Employment and labour

Employee transfers

What rules, obligations and liabilities apply to the transfer of employees to and from the customer and supplier (including with regard to offshoring arrangements and termination of the outsourcing contract)?

Employment laws at the federal and state levels may be implicated in the outsourcing context when an employee is hired, terminated, transferred or re-badged, including laws relating to pensions, notice requirements, benefits and welfare, collective bargaining, anti-discrimination and other unfair practices. If the outsourcing results in a plant closure or mass layoff, prior notice to employees, certain agencies and local officials may be required under the Worker Adjustment and Retraining Notification (WARN) Act 1988 and its state equivalents. In addition, if the outsourcing crosses national borders, customers and service providers may be subject to the laws of foreign jurisdictions (eg, the EU Acquired Rights Directive), which safeguards employees’ rights and transfers contractual and statutory rights of a transferred employee from the customer to the service provider (or vice versa when employees are transferred back at the end of the term).

Consequences for violations of such employment laws vary depending on which laws have been violated. In general, penalties are limited to monetary damages and potentially job reinstatement to affected employees.

Definition of ‘employer’

How is ‘employer’ defined in the context of an outsourcing arrangement, and how does this affect the parties’ responsibilities and liabilities?

Outsourcing can result in transfers of employment, as well as the employees of one party taking direction from the other party. Generally, common law determines when an employment relationship exists in the United States, so it is important for the agreement to clearly state each party’s roles and responsibilities relating to employees (which may include terms dealing with compensation and benefits, security measures, employee training, any existing employment contracts and protection of employee data). The agreement should also incorporate safeguards against joint employer liability, which could result in one party being held responsible for the other party’s employment liabilities. In addition, state and federal laws may define ‘employer’ differently for specific purposes. For example, the WARN Act  contains its own definition of ‘employer.’ As with any arrangement involving employees, myriad employment laws must be considered when structuring an outsourcing arrangement. The parties should look at the specifics of each deal and obtain counsel on what employment risks need to be addressed.

Organised labour issues

To what extent are labour unions and works councils involved in outsourcing arrangements?

Labor unions and works councils are not often involved in the planning or negotiation of most IT or business process outsourcing arrangements in the United States, although a unionised workforce is more likely in outsourced manufacturing. Outsourcing agreements should address the parties’ responsibilities relating to collective bargaining agreements. From the customer’s perspective, the contract should require the service provider to make the customer aware of any collective bargaining agreements with unionised service provider personnel if the expiration of such an agreement or any resulting labour dispute could potentially interfere with the outsourced services or adversely affect the customer’s rights under the agreement.


What immigration schemes and rules are pertinent in the context of outsourcing arrangements?

US companies that will be hiring or using foreign workers to deliver services must comply with and obtain H-1B or L-1B visas, as applicable. Customers should be aware of, and require service providers to comply with, guidance published by US Citizenship and Immigration Services. Further, the outsourcing agreement should clearly allocate responsibility for obtaining required visas or work permits. Finally, customers often require service providers to use E-Verify – a Department of Homeland Security website – to confirm the eligibility of employees to work in the United States.