No HR exit clauses: unlimited risk
IC2Lead is often consulted on HR liabilities in recontracting procedures. Every now and then we stumble upon -in our view- remarkable contracts and management decisions. Here’s one that we want to share with you.
At the start of the initial outsourcing contract a vast number of staff transferred from the customer to the supplier. Seven years later, the customer wants to terminate the services and tender and negotiate a new contract with another supplier.
As there were no contract clauses on staff in the initial outsourcing contract and exit schedule, it is the customer’s belief that he doesn’t bear any liability for the (re)transition of staff on the account. As if the initial deal was a sale, not an outsourcing. That is a considerable omission at contract negotiation, we believe, because now this customer runs an unlimited risk on staff and related cost. Simply because he did not cap this liability in the exit schedule or any other chapter of the outsourcing contract.
We have advised the program manager to put all effort in agreeing on an exit plan at the start of the managed exit period, to mitigate these unlimited risks around staff transfer and also to ensure an orderly migration, allocation process, knowledge transfer, a restructuring/redeployment plan and information flow.
We have also advised this customer to play an active, perhaps even dominant role in all of the staff transfer issues from the initial to the new supplier in the upcoming negotiations.
We are sorry to say that our advice has not been taken over. Reason behind it? Customer’s legal department did not acknowledge the liability and risk involved.
We believe that if TUPE* is applicable, the customer will eventually pay for all costs involved in the transfer of staff from one supplier to the next. If TUPE isn’t applicable, staff will remain at supplier’s and the supplier will charge the cost of salaries, redeployment and restructuring cost to the customer.
Also and perhaps even more impactful; staff may claim a transfer back to the customer or the new supplier in court. Any experienced supplier will exclude this liability.
Our message to managers who consider outsourcing is to negotiate a contract with exit schedule. No clauses on staff (re)transition doesn’t mean that there is no liability. It means there is an unlimited liability. Make sure that you mitigate this upfront.
* Transfer of Undertakings (Protection of Employment) Regulations