In the event of an outsourcing of IT services, would any employees, assets or third party contracts transfer automatically to the outsourcing supplier?
Under the Employment and Industrial Relations Act, Chapter 452 of the Laws of Malta (“EIRA”), when a business is taken over, in whole or in part, any employee in employment with the transferor shall be deemed to be in employment with the transferee, and the transferee takes on the rights and obligations which the transferor as employer has in respect of the employees.
The Transfer of Business (Protection of Employment) Regulations, Subsidiary Legislation 452.85 (“TBR”), provides that the above also applies in case of service provision change, i.e. where activities cease to be carried out by a person (client) on his own behalf and are carried out instead by another person on the client’s behalf (contractor); or where activities cease to be carried out by a contract on a client’s behalf, whether or not those activities had previously been carried out by the client on his own behalf, and are carried out instead by another subsequent contractor on the client’s behalf; or activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf, whether or not those activities had previously been carried out by the client on his own behalf, and are carried out instead by the client on his own behalf.
The TBR apply irrespective of the services being provided, and thus include also IT services, but are limited to undertakings that are being transferred and that employ more than 20 employees.
Assets or third party contracts are not automatically assigned, and such transfers would need to be agreed to by the parties in appropriate contractual arrangements.
When outsourcing IT services, a company will decide which assets, resources or otherwise it will transfer to the outsourcing company. The parties will then enter into an outsourcing service contract, which governs the sale or disposal of rights to systems, source code, infrastructure, personnel and other intellectual property rights or assets. As such, the transfer of employees, assets or third party contracts is contingent on the parties understanding as stipulated in their outsourcing service contract. The transfer of third party contracts may also be subject to assignment clauses contained in such contracts.
No, it is accepted that the outsourcing supplier is in the nature of independent contractors and employees, assets or third party contracts do not transfer automatically.