In the event of an outsourcing of IT services, would any employees, assets or third party contracts transfer automatically to the outsourcing supplier?

Technology (second edition)

Switzerland Small Flag Switzerland

In a direct outsourcing setup in the private sector, the outsourcing agreement between the customer and the supplier is authoritative as regards the transfer (if any) of employees, assets or third party contracts. Where a transferor transfers a business (or part thereof) to a transferee, the employment agreements and all rights and obligations derived from them transfer by operation of law from the transferor to the transferee at the date of transfer of the business, unless the employee refuses this transfer. According to court practice and doctrine, "business" is any permanent self-contained organisational unit which is economically autonomous, and "part of a business" is an organisational unit which lacks economic autonomy. While the outsourcing supplier must generally use relevant customer assets, this can be achieved by granting a right to use the assets (on a shared or exclusive basis) rather than an outright transfer. Retaining title to an asset, license or contract can give the customer better protection in case of termination of the outsourcing agreement. A written assignment is usually sufficient to transfer movable property for evidential purposes. Transfer of title to real property must be made by public deed and, in many cases (depending on the nature of the title involved) requires registration. Where the asset is a lease, the landlord's consent is required.

The transfer of key contracts should be agreed in writing based on analysis whether such transfer requires the counterparty's consent (as is usually the case; e.g. generally in case of IP licenses) or not (where approval of the transfer is already given in the contract). Absent or pending consent of the counterparty to the transfer (and subject to the terms of the contract prohibiting this), the customer may retain ownership of the contract and allow the supplier to perform the contract in relation to the counterparty as an agent of the customer.

China Small Flag China

In practice, we include provisions in IT outsourcing contracts if any employees, assets or third party contracts need to be transferred to the outsourcing supplier. Otherwise, there is little room to argue these things have been automatically transferred to the outsourcing supplier.

Updated: July 13, 2018