Employment issues affecting outsource of IT


The Transfer of Undertakings (Protection of Employment) Regulations 2006 (normally called 'TUPE') will apply to almost all outsource IT is currently based in the EU.  The effect of TUPE applying will be to transfer the employees engaged in the relevant services from the customer to the outsourced IT Company.  Where one outsourced IT Company is replaced by another, the employees will transfer from the outgoing provider to the new outsourced IT Company. 


TUPE transfers the rights and liabilities associated with the employees from the old employer to the new outsourced IT employee. For instance, if an outsourced IT employee of the customer has a claim for race discrimination against the customer, liability for that claim will pass to the outsourced IT Company when the employee transfers. 


New liabilities can arise if the outgoing and incoming employers fail to comply with obligations under TUPE to inform and consult the outsourced IT employees.  The services agreement therefore usually contains appropriate warranties and indemnities in relation to the parties' liability for the transferred staff prior to the transfer, post transfer and on exit.


Other employment law developments affecting the outsource IT transactions include the following:

    * A recent case has established that TUPE can apply even where a service is "offshored".  This creates risks both for the customer and the offshore outsourced IT Company which previously would have been thought not to exist.
    * TUPE now requires the outgoing employer to provide the incoming employer with specified information about the transferring employees.  Failing to do so can give rise to claims for compensation
    * Although occupational pensions do not transfer under TUPE, certain rights under these schemes may do so.  In addition, pension’s legislation now requires a new employer to make pension contributions for transferring employees where the old employer contributed to an occupational pension scheme.

 Impact of a breach of TUPE

Ignoring these principles could have very costly consequences for both the delegating organisation and the external supplier. If employees consider their rights under TUPE have been infringed, they may be able to seek redress through the civil courts or the employment tribunals. If complaints are upheld, awards may be made against either party, depending on the circumstances of the transfer. In an unfair dismissal claim, the maximum compensation a tribunal can award will be £76,700 from 1 February 2010. A breach of the information and consultation principle could also result in liability for the payment of up to 13 weeks’ pay for each affected employee.


The global dimension

Growth in the globalisation of markets has led to an increase in global outsource IT transactions.  Multinational outsource IT companies are seeking to provide implementation and management of their technology and other business processes on a worldwide basis.  Normally there is a requirement for a consistent level of service in all countries in which the customer is present and the ability to deliver that same service in countries that are targets for expansion.  This requirement for "global reach" means that, in practice, very few service outsourced IT are able to deliver the range of the services required and global deals tend to be concentrated in the hands of very few players.

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