A regulation to defend the rights of workers laid off by overseas services — the updated Transfer of Undertakings (Protection of Employment) (TUPE) — was recently passed in the U.K. This has generated much debate with offshoring service providers fearing that it may slow down sourcing from the U.K.
The regulation binds overseas providers with legal and financial accountability for British employees, and could have an adverse economic impact for providers accepting overseas service contracts from British companies. Service providers could now be required to compulsorily negotiate protection against legal challenges by British employees who could have lost their livelihood when services were transferred to the overseas locations. This might amount to millions of pounds in problems for many providers.
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Updates to TUPE could inflate outsourcing costs for British companies, since overseas providers will now need to factor in the risk of being sued by a British court into its pricing
The law could also inflate outsourcing costs for British companies, since overseas providers will now need to factor the risk of being sued by a British court into its pricing. This, in fact, could result in the escalation of prices for companies wanting to offshore.
But TUPE has much the same effect on the U.K.’s customer companies wanting to offshore as it does on the service providers. Under it, both
the customers and providers have to agree to the extent to which they will bear the costs associated with the transfer of people and other accompanying redundancies.
“The new regulation will neither stand in the way of decisions that have to be taken by the U.K. businesses looking to gain the benefits of offshoring to India, nor impose any greater obstacles to offshoring than we have seen previously,” says Mark Lewis, Partner and Head, IT and Outsourcing Practice, Lawrence Graham, a law firm in the U.K.
TUPE applies to functions that are contracted out, only when staff from the old enterprise are employed by a new provider. “It is very unlikely that the U.K. employers will move their employees to India when a business function transfers from the U.K. to India. The most likely scenario is that the U.K. employees are re-assigned by the U.K. business or agree to be made redundant. Where the U.K. employees decide not to transfer, the new employer can employ others, and is not required to pay them at rates paid by the earlier employer,” argues U.K.’s Department of Trade and Industry. “In short, Indian employers rarely take on the U.K. employees when a transfer occurs, and can hire local employees on new terms and conditions agreed upon.”
TUPE has been around since the early ’80s. The latest rules are a restatement and an update of the original rules. “TUPE can have a significant impact on pricing — as previously. It is important for both parties, but especially to the outsourcer — to be advised on the applications of TUPE and to undertake full HR diligence before committing to pricing for the outsourced services,” says Lewis.
