Labour Supply Agreements

What Are Labour Supply Agreements?

private-client“Labour Supply Agreements” is the term to describe the supplying of workers by a service provider to a receiving company in need of those services.  From the perspective of the receiving company, it is often known as “outsourcing” where the receiving company sources from an external service provider services that is previously provided for itself as part of its core business.

When Do They Arise?

In some cases, the company seeking to source the services may be seeking to improve unsatisfactory standards of service by outsourcing the service to a third party with a proven track record in providing better levels of service and with the resources and determination to continually improve service delivery.  Alternatively, it may be seeking to outsource this service on the basis that it can do so on a more economic basis where the service provider can provide the service at a fixed price, thus delivering the service with significant cost savings.   In that respect, the service provider will usually be responsible for all of the terms and conditions of employment, including wages and pension obligations, of the employees providing that service.

While outsourcing is usually associated with the IT sector and also with Banks, it can also arise in other industries, such as haulage, packaging and the food industry.  It is likely to become more frequent in the future as companies both in the Republic of Ireland and Northern Ireland seek to find more cost savings in their business, thus increasing their profit line.

The Service Contract

Bearing in mind that two parties, the “outsourcer” and the “service provider” are coming together possibly for the first time (although there may be situations where both parties have worked together previously on a more informal basis), it is very important that the parties ensure that they draw up a proper legal document (the “Service Contract”), to ensure that they cover all difficulties which may arise in the future.  This is where the Solicitors become involved.  A typical Service Contract will cover the following areas:

  • The services to be provided;
  • The charges for those services;
  • The parties will need to agree a “Service Level Statement” which will detail the service expected;
  • There will need to be a mechanism to record the services which are being provided by the service provider and to review those records;
  • The outsourcer will need to be satisfied that the service provider has the appropriate personnel who possess the necessary skill and experience to provide the services and that the service provider is competent in the provision of Health and Safety standards;
  • There will need to be a mechanism to cover any request for an increase or decrease of the service;
  • There will need to appropriate Confidentiality provisions;
  • There will need to be appropriate limitation of liability and insurance provisions; and
  • Lastly, and most importantly, there will need to be provisions to deal with instances where the service provider has failed to meet the required service level in consequence of which there must be exit mechanisms for both parties.

These are only the general matters which need to be covered.  Every contract will be different, depending on the circumstances and the value which each party is bringing to the table.  There will be instances where the outsourcer is in a much stronger position than the service provider and the legal advisor for the service  provider will need to ensure that his Client is adequately protected going into the future.

Employment Law Implications

Very importantly, the service provider must bear in mind that, as the outsourcer is effectively transferring one part of his business to the service provider, the service provider will not necessarily be in a position to take in all of his own workers and may very well be obliged to take over the outsourcer’s current employees who are presently employed in that part of the business.  This obligation arises under the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003, more often known as the TUPE Regulations.

Under the TUPE Regulations the outsourcers existing employees have a right to transfer – on their current terms and conditions and with the benefit of their existing period of service – to the new service provider.  They also have a right to refuse to do so.  Of significance is the fact that the service provider cannot “cherry-pick” the outsourcer’s employees and redundancies can only be implemented for economic, technical or organisational reasons that must be justified.

Matter To Be Considered When Quoting To Provide A Labour Supply Agreement

This is something which must be seriously considered by the service provider when quoting to provide a Labour Supply Agreement.  Again, this is an area where the Solicitor will once again become involved. The following are some of the issues which will be investigated by the Solicitor for the service provider:

  • The date of commencement of service of each employee;
  • The salary/wages and other benefits to which each employee is entitled;
  • Pension arrangements;
  • Details of bonus or profit-sharing schemes;
  • Details of current disputes and whether any are subject to a Disciplinary or Grievance Procedures;
  • Details of litigation threatened, pending or ongoing; and
  • Details of any changes to terms and conditions of any employees introduced in recent past.

These are only some of the issues which would arise but it will give the reader a good understanding of the fact that the service provider is likely to take on cost which was not originally anticipated, because of his obligations under the TUPE regulations.  It is therefore important that, where a service provider is involved in negotiations with an outsourcer prior to the service provider instructing a Solicitor, he should do so “subject to contract” and also subject to proper due diligence.

business-lady-othres-in-backgroundLook Before You Leap

As can be seen from the above, while Labour Supply Agreements are an area where both outsourcer and service provider can look to expand their business and increase their profits in the future, the area is not without its difficulties and early legal advice is recommended.