Contributors

HRO and Technology: Managing Data and IP Issues

Outsourcing relationships can be a match made in heaven or candidates for divorce court.

by Thomas C. Greble, John Gliedman

Outsourced HR arrangements tend to resemble business marriages because, for the union to succeed, they require long-term cooperation between the client and the outsourcer. In such a relationship, a party should plan ahead as to the proper uses and rights respecting shared material. Contracts that clearly allocate rights to jointly held data and intellectual property (IP) set the stage for sound treatment of these assets during the relationship and its aftermath. This holds true for both full-scale outsourcing and more discrete technology-based solutions.

 

Considering the various HR processes in a typical company, one can imagine the vast amount of personnel data that is collected and processed over the lifecycle of a typical employee: recruitment (basic applicant information); new hires (social security and tax information); benefits, compensation, and payroll (benefits elections, salary, deductions, and bonus information); training and certification (course information); and status changes and terminations (promotion, new address, and related information).

 

In light of all of this company-specific data moving back and forth between the employer and an HRO provider, the parties should be careful to set forth acceptable and unacceptable uses of such information in their agreement. After signing the agreement, the employer should feel comfortable that the provider and any of their agents are responsible for keeping confidential information in their possession and abiding by applicable U.S. and other data restrictions. The agreement should state that the employer is the owner of all employee data.

 

Protection of software is also an important concern when negotiating HRO or technology contracts. For example, an outside vendor will frequently need access to software owned or licensed by the client. The company may want to grant a short-term license to the provider so that the IP is used for the term of the outsourcing agreement only or until conversion to an agreed upon vendor system. The client should specify that the HR outsourcer may only use the companys IP in order to provide services to the company rather than for some other reason.

 

If the vendor uses its own software to perform services, the client should understand its rights to the software in the event that the agreement is terminated. The parties may agree that the vendor must place the software source code in escrow in order to maintain the right to use the software if the vendor is unable to maintain the software.

 

The use of third-party software also raises issues. The client should review licensing agreements under which it has obtained the IP in order to determine whether there are any restrictions on use.The client should also inform the vendor of the terms of such third-party license agreements. If the client elects to license the IP to the vendor, the agreement should state which party must pay any associated fees. If the vendor uses a different software than is currently used by the customer to fulfill the same function, the company will want to avoid what would essentially be double payment until the expiration of the term of the initially licensed software package.

 

HRO providers are keen on protecting new and improved or proprietary methods to any extent possible. The client may attempt to argue that they have contributed to proprietary methods and therefore should own some of this material. Providers should consider placing provisions in the outsourcing or technology license contract that clarify they own such processes. In many outsourcing arrangements, employees of the company become employees of the outsourcing provider. Therefore, it makes sense for the new employees to sign agreements acknowledging that any processes that they develop when working for the outsourcer constitute property of the outsourcer.

 

The outsourcing agreement or technology license contract should also specify the extent to which any other copyrighted, trademarked, patented material, or Internet domains of one party may be used by the other. Beyond this, counsel may be asked to assist their clients in drafting a comprehensive list of pertinent IP before the agreement is signed and to prompt them to keep track of such IP as the relationship progresses.

 

Companies entering into HRO arrangements should anticipate data and IP matters that may arise during the relationship. Good planning at the contracting stage can avoid potential problems down the road.

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