Under the Transfer of Undertakings (Protection of Employment)
Regulations, better known as TUPE, when a business changes hands,
the existing terms and conditions in an employee's contract of
employment will continue automatically with the new employer.
Earlier this month, the rules were updated in response to
widespread concerns about their ambiguity and the burden they
presented to British business. But among the updates was an
extension of the rules to service provision changes.
India-based TataSoft was highly critical. "[It] could not only
possibly leave Indian BPO service providers with enormous
liabilities but could also assist in protectionism capturing root
in a country that was so far believed open to offshore outsourcing
services," it said in a statement.
The software development firm acts for UK clients and argues
that 'new TUPE', as it is sometimes known, "slaps overseas
contractors with legal and financial accountability for the British
employees". It warns that the law could also inflate overseas
service costs for British companies.
Edward Goodwyn, a partner with Pinsent Masons' employment group,
agreed that new TUPE is likely to heighten the risk of TUPE claims
in future when BPO services are sent to India.
He explains that, even under old TUPE, there was always a risk
that TUPE would apply in relation to offshoring to India. The issue
was whether or not there had been a "transfer of an undertaking or
business or part of an undertaking or business". The fact that the
undertaking ended up outside the EU was not fatal to the question
of whether TUPE applied; old TUPE made it clear that TUPE can apply
if the undertaking was situated immediately before the transfer in
the UK. "Clearly, a UK based IT service being outsourced to India
met that criteria and potentially there could be a TUPE transfer of
risk," said Goodwyn.
But the crucial question of whether old TUPE did apply always
turned on whether the undertaking effectively retained its identity
after the transfer. "There is very little case law to determine the
issue where a service has been moved out of the EU," said Goodwyn.
"However, the central issue under old TUPE was whether the
operation in India was sufficiently different so as to be a
different undertaking to that which had been previously operational
in the UK."
Goodwyn said that under old TUPE, it could be argued that the
mere change in geography meant the undertaking is different – so
that TUPE did not apply. "This argument had some merit – but it was
always, in our view, equally arguable that if BPO services in the
UK were likely to be the same BPO services in India, then TUPE
would apply.
Where TUPE did apply under old TUPE, the consequence was that
the UK employer would have various consultation and information
obligations in relation to the transfer. Additionally, any
dismissals by reason of the TUPE transfer were arguably
automatically unfair by the fact that they were connected to the
TUPE transfer. However, in relation to both obligations, liability
for failure to consult and liability for any unfair dismissal would
transfer to the new Indian transferee.
In other words, whilst TUPE would apply, the practical
consequence of this would be that the employees or trade union
would be left with seeking to enforce their claim against the
Indian company. Practically this would lead to the difficulty of
seeking to enforce UK TUPE rights in India. The only exception to
this was if the Indian outsourcing company had some UK presence
which allowed the employees or union to sue the UK Indian company
in the UK.
Whilst matters remain broadly the same under new TUPE, there are
some substantial differences that, in Goodwyn's view, increase the
risks to both the outgoing UK employer and the incoming Indian
employer.
Firstly, the issue of when TUPE applies and when it does not has
been modified. New TUPE makes it clear that TUPE will apply where
there has been a "service provision change". The definition now
means that the so called "innovative defence" is no longer
available where you are talking about a service provision
change.
So the Indian company would no longer be able to argue that the
mere fact that the services are being undertaken in India in an
innovative and different way means that new TUPE will not apply in
circumstances where the basic BPO service is still being provided.
To this extent, it is more likely that TUPE will apply to
offshoring of BPO Services.
Additionally, there has been a change under new TUPE as to who
bears responsibility for any failure to consult or inform the
employees in relation to TUPE. As mentioned, the obligation to
inform and consult predominately falls to the outgoing employer;
but liability for any failure would transfer under TUPE to the
incoming Indian company.
Under new TUPE, the liability for failure to consult or inform
is now joint and several between the transferor and transferee. As
such, if there has been a failure to inform and consult, the UK
employees and their trade union will be able to sue the outgoing UK
employer, who will be joint and severally liable for the whole
claim.
"The consequence of this," said Goodwyn, "is a higher likelihood
of employees and unions who have not been properly informed and
consulted under new TUPE after an offshoring bringing claims for
protective awards against the outgoing UK employer."
"Indian offshoring companies should continue to be aware of the
TUPE risk and indeed be advised that by reason of new TUPE, the
risk of TUPE applying and it inheriting employee claims has
increased," he said.
But Goodwyn points out that the UK employees still will face the
substantial practical problem of seeking to enforce their TUPE
rights which, more often than not, will need to be enforced against
the Indian company in India. "Nonetheless, it will be prudent for
Indian outsourcing companies to look for an indemnity in relation
to such claims as part of the offshoring agreement," he said.
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