When the Business Model Clashes with European Transfer Laws

North American service providers might be in for a shock as they look to capture more European business. Various legal and contractual obligations will likely throw a wrench into the outsourcing accord.

by Paul Davies

Outsourcing companies that cut their teeth in North America find the labor relations practices of the European continent one of the scarier aspects of global expansion, yet generations of the Dutch, Germans, and French seem to survive every day more or less unscathed.

Europeans might complain about over-regulation. Some might even think that organized labor groups are hell-bent on bypassing the democratic process. But scratch beneath the surface and most believe in the responsibility of government to manage employment rights and the legitimacy of employee representation in the workplace.

There perhaps lies the crux of the difference. A North American will very often question the right of collective bodies or government to interfere in employment relationships, whereas a European will debate the scope or application though rarely the right. So an outsourcing company, born and bred in the non-unionized states of the U.S., arrives in Frankfurt and finds out that if it take on work from a client, which is after all what it exists to do, the workers come with it whether wanted or not.

The Acquired Rights Directive (ARD), known as TUPE in Ireland and the U.K., has been around long enough for European managers to forget how unnatural it at first appeared. Specifically targeted against the evil of outsourcing and its surrogate “social dumping,” the legislation insisted that such dastardly practices had to be economically justified while at the same time making sure they couldn’t be.

The newly arrived outsourcer discovers this when it is explained that the client’s workers will transfer with all their current terms and conditions unchanged and that the collective bargaining agreements negotiated by their socially minded, loss-making client will also continue to apply. How to make money under such conditions is puzzling. An additional surprise for the pursuit team occurs when they realize that negotiations are supposed to be concluded at European, national, and local levels before a deal can be signed. The requirement to provide the union with an economic justification for the outsourcing raises a chuckle until someone realizes it is a legal stipulation rather than a union demand.

As shock turns inexorably to horror, the pursuit team remembers just in time to get back onto a “can do” trajectory and, with a healthy dose of gallows humor, figures that if it can find out more about the employees who are proposed to transfer, a solution might be revealed.

It’s at this point that they find out certain interpretations of data privacy law prevent the client from releasing any information about employees until the deal is signed, or at least until after consultation has been completed.

Trapped in the kind of catch-22 only Joseph Heller would appreciate, the team sits morosely in a hotel bar staring at the anonymous client employee data they’ve been given, wondering how to make a cost forecast out of four pages of department numbers and working hours. And yet, refusing to be defeated, one seriously optimistic participant decides that whatever happens at the end of the day, if the operation isn’t economically justified, they’d just have to lower salaries and benefits or introduce severance packages. Businesses have to adapt, right? They have to evolve or go the way of the dinosaur.

The group feels cheered until the overstressed lawyer puts down her beer and they all realize she knows something else they don’t.

But the optimism isn’t undone by the fact that transferred workers bring their seniority rights with them or the never-ending prospect of legally mandated negotiation. It’s the lottery ticket-size severance that really sends the meeting into a tailspin. How can any seriously minded business survive in Europe?

And yet, survive they do. Flourish even. And the

outsourcing industry that is dominated by North American suppliers has made significant inroads. The trick is not to get fixated on acquired rights, data privacy, collective dismissal, or any other legislation. Like with most everything else, the law provides a framework but the touchstone remains the market or business need. Where one exists, those who provide a good solution will succeed.

Posted February 10, 2008 in Sourcing

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