Press releaseMonday 06 November 2006

TUPE TEST CASE MAY SIGNAL DIFFICULTIES FOR FUTURE OUTSOURCING AGREEMENTS

Greater use of contractors possible solution to greater employment risks

The first legal battle between two professional services firms over the transfer of staff under the new TUPE employment laws may significantly increase the employment risks for the outsourcing industry, leading to a greater use of contractors, says giant group plc, the contractor services supplier.

The new rules, which came into effect in April 2006 and are about to receive their first test, state that a team of employees within a consultancy who spend most of their time acting for one client have the right to transfer to a new consultancy or in-house whenever an outsourcing agreement is terminated. Organisations in breach of these rules risk being sued for compensation or unfair dismissal.

The case in question concerns two leading advertising agencies, Euro RSCG and McCann Erickson, and will establish beyond doubt whether professional services firms – including outsourcing providers – are in fact covered by the new rules.¹

Matthew Brown, Managing Director, giant group, comments: "There is still a large amount of uncertainty about how these rules will affect the outsourcing industry, but if this dispute does confirm that the new TUPE rules apply to professional services firms, terminating outsourcing agreements and switching suppliers, as is increasingly common nowadays, could become more costly."

"Organisations often change their external suppliers when they are not satisfied with the level of service. The prospect of having to employ exactly the same staff may make switching project management less attractive."

According to giant, by using contractors, who are excluded from the TUPE rules, the employment risks of switching outsourcing suppliers can be minimised.

"Organisations may look to offset these risks by preferring outsourcing suppliers which use a high ratio of contractors to permanent employees, so that an underperforming team can be replaced without the associated employment costs."

¹ McCann Erickson lost its Boots Healthcare International advertising account to Euro RSCG last month and is believed to have told staff that because of the new TUPE (Transfer of Undertaking Protection of Employment) laws they have a right to a job at Euro RSCG.

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