Transfer of employees in secondary outsourcing timo karsten

Transfer of Employees in Secondary Outsourcing

Exchange of Information and other Key Legal Considerations

Helsinki, 10 June 2010

Dr. Timo Karsten

Agenda

1. Transfer of Employees: Legal context and EU jurisdiction

2. Change of Service Provider

1. Legal Context and EU Jurisdiction

Acquired Rights Directive 2001/23/EG: When will the Employment Relationships transfer?

• Definition of transfer of an undertaking, business or part of an undertaking or business as a result of a legal transfer or merger

"There is a transfer within the meaning of this Directive where there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary."

• But no Transfer of business according to Directive in cases of

• Mere change of service provider

• Purchase of single assets which are not organisationally connected and therefore do not form a economic entity

7 Criteria for a Transfer of Business

Following facts characterising the transaction have to be considered:

1. Type of undertaking or business concerned

2. Whether or not its tangible assets, such as buildings and movable property, are transferred

3. The value of its intangible assets at the time of the transfer,

4. Whether or not the majority of its employees are taken over by the new employer,

5. Whether or not its customers are transferred,

6. The degree of similarity between the activities carried on before and after the transfer,

7. The period, if any, for which those activities were suspended.

Transfer of business in service providing sectors

Where a business is reliant on manpower, the fact of whether tangible or intangible assets are transferred carries little weight when determining whether the business has retained its identity.

Therefore taking over a major part, in terms of their number and skills, of the employees assigned by the predecessor to that task and the continuation of the services mostly unchanged can meet the conditions for a transfer of business.

In consequence all employment relationships will transfer with all acquired rights.

1. European Court 20.11.2003, C-340/01 (Carlito Abler and Others

v Sodexho MM Catering Gesellschaft mbH)

2. European Court 15.12 2005, C-232, 233/04 (Güney-Görres and Demir

vSecuricor Aviation (Germany) Ltd. and

Kötter Aviation Security GmbH & Co. KG)

EuGH 15.12.2005, C 232, 233/04 (Güney-Görres)Change of Provider - Transfer of Business

Customer

2nd Provider1st Provider

Return of Customer ownedassets

ARD: Transfer of Employees

Use of assets formerly used by 1st Provider

?

Services

The fact that the tangible assets taken over by the new contractor did not belong to its predecessor but were provided by the contracting authority/Customer cannot preclude the existence of a transfer of business

Lessons learned from the cases "Abler" and "Güney-Görres"

• No direct contractual relationship between the transferor and the transferee needed. The transfer of business may take place through the

intermediary of a third party.

• Use of customer's assets by the 2nd Provider for performing the services may provoke a transfer of the employees of the 1st provider, even if the assets are not owned or transferred to him for independent commercial use.

• Advantage for 1st provider: Staff reduction without costs

• Transfer of employees with all acquired rights makes lower prizing for 2nd provider difficult

• Continuity of staff might be a problem if the earlier service level was not to the satisfaction of the customer

European Court 12 Februar 2009, C-466/07

(Klarenberg v Ferrotron Technologies GmbH)

Can a transfer of business be avoided by changing the organisational structure ?

Does the economic entity transferred not retain its "identity" in a situation where it looses after the transfer its organisational autonomy and the acquired resources are integrated by the transferee into an entirely new structure?

(e.g. German Federal Employment Court 14.8.2007 – 8 AZR 1043/06)

Can a transfer of business be avoided by changing the organisational structure ?

European Court 12 February 2009, C-466/07 (Klarenberg):

Raised Question to European Court:

• Is the Directive applicable in a situation where the new employer does not preserve the organisational autonomy of the part of the undertaking or business transferred?

Judgement:

• The Directive may also apply in a situation where the part of the undertaking or business transferred does not retain its organisational autonomy,

• provided that the functional link between the various elements of production transferred is preserved,

• and that that link enables the transferee to use those elements to pursue an identical or analogous economic activity.

Lessons learned from the case Klarenberg

• If a mayor part of the employees and/or other resources are taken over, a transfer of business can be avoided if the organisational autonomy is

changed and the functional link between the various elements of production transferred is dissolved.

• Request of customer to use same human resources for reasons of continuity or to use assets (e.g. R&D Centre) formerly used by the predecessor will bear the high risk of a transfer of business and the transfer

of employees from 1st to 2nd provider.

• In a manpower reliant business it is an indication for not preserving the functional link between the resources, if not a major part of the staff in terms of their number and skills is taken over.

How to destroy the functional link between various elements of production ?

Customer

Service Provider

Assets

Sub-Contractor

Dienstleistungsauftrag(without employees)

§ 613a BGB /Betriebsübergang

Dividing up of resources between different legal entities as solution ?

Employees

Agency work

No transfer of business:

The change of the service provider is no transfer of business if …

• The services are carried out with own resources/assets in the own establishment of the service provider

• No transfer of a mayor part of the employees

• No transfer of immaterial assets e.g. customer base and licences

2. Change of Service Provider

Three-Party Situation

Customer

2nd Provider1st Provider

Return of Customer ownedassets

ARD: Transfer of Employees

Use of assets formerly used by 1st Provider

?

Services

Change of Provider

The change of the provider could be a transfer of undertakings or business:

• Use of assets formerly used by the predecessor

• Taking over / recruiting major part of the employees / key personnel

Statutory transfer of employees with acquired rights

The employees assigned by the predecessor to the task at the moment of the transfer will transfer.

Change of provider – Lack of information concerning the Employees

• 1st provider can relocate the employees assigned to the project

Risk for Customer / 2nd provider which employees will transfer

No influence on the allocation of the employees?

• Customer and potential 2nd provider do not know the acquired rights of the employees and the HR costs related hereto

Risk for the calculation of the offer based on many assumptions

• 1st provider is during the offer phase competitor of other potential providers and not obliged to give information

Change of provider – Cooperation of the old provider?

Statutory situation: Obligation to cooperate?

• 1st provider has no obligation to help but to fulfil his own contract and to end the services at the end of the contract

Consequences:

• Only soft influence from Customer on 1st provider

• But: Also 1st provider should be interested to keep a good reputation in the market

• Contractual regulations should be used to regulate the change of the provider

• Variety of terms and conditions exist

Contractual clauses concerning the change of service provider

Employees - Relocation

• 1st provider should not be allowed to relocate the employees assigned to the project or to use them mainly for other projects without consent

• But: Employees might object to the transfer of their employment relationship

No perfect solution exists


Employees – acquired rights

• Lack of information concerning the terms and conditions of their contract / acquired rights

• Information needed for the calculation of the offer concerning

• Number of used personnel

• Details like age, length of service, salary, contractual benefits, pension schemes, holiday entitlement etc.

Contractual obligation between the 1st provider and the customer to share 6 months before the end of contract the needed information and the right to make the information available to a potential 2nd provider


Employees – Pension rights

• e.g. Germany: Pension rights transfer to new employer pursuant to Sec. 613a German Civil Code

• Pension accruals do not automatically transfer

• Assessment of the pension obligations according to international accounting standards (interest rate, salary trends, age trends

etc.) by actuary necessary, not according to the German accounting rules

Contractual agreement concerning the accounting standards and the transfer of the accruals / values from 1st to 2nd provider.


Employees – Further clauses concerning the termination of the agreement with 1st provider

• Communication plan agreed with customer concerning employees, unions, works councils and similar employees representatives

• Right to approach affected employees

• Right to approach works councils etc concerning consequences of the expiration or termination of the agreement


Alternative solutions for the information exchange process

• BITKOM = Bundesverband Informationswirtschaft, Telekommunikation und neue Medien e.V. represents around 1.200 enterprises in Germany.

• BITKOM Codex: Voluntary Commitment to cooperate and for stepwise information exchange between old and new provider concerning thre transfer of employees in 2nd generation outsourcing in Germany

BITKOM-Codex commitment

Contractual clauses concerning the change of service providerBITKOM Codex: Progressive Exchange of information

• "Request for Information" Phase: No exchange of information between the providers before the down selection

• "Request for Proposal" and "Best and Final Offer" Phase: Customer shall give his assumptions concerning the transfer of employees to potential new providers.

Information given to potential providers only via the customer to the permissible extend

• "Down select" Phase: Pursuant to the data protection laws and authorised by customer all relevant, anonymous made HR data shall be given in from old provider

to the potential new provider • How many employees are assigned more than 50 % to the project and in which work sections

• Annual average salary (anonymous)

• Places of work of the employees

• After Closing of contract: Rest of relevant HR data shall be provided• Close cooperation between o/n provider

• Definition of joint employee information/communication

• Agreement concerning transfer of pensions, insurances, other benefits, working/overtime accounts, holiday entitlements/accruals etc.

BITKOM Codex: Cooperation of Providers

Negotiations RFI, RFP, BAFO

Transition Phase HR Integration

• Analysis of the organisational structure of old provider

• Data analysis (Identification of key employees and terms and conditions between customer and old new provider

• Legal analysis: Transfer of business and employees?

• Cooperation with old provider

• Interviews with Employees

• Knowledge transfer from old provider

• Participation / co-determination of employees representatives

• First appraisal with employees

• Coaching and Monitoring

• Integration of the new employees in the service organisation

• communication to old Provider and employees

• Transformation and change management

1st Provider 2nd Provider

Contract Transfer of Employees

Contact

Questions?

Dr. Timo Karsten

Rechtsanwalt, Fachanwalt für Arbeitsrecht

Innere Kanalstr. 15 50823 Köln t +49 (0) 221 5108 4192 f +49 (0) 221 5108 4193 [email protected]