Legislation puts cats among BPO pigeons

Despite their having been on the cards for some years now - the original EU directive dates back to 1977 - the recent amendments created more than a little panic in the business process outsourcing (BPO) business globally. Among the first news wires to carry the story was United Press International (UPI). The news wire reported that the revised regulations were intended to protect the rights of workers laid off by offshoring and outsourcing. UPI speculated that the new regulations could leave BPO service providers with huge liabilities and aid in protectionism taking root in a country that was so far considered open to outsourcing.

"The revised TUPE made effective in the UK on April 6 mandates that a company transferring part of its business to another company must also transfer the contracts of employment of the employees concerned to the new employer," noted UPI.

In the regulations themselves (available on www.dti.gov.uk), little has changed from the original version of TUPE. UPI says: "TUPE has been in existence since 1981 and was designed to provide employment rights to employees when their employer changes as a result of a transfer of an undertaking." Earlier the regulations applied to manufacturing companies, but now they have been amended to include outsourcing of services including sectors like telecommunications and IT."

Cliffe Decker attorney Preeta Bhagattjee says the change was made by, among other things, inserting the phrase "service provision changes" and clarifying its definition. This, she adds, has made all the difference because it means that for most purposes, the employee is treated as if the contract with the old employer continues with the new employer.

UPI offers an illustration of the possible effect: "If a client decides to source their legal work from a different provider, the legal team from the old provider would be entitled to transfer to the new provider under the same terms and conditions as before; if the new provider were to object, the new employees would be entitled to sue for unfair dismissal."

However, Daniel Ellis, an attorney with international law firm Baker & McKenzie, says that the furore about TUPE negatively affecting BPO operations in India, SA and elsewhere is accidental. "The [UK] government did not set out at all to impact the offshoring business. It changed TUPE to clarify when it applies, because the question had become very unclear under previous legislation. Any impact on offshoring has been a by-product of that process," he says.

Another point made by Ellis is that there is little enthusiasm among the unions in the UK to bring cases on behalf of their members, even though they could have tried to do so under the previous regulations.

And he would seem to be correct: globalsourcingnow.com reported on a clarification issued by the UK Department of Trade and Industry (DTI) in which it stated specifically that the latest version TUPE is not targeted to adversely affect outsourcing in India. And while the statement refers specifically to India, it is as valid for South Africa.

The DTI has apparently acknowledged that UK employers are unlikely to move their employees offshore while outsourcing business functions to other countries. They are most likely to be either re-assigned in the UK only or the employees might agree to be made redundant.

But the fact remains that the law is on the statute books in the UK and Germany, and expected to permeate the entire European Union at some point.

A literal reading of the new regulations seems to indicate that the local company would inherit all the employees of the existing call centre - at their current salaries. If the SA firm finds this inheritance somewhat taxing, financially, and chooses to retrench or terminate the contracts of UK-based employees, those former staff members would have legal recourse against the local company.

Anastasia Vatalidis, employment and labour law specialist at Werksmans Attorneys, believes that TUPE poses a real threat to local BPOs. "In the case of the UK employee, when that business is outsourced, even though it`s outsourced to a South African company, effectively the employees in the UK are moved out of the entity that outsourced, into the entity that is acquiring this new business," she explains.

"Now if their employment is terminated they could have a claim against the new employer ... against the South African company. That doesn`t necessarily mean they would have to come to SA, they could institute that action in the UK because that`s where the cause of the action arose. And, if they were to be successful and a UK court were to award compensation, they would be able to execute that claim against the SA company that acquired the business," says Vatalidis.

Bhagattjee disagrees and says that local call centres shouldn`t have anything to worry as long as they don`t take on new business from a UK firm that has closed down its own call centre operation.

"In a case like that there`s a residual liability," she says.

And while she concedes that TUPE could prove difficult to enforce across national boundaries, she strongly advises local BPOs to include an indemnity clause in their contracts.

Ellis agrees that indemnities are a good idea: "When we act for offshore service providers we negotiate clauses into the offshoring agreement which protects service providers from any claims by employees under the TUPE regulations. The indemnities are effective between the client and the service provider (although it does not prevent the employees bringing claims - it just determines which of the two companies are responsible for them)," he says.

However, Mfanu Mfayela, CEO of the South African Contact Centre Community (SACCCOM), doesn`t seem to think such action is necessary. In fact, he believes that local BPO operators have little to worry about regarding TUPE.

"Basically, TUPE is applicable to UK-based and registered companies. And, since SA falls under a different legislative jurisdiction it would be difficult for an individual employee to start suing a company in a another country," he offers.

He adds that SA is attracting growth business rather than cost-cutting business. Luke Mills, director of Calling the Cape, agrees, citing examples such as the UK`s Budget Insurance and Carphone Warehouse, which have established contact centres in Cape Town.

"These are wholly-owned subsidiaries so, effectively, they`ve just extended their contact centre footprint from the UK to here."

"People are not just moving offshore for the sake of cost savings. Often they`re moving offshore because ... they can`t recruit agents in the UK fast enough to be able to implement their marketing strategy," he explains. "At a conference in London last week a speaker mentioned that between now and 2010, the UK will need an additional 400 000 agents just to cope with growth in demand from the services sector," adds Mfayela.

Mills says: "I don`t think that there`s any real serious intention in the UK to put any legal obstacles in the way of offshoring."

The fact remains, though, that the law is on the UK statute books and is yet to be tested in court, something that may never happen. Bhagattjee bemoans the fact that legal action in the technology sector rarely gets finalised in court and is usually settled behind closed doors. "This is a pity because it doesn`t help much and because, without a test case, all we have are opinions," she adds.

Ellis too believes that a test case will make all the difference to TUPE. "In practice, we do not believe the changes to TUPE 2006 will have an impact on the industry. If there is ultimately a test case which finds that TUPE does apply in offshoring cases, there are other business models which could be adopted, without materially increasing the overall costs to either party," he concludes.

All of which leaves local BPOs with an interesting decision: Should they go to the trouble and expense, of consulting an attorney to include a workable indemnification clause in all their contracts or should they simply adopt a wait-and-see attitude?

Perhaps Forrester Research can offer guidance: "The new TUPE regulations are a clarification and extension of the existing legislation into outsourcing deals that involve staff transfers and service provision changes. Forrester sees no major effects on offshore outsourcing vendors, as the days of deals involving large-scale staff transfers are unlikely to come back in the UK.

"At the same time, however, there are aspects of the new regulations that have introduced further uncertainty; service providers will have to work closely with their legal counsel to minimize the risk of exposure to any liabilities under TUPE."

Then again, maybe not.what they said