "outsourcing" (the provision of specific services) and "outstaffing"/ "borrowed labor" (the provision of personnel). While the first is not prohibited by law, the second is significantly limited by Russian labor legislation. Care must be taken that an outsourcing is not considered as prohibited "borrowed labor".
Russian law does not recognise an automatic transfer of employees. An employee transfer may only be effected by way of a termination/ rehire.
Termination of employment is only permitted on grounds specifically listed by law or with the employee's written consent.
A number of actions should be avoided by the Customer in order to eliminate the risk of being recognised as an actual employer of Service Provider employees.
1. Laws or regulations that prohibit/limit outsourcing
Under Russian law, it is important to differentiate between the concepts of "outsourcing" on the one hand and "outstaffing"/ "borrowed labor" on the other hand.
The concept of "outsourcing" is understood in Russia in the same way as in other jurisdictions, i.e., Customer engages Service Provider to perform certain tasks or services (often in the fields of IT, accounting, clearing services, etc.) which Customer used to perform itself. Service Provider would use its own employees and/ or engage specialists to perform those services for Customer. The subject matter of the agreement would be the provision of services (rather than the provision of personnel). Subject to the below, Russian law does not per se limit the outsourcing of functions or services.
The concepts of "outstaffing" and "borrowed labor" entail the provision of personnel by one company to another pursuant to a provision of staff services agreement. Generally, the provision of personnel is prohibited under Russian law. More specifically, since January 2016, Federal Law No. 116-FZ "On changes to certain legislative acts of the Russian Federation" ("Law") prohibits the provision of personnel as "borrowed labor". As an exception to this prohibition, the Law allows the provision of personnel as legitimate "outstaffing" on strict conditions (e.g., there are specific needs/ reasons for the provision of personnel such as the temporary expansion of business/services and the term of the provision of personnel is limited to a maximum of nine months).
Care must be taken that an outsourcing is not seen as a camouflaged "borrowed labor".
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2. Obligation of Service Provider to employ in-scope employees
Service Provider is not required in any circumstances to employ in-scope employees (unless contractually agreed between the parties). It is not recommended to a contractually agree a transfer of in-scope employees from Customer to Service Provider as the provision of services by those in-scope employees to Customer post-outsourcing will likely violate strict labor lending rules (as explained above).
3. Mechanism of employee transfer (automatic vs. termination)
Russian law does not recognise an automatic transfer of employees. The only way to transfer in-scope employees from Customer to Service Provider would be via termination/rehire which would require the employees' respective consents.
Additionally, it should be borne in mind that in Russia employment termination is only allowed on grounds specifically set out by the Russian Labor Code. In the absence of such ground, a termination of employment requires the employee's explicit written consent.
4. Preconditions for automatic transfers
N/A.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In case in-scope employees transfer from Customer to Service Provider by way of a termination/ rehire, Service Provider is not required to credit seniority or honor Customer terms and conditions of employment.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
As explained, replacing employees is possible only through the termination/rehire procedure. Termination of employment, in turn, is strictly regulated in Russia and allowed only on grounds set out in the Russian Labor Code. The most reliable termination is a termination with the employee's consent. If Customer employees are replaced by Service Provider employees,
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they may challenge their termination and claim reinstatement if the termination cannot be based on a valid ground set out in the Russian Labor Code or the employee's valid consent.
The Russian Labor Code prescribes severance payments in cases of redundancies. Further, if a termination is based on mutual consent, the parties may agree that a severance is paid. To the extent Customer employees are made redundant because they are replaced by Service Provider employees, they may be able to claim severances as provided for by law or as agreed but the replacement as such does not provide leverage to claim a higher severance provided that the employment termination procedure has been conducted in compliance with the Russian Labor Code.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
To ensure that Service Provider employees do not have grounds to claim defacto employment by Customer, employees should only be included in the Service Provider's (not the Customer's) staff schedule and be required to comply with Service Provider's internal labor regulations. Moreover, Customer should avoid the following actions:
selecting employees to be hired by Service Provider (e.g., participating in the interview process, etc.);
conducting training of Service Provider employees;
determining remuneration and other benefits of Service Provider employees (such as annual leave);
defining and amending job duties of Service Provider employees; and
including employees in the Customer's internal systems (for instance, ID and e-mail).
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Interfaces may be established between Customer personnel and Service Provider personnel to exchange information and products. However, Customer instructions should be directed to a single point or multiple points of contact at Service Provider (e.g., a manager who communicates with respective employees), but not directly to the outsourced employees. Thus, Customer may give instructions to a contact person at Service Provider, and the latter then delivers such instructions to the outsourced employees.
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As a general rule, Service Provider provides tools, premises and infrastructure to its employees. However, if Service Provider does not have adequate tools and the parties have agreed this in the Services Agreement, Customer may provide tools or infrastructure to outsourced employees.
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Singapore
Kelvin Poa Singapore Tel: +65 6434 2524 Kelvin.Poa@bakermckenzie.com
Ng Zhao Yang Singapore Tel: +65 6434 2701 Zhao.Yang.Ng@bakermckenzie.com
Nicole Wong Singapore Tel: +65 6434 2273 Nicole.Wong@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy and notification/ consultation requirements. Specific rules apply to outsourcing undertaken by financial institutions.
If the outsourcing constitutes a transfer of undertaking, Service Provider is required to employ employees that fall within the scope of the Employment Act ("EA") (Cap. 91) on existing terms and conditions and recognising seniority. In all other cases, a transfer may only occur by way of a termination/ rehire and there is no legal obligation on Service Provider to honor existing terms and conditions of employment or past seniority.
In the case of an automatic transfer under the EA, notification and consultation obligations arise.
Customer should be careful to avoid being considered co-employer of outsourced employees.
1. Existence of laws or regulations excluding / limiting outsourcing
In Singapore, the outsourcing of functions or services is not per se limited or excluded. Although there are certain legal requirements that must be complied with in any proposed outsourcing arrangement (e.g., data privacy and notification/ consultation requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
Any material outsourcing arrangement by any financial institution as defined in section 27A of the Monetary Authority of Singapore Act (Cap. 186) is regulated by the Monetary Authority of Singapore ("MAS") and must comply with the MAS Guidelines on Outsourcing. These Guidelines define "material outsourcing" as an outsourcing arrangement which, if disrupted, has the potential to materially impact a financial institution's business operations, reputation or profitability or affect an institution's ability to manage risk and comply with applicable laws and regulations.
2. Obligation of Service Provider to employ in-scope employees
If the outsourcing constitutes a transfer of undertaking, Service Provider is required to employ those employees that are covered by the EA, namely: (a) non-manager and non-executive employees; and (b) professional managerial and executive employees who earn a base salary of less than S$4,500 per month.
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The EA defines an "undertaking" as any trade or business and "transfer" to include the disposition of a business as a going concern and a transfer effected by sale, amalgamation, merger, reconstruction or operation of law. For an outsourcing to constitute a transfer of undertaking, an "economic entity" must be transferred as a whole meaning that the "economic entity" will need to retain its identity throughout and following the transfer. An "economic entity" is defined as an organised grouping of resources (which includes employees, assets and functions).
If the outsourcing does not constitute a transfer of undertaking, Service Provider is not required to employ in-scope employees but the parties may commercially agree a transfer of the in-scope employees to Service Provider. Service Provider is also not required to employ employees not covered by the EA.
3. Mechanism of employee transfer (automatic vs. termination and offer)
In-scope employees transfer automatically from Customer to Service Provider by operation of law if the outsourcing satisfies the criteria of a "transfer of undertaking" (or part thereof) provided the employees fall within the scope of the EA (as outlined above).
A dispute or disagreement between Customer/ Service Provider and an employee regarding such automatic transfer may be referred to the Commissioner for Labor who has the power to:
delay or prohibit the transfer of the employee concerned; and
order the transfer of the employee and set terms that are considered just.
In-scope employees will automatically transfer to Service Provider unless they are redeployed within the Customer business, they resign or they agree with Customer to terminate the employment relationship. There is no legislation in Singapore providing for payment of severance benefits upon termination. Accordingly, severance benefits would be a matter left to the employment contract or for the employee and Customer to negotiate.
Where the employees do not transfer automatically by operation of law, they may transfer by termination/resignation and rehire. The termination / resignation must be carried out in accordance with the terms of the existing employment contracts. To the extent that the employees do not accept Service Provider's offers of employment and Customer does not wish to retain them, the termination of their employment will have to be carried out in accordance with the terms of the employment contract.
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4. If automatic transfer applies, any preconditions for such transfer
Notification and consultation obligations arise under the EA in automatic transfer scenarios. Customer shall notify the employees and the trade union of such employees (if any) of:
the fact that the transfer is to take place, the approximate date on which it is to take place and the reasons for it;
the implications of the transfer; and
the measures that Customer/ Service Provider will take in relation to those employees in connection with the transfer.
As soon as reasonably possible, Service Provider must provide Customer with the information necessary to enable Customer to carry out its consultation duty with the employees and the trade union of such employees (if any) regarding the intended transfer. If consultations are not conducted reasonably, the Ministry of Manpower may order the consultations to be held in a specific form and manner.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
In a termination/ rehire scenario, there is no legal obligation for Service Provider to credit seniority with Customer or honor the employee's terms and conditions of employment. However, from a practical point of view, employees may not accept Service Provider's offers of employment unless the terms and conditions are at least comparable.
In case of an automatic transfer scenario, the EA effectively provides for a rollover of benefits and obligations. Employees covered by the EA effectively transfer to Service Provider on their existing terms and conditions of employment and retain their seniority i.e., years of continuous service with Customer. However, it may not always be practicable to offer the exact same terms and conditions of employment in practice. The EA allows Service Provider to negotiate with employees for the purpose of agreeing terms of service that are different from the existing terms and conditions of employment.
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6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
Severance benefits are left for the parties to negotiate. Although the employees' redundancy is not likely to be genuine, the employees may have leverage to claim for reinstatement or negotiate a higher severance payment.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Singapore employment law recognises the concept of co-employment but no additional labor lending rules. To the extent possible, Customer should not exercise any control or management over the outsourced employees to avoid any co-employer risk. The service agreement implementing the outsourcing arrangement should clearly provide that Service Provider is responsible for managing the outsourced employees.
Further, Customer should avoid any direct communication with the outsourced employees, i.e. all communication should be done through Service Provider. This includes not giving the outsourced employees any instructions in carrying out work and not providing any tools, equipment or training post-outsourcing.
Notwithstanding the above, there always remains a co-employment risk. The Singapore courts will consider whether the outsourcing qualifies as second employment on a case-by-case analysis according to the factors used to determine employment status.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
In general, Customer should refrain from providing any tools, resources or training to the outsourced employees post-outsourcing as this will incur the risk of co-employment.
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Taiwan
Seraphim Ma Taipei Tel: +886 2 2715 7252 Seraphim.Ma@bakermckenzie.com
Pamela Tsai Taipei Tel: +886 2 2715 7396 Pamela.Tsai@bakermckenzie.com
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Key Takeaways
Although there are no general prohibitions on outsourcing, certain legal requirements must be met such as data privacy requirements.
Taiwan does not recognise automatic transfers of employees as a result of outsourcing. In-scope employees are usually transferred from Customer to Service Provider by way of "termination and rehire" or "transfer by contract".
Post-outsourcing, Customer should refrain from directing or controlling the outsourced employees in order to avoid co-employment risk.
1. Existence of laws or regulations excluding / limiting outsourcing
In Taiwan, except for financial institutions, the outsourcing of functions or services is not per se limited or excluded. Although there are certain legal requirements that must be complied with in any proposed outsourcing arrangement (e.g., data privacy requirements), such limitations should not preclude Customer from outsourcing certain functions or services.
2. Obligation of Service Provider to employ in-scope employees
Service Provider is not required to employ in-scope employees but the parties may commercially agree a transfer of the in-scope employees to Service Provider. If no transfer is agreed, the in-scope employees remain with Customer unless their employment is validly terminated with notice and severance payment in accordance with the Labor Standards Law. The Service Provider is then free to hire those employees.
3. Mechanism of employee transfer (automatic vs. termination and offer)
In Taiwan, there is no automatic transfer of employees as a result of outsourcing. The commonly adopted approaches for the transfer of employees are the "termination and rehire" method or the "transfer by contract" method.
For "termination and rehire," Customer will dismiss the employees (provided Customer can rely on a statutory termination ground) with statutory severance payments and Service Provider will hire the employees without recognising their service years accrued with the Customer.
For "transfer by contract," no severance payment will be triggered. Theoretically, the "transfer by contract" approach is structured as an employee's voluntary resignation from Customer or the employee's/
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Customer's mutually agreed termination and the employee's joining of the Service Provider with the Service Provider usually recognising the years of service and benefits accrued with Customer without any interruption. In practice, a tri-party transfer letter may be used to effect the transfer.
4. If automatic transfer applies, any preconditions for such transfer
N/A.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
Regardless of whether an employee transfer occurs by way of termination/ rehire or transfer by contract, Service Provider is not required to credit seniority or honor customer terms and conditions of employment. However this is frequently commercially agreed, in particular, for critical employees. As per response to question (3) above, in case of a transfer by contract, Service Provider would usually credit seniority of employees with Customer and honor existing terms and conditions in order to provide an incentive to in-scope employees to transfer for Service Provider.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
If a Customer employee is terminated and his/ her position is filled by a Service Provider employee, the dismissed Customer employee will have significant leverage to challenge the termination and/or claim reinstatement.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer must not:
include transferred employees in internal Customer organisation, reporting structure and directories;
give transferred employees Customer business cards, Customer business e-mail addresses and/or telephone numbers; or
provide any form of compensation and benefits to transferred employees.
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If Customer violates these rules, employees could claim to be employed by Customer and Customer could be held liable as an employer to the employee.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
Interfaces may be established between Customer personnel and Service Provider personnel to exchange information and products. However, it is recommended that Customer instructions be directed to a single point or multiple points of contact at Service Provider and not directly to the outsourced employees.
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United Kingdom
Daniel Ellis London Tel: +44 20 7919 1498 Daniel.Ellis@bakermckenzie.com
Paul Harrison London Tel: +44 20 7919 1320 Paul.Harrison@bakermckenzie.com
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Key Takeaways
UK law does not exclude or limit outsourcing.
Outsourcing generally attracts TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) which means that the inscope employees transfer automatically to Service Provider on existing terms and conditions of employment and subject to crediting of seniority.
In an automatic transfer scenario, there are various obligations to inform and consult with employee representatives.
The risk of dual employment or violating labor lending rules in typical outsourcing scenarios in the UK is very low.
1. Existence of laws or regulations excluding / limiting outsourcing
UK law does not exclude or limit outsourcing.
2. Obligation of Service Provider to employ in-scope employees
Service Provider is obliged to employ in-scope employees if the outsourcing constitutes a "service provision change" or a "transfer of business" under TUPE (the UK's implementation of the Acquired Rights Directive).
An outsourcing will constitute a "service provision change" under TUPE where:
activities cease to be carried out by Customer and are carried out instead by Service Provider,
immediately before the outsourcing, there is an organised grouping of employees (which can be just one employee) in Great Britain whose principal purpose is the carrying out of the activities concerned on behalf of Customer, and
the activities are fundamentally the same before and after the outsourcing.
Outsourcings will generally trigger the "service provision change" principles under TUPE. They may also be triggered where the Customer decides to insource services or change the existing Service Provider.
It is also possible for an outsourcing to constitute a "transfer of business" under TUPE if it involves the transfer of an economic entity which retains its identity.
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If the outsourcing does not constitute a transfer of a business or service provision change, Service Provider is not required to employ in-scope employees but the parties may commercially agree a transfer of the in-scope employees to Service Provider.
3. Mechanism of employee transfer (automatic vs. termination and offer)
If TUPE applies, the in-scope employees will transfer automatically by operation of law to Service Provider (subject to the employees' right to object). Service Provider will effectively step into Customer's shoes and inherit all the liabilities relating to the in-scope employees (including those pre-transfer) save in respect of some rights under occupational pension schemes which do not transfer.
If TUPE does not apply, employees may be transferred by a termination/ offer procedure.
4. If automatic transfer applies, any preconditions for such transfer
Both Customer and Service Provider must inform and - if appropriate - consult appropriate representatives of those of its employees who are "affected" by the transfer or any measures taken in connection with it, in "good time" before the transfer.
Where there is already a recognised trade union, the consultation must be with representatives of that union. Where some or all of the affected employees are not covered by a recognised trade union, the employer must in respect of those employees inform and consult with either:
a pre-existing employee representative body with a mandate to act in relation to the transfer; or
representatives elected for the purpose.
A breach of these requirements will not stop the automatic transfer of employees from taking place, but may result in a claim for compensation, up to a maximum amount of 13 weeks' actual pay for each affected employee.
Customer must also provide Service Provider with certain key information about the transferring employees at least 28 days before the transfer.
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5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
If TUPE applies, the in-scope employees transfer to Service Provider on their existing terms and conditions of employment (apart from some terms in relation to occupational pensions) and retain their seniority i.e., years of continuous service with Customer.
Any changes to terms and conditions will be void if the reason for the change is the transfer itself unless Service Provider has an "ETO" reason, and Service Provider and the employee agree the change, or the terms of the existing contract permit the change. An ETO reason is an economic, technical or organisational reason which involves a change in workforce functions, numbers or location. Changes which are purely to harmonise Customer's terms with Service Provider's terms will not be enforceable.
In the UK, collectively-agreed terms (i.e., terms negotiated with a union at local or national level) are typically incorporated into individual contracts of employment. They therefore need to be preserved as explained above. However, TUPE does allow changes to collectively-agreed terms, provided they are implemented more than one year after the transfer and the overall contract of employment is no less favourable than before.
In addition, if the transfer involves any substantial change to the employee's working conditions to his/her material detriment, he/she is entitled to resign and treat the resignation as a dismissal.
If TUPE does not apply, and employees transfer by way of a termination/ rehire scenario, Service Provider is not legally required to credit seniority or honor existing Customer terms and conditions of employment.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
If Service Provider uses its own employees instead of allowing Customer employees to transfer in circumstances where TUPE applies, the in-scope Customer employees may bring a claim. The fact that they were made redundant and their work is now being done by Service Provider's employees does not make it more likely that TUPE applies but does, in practical terms, make it more likely that they will bring claims. If they can show that they should have transferred under TUPE, they can claim compensation for unfair dismissal (assuming they have 2 years' service) on top of their redundancy
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severance payment. Re-instatement orders are rare in the UK and, if made, they can be avoided on payment of extra compensation.
7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
UK law has not historically recognised the concept of co-employment in this context. In addition, UK law is very permissive towards "labor lending". The conduct of employment agencies/businesses (i.e., companies who supply labor to other companies) is lightly regulated, in that there are certain paperwork and transparency requirements. However, there are no onerous labor lending rules.
If Service Provider only provides labor/employees to Customer it could end up being regarded as an employment agency/business and so caught by the applicable regulatory regime. In practice, however, this is unlikely in an outsourcing context since Service Provider ordinarily takes responsibility for the service, rather than simply supplying labor.
As long as Service Provider is defined and agreed to be the employer, UK law is very permissive about how its employees operate/appear whilst working on an outsourced contract. For example, Service Provider employees can wear Customer Uniforms, have Customer e-mail addresses and use Customer equipment but Service Provider would still be the employer.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
See question 7.
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United States
Carole Spink Chicago Tel: +1 312 861 8065 Carole.Spink@bakermckenzie.com
Elizabeth Ebersole Chicago Tel: +1 312 861 8272 Elizabeth.Ebersole@bakermckenzie.com
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Key Takeaways
US Federal law does not exclude or limit outsourcing.
In-scope employees do not automatically transfer to Service Provider but an employee transfer can be effected by way of a termination/ rehire.
The risk of dual employment or violating labor lending rules in typical outsourcing scenarios in the US is low.
1. Existence of laws or regulations excluding / limiting outsourcing
US law does not exclude or limit outsourcing.
2. Obligation of Service Provider to employ in-scope employees
None. There is no obligation on Service Provider to employ in-scope employees but the parties may reach a commercial agreement with respect to the form of any employment offer by Service Provider to in-scope employees. In this regard, it is common for Customer to require Service Provider to make offers of employment to in-scope employees on terms which are no less favorable than the respective employee's terms of employment with Customer, and with recognition of the respective employee's prior service with Customer.
If an in-scope employee rejects the offer, Customer must decide whether to terminate the employment. In the absence of an agreement with the employee or applicable Collective Bargaining Agreement, employees in the US are engaged at-will, and no statutory notice or severance is due in the case of an individual termination. (Please see Questions 3 below regarding WARN Act implications.)
If Service Provider elects to "cherry-pick" in-scope employees, both parties should be aware of potential discrimination issues in the event that those not chosen will be terminated.
Note that additional State and local requirements may apply.
3. Mechanism of employee transfer (automatic vs. termination and offer)
Employees do not transfer automatically. Any employee transfer from Customer to Service Provider requires a termination by Customer and acceptance of an offer of employment made by Service Provider.
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In the absence of an agreement with the employee or applicable Collective Bargaining Agreement, employees in the US are engaged at-will, and no statutory notice or severance is due in the case of an individual termination.
Generally, if a Customer has 100 or more employees, the Worker Adjustment Retraining and Notification Act 1988 ("WARN Act") will apply. In such cases, Customer must provide employees with 60 days' prior notice in case of:
(a) mass layoffs (50 or more employees (if they make up at least 33% of the workforce) or 500 employees) at a single site of employment; or
(b) plant closing (50 or more employees during any 30 day period).
These requirements can be triggered even if Service Provider engages some or all of the in-scope employees. Additional State and local requirements may apply.
Additionally, if employees will be terminated and will not receive an offer from Service Provider, Customer should follow the best practice steps for a reduction in force, including conducting a disparate impact analysis, as well as considering timing and whether Customer wants to provide a separation payment in exchange for a release, and if so, group data reports for compliance with the Older Workers Benefit Protection Act of 1990 ("OWBPA") as applicable.
4. If automatic transfer applies, any preconditions for such transfer
N/A.
5. Obligation of Service Provider to credit seniority with Customer and/or honor Customer terms and conditions of employment; limits to changes to terms and conditions
None. However, the parties often commercially agree to credit service.
6. Does replacement of Customer employees by employees of Service Provider provide leverage to redundant employees to claim re-instatement or a higher severance?
No.
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7. Absolute "no-goes" for Customer post-outsourcing to avoid any co-employer risk or violation of labor lending rules
Customer should avoid exercising direction and control over Service Provider's employees and also avoid treating Service Provider's employees the same as its own employees.
8. What can Customer provide to the outsourced employees post-outsourcing without incurring the risk of co-employment/illegal labor lending?
See question 7.
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