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

Technology (3rd edition)

Armenia Small Flag Armenia

In the event of an outsourcing of IT services, no employee, asset or third-party contract transfers automatically to the outsourcing supplier.

Dominican Republic Small Flag Dominican Republic

This will depend on the extent of the contract negotiated by the parties. In general, companies just outsource the maintenance of their platforms and data, not the sensible information -i.e., contracts-.

Egypt Small Flag Egypt

In general, there is no automatic transfer of employees, assets or third party contracts. However, in the event the service provider exercises administrative authorities over the employees i.e. supervision, leaves, imposition of penalties, etc…, the employees may argue the existence of an employment relationship with the service provider.

Estonia Small Flag Estonia

In the event of an outsourcing of IT services, the employees, assets or third party contracts do not transfer automatically to the outsourcing supplier. Those issues should be regulated contractually.

Copyright Act § 32 (1) provides that the author of a work created under an employment contract or in the public service in the execution of his or her direct duties shall enjoy copyright in the work but the economic rights of the author to use the work for the purpose and to the extent prescribed by the duties shall be transferred to the employer, unless otherwise prescribed by the contract. It can therefore be concluded, that an employer and an employee shall contractually regulate how the employee’s moral rights may be used by the employer and third parties. The employer as a contractor and the outsourcing supplier shall contractually regulate all the IP issues, including the matter that the contractor shall be liable in case any of its employees have a claim against the supplier.

France Small Flag France

According to the Labor Code (Art. L.1224-1), which implements EU directive 2001/23/EC of 12 March 2001 on safeguarding employees’ rights in the event of transfers of undertakings, businesses or parts thereof, an automatic transfer of all employment contracts may occur in the event of a change in the employer’s legal situation, in particular as a result of a sale or merger of an undertaking, provided the outsourced activities constitute an “autonomous economic entity” as defined by case law, i.e., an organised group of persons and assets that will be able to continue business to reach a specific goal.

As regards assets, an automatic transfer may take place in the context of a company merger, a corporate split, or the contribution of a whole business branch that involves a transfer of all associated assets and liabilities. Agreements personally inherent to the co-contracting party (“intuitu personae”) may not follow the transfer, however, if such other party does not grant its consent thereto.

China Small Flag China

There is no PRC law or regulation providing for the automatic transfer of employees, assets or third-party contracts in the event of an outsourcing of IT services.

Israel Small Flag Israel

There are no laws regarding an automatic transfer of employees and nor is there is automatic transfer of third party contracts or assets under law in the case of an outsourcing agreement. Generally, the parties will negotiate an outsourcing agreement, and include therein, detailed provisions to facilitate the relevant transfers, and the methods of transfers. Moreover, employees cannot be transferred automatically, and there is a legal requirement to explicitly obtain their consent to any transfer from one employer to another.

Italy Small Flag Italy

Italian law provides for a special regime to apply in case of assignment of agreements, assets pf employees where such assets and agreements are part of a line of business organised as a going concern (the “LOB”) and they are assigned in connection with a transfer of the same LOB.

As a general principle and unless agreed otherwise, the transfer of a LOB entails, as an automatic effect, the transfer of all contracts pertaining thereto, without the need of any prior consent of the Assigned Party.

In very broad terms, the rationale behind the above provision is to protect the interest of the assignee of the LOB to (i) keep the LOB duly organised as a going concern; (ii) preserve the integrity of all its assets (including any and all agreements required to operate the LOB) and, therefore (iii) maintain the value of the LOB, considered as a whole.

As a partial limitation to the said general principle, article 2558 provides that the transfer of a LOB will not automatically entail assignment to the transferee of the agreements included in the LOB (but rather the consent of the assigned party shall be required), should such agreements have been entered into on a ‘personal’ basis, that is to say that the obligations set forth under the agreement are of such a nature that can be duly performed only by the relevant contractual parties, it being otherwise understood that, should the agreement be assigned to any third parties, the due performance of the contractual obligations could be materially affected.

Accordingly, if an outsourcing of IT services entails the transfer of assets, agreements and employees organised as a LOB, they will automatically transfer to the outsourcing supplier as above.

The transfer of employees (as part of a LOB) requires a statutory consultation procedure with the trade unions to be carried-out before the transfer, in case the transferor employs more than 15 employees.

Japan Small Flag Japan

No transfer of employees, assets or third party contracts would occur automatically in the context of outsourcing IT services. A transfer will occur only if the parties agree to such a transfer. In the case that the parties agree to transfer a certain business (including employees, assets, third-party contracts and liabilities), and not merely an outsourcing of IT services, by way of a company split (kaisha-bunkatsu), however, employees who are primarily engaged in the transferred business but who will not be transferred, and employees who are not primarily engaged in the transferred business but who will be transferred, are entitled to certain opt-out rights concerning their non-transfer or transfer, respectively, under the Act on the Succession to Labor Contracts upon Company Split.

Malaysia Small Flag Malaysia

The Guidelines on Information Security in ICT Outsourcing published by CyberSecurity Malaysia (an agency under the MCM) ("Outsourcing Guidelines") states: “Before outsourcing, an organisation is responsible for the actions of all their staff and liable for their actions. When these same people are transferred to an outsourcer they may not change desk but their legal status has changed. They no longer are directly employed or responsible to the organisation. This causes legal, security and compliance issues that need to be addressed through the contract between the client and suppliers. This is one of the most complex areas of outsourcing and requires a specialist third party adviser.”

The Outsourcing Guidelines advise that the organization ought to ensure that security requirements and processes to protect organizational assets ought to be incorporated into the formal agreement entered into with the outsourcing supplier and upon complete performance of the outsourcing agreement, the outsourcing supplier is responsible for returning all borrowed assets and the organization should ensure that “all assets borrowed and used by the outsourcing provider during the outsourcing project are returned promptly”.

Notwithstanding the advisory nature of the Outsourcing Guidelines, the treatment and status of employees, assets and/or third-party contracts would typically also be addressed in the outsourcing agreement and may not be automatically transferred.

Malta Small Flag Malta

No, this would not be the case, unless it is explicitly agreed between the parties.

New Zealand Small Flag New Zealand

New Zealand does not have specific legislation relating to transfers of employees, assets or third party contracts if an organisation outsources its IT services. Where necessary, this issue would be dealt with through contract.

Germany Small Flag Germany

In some cases, yes. In the event of an outsourcing of IT services, there are rules for an automatic transfer by law to the outsourcing supplier in respect of employees (so called “transfer of undertaking”/“Betriebsübergang”). These rules are laid down in section 613a BGB. In accordance with this section the former employer has the duty to notify the employee about the date and the reason of the transfer and about the legal, economic and social consequences for the employee. The rights and obligations of the existing employment relationship cannot be changed to the detriment of the employee before expiry of one year as of the date of the transfer. In addition the employee can object to the transfer in writing within one month.

There are strategies on how to avoid a transfer of undertakings which can be applied in certain cases.

Indonesia Small Flag Indonesia

There is no automatic transfers or assignments of employees, assets or third-party contracts in the event of an outsourcing of IT services, unless otherwise agreed by the relevant parties.

Pakistan Small Flag Pakistan

The law does not provide for an automatic transfer of employees, assets or third-party contracts in case of an outsourcing arrangement. The transfers, if any, will only be guided by the contractual terms agreed to between the parties.

Romania Small Flag Romania

When a company is outsourcing certain services that can be seen as a stand-alone function, and the outsourcing supplier also takes over the outsourced activity as such or certain assets/equipment pertaining thereto, there is a chance that we are dealing with a transfer of undertaking. In this case, the outsourcing supplier has the obligation to take over the employees attached to the relevant activity/assets/equipment.

The relevant provisions for the transfer of undertaking may be found in the Labour Code (Law no. 53/2003) and in Law no. 67/2006 on safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses, which transposes EU Directive 2001/23 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses and the provisions of article 5 of EU Directive 2015/1794 of the European Parliament and of the Council of 6 October 2015 amending Directives 2008/94/EC, 2009/38/EC and 2002/14/EC of the European Parliament and of the Council, and Council Directives 98/59/EC and 2001/23/EC, as regards seafarers. Both enactments provide that all rights and obligations of the initial employer are automatically transferred in their entirety to the outsourcing supplier. A transfer of undertaking may not constitute ground for dismissal.

Moreover, the applicable legal framework provides that before any transfer of undertaking/outsource occurs, the employer and the outsourcing supplier must inform the employees on the following:

  • the date of the transfer or a proposed date;
  • the reasons why such transfer occurs;
  • the legal, economic and social consequences of such transfer for the employees;
  • any measures that may be taken with regard to the employees;
  • the working conditions.

It should be mentioned, however, that from a GDPR perspective, it should be analysed which categories of personal data are necessary to be shared between the company which is outsourcing and the outsourcing supplier, in order to comply with the data minimization principle.

Moreover, the applicable legal basis for the data transfer should be assessed and properly identified. In order to comply with transparency requirements, employees should be informed as regards the data transfer, as per articles 13 and/or 14 of the GDPR, as the case may be.

South Korea Small Flag South Korea

In the event of an outsourcing of IT services, no employees, assets or third party contracts transfer automatically to the outsourcing supplier.

For your information, in the event that the processing of personal information is outsourced to a third-party service provider (i.e., outsourcing supplier), the outsourcing supplier will be deemed to be an employee of the original data handler who outsourced the processing if damages are incurred from the outsourced supplier’s violation of the PIPA and/or Network Act in the course of its processing of the personal information.

Spain Small Flag Spain

No, employees, assets or contracts are not normally automatically transferred in the event of an outsourcing of IT services. The parties involved in the provision of outsourcing services need to negotiate how the services are structured and the resources (employees, assets) to be managed. A mere provision of services with no transfer of a business unit, does not in principle entail a transfer of any resources.

Concerning the possible transfer of employees involved in an IT outsourcing, the most important point to consider is that for the employees to transfer automatically to the outsourcing supplier as per Article 44 of the Spanish Statute of Employees (Royal Decree 2/2015, of October 23), the principal must transfer its own IT production unit (i.e. including all the assets, agreements etc.) as a whole, autonomous business unit. Otherwise, if the IT production unit is not entirely transferred by the principal to the supplier, the employees would not transfer automatically to the supplier and would remain employees of the principal.

Finally, note that the outsourcing supplier must provide its services with its own resources and organisation, in order to avoid the declaration of an illegal transfer of employees, prohibited by Article 43 of the Spanish Statute of Workers.

Sweden Small Flag Sweden

No, not automatically. However, if an asset of a business according to section 6 b of the Swedish Employment Protection Act (Sw. Lag om anställningsskydd), e.g. an IT service, which is deemed to be an “autonomous economic entity”, is being transferred, an employee working in that department might be transferred to the outsourcing supplier, unless he or she refuses. In practice, this is not an issue, since it tends to be solved by the involved parties.

As for assets and third-party contracts, no transfer to the outsourcing supplier will occur.

Taiwan Small Flag Taiwan

No. In the event of an outsourcing of IT services, the outsourcing supplier is merely providing the IT service to the company that hires the outsourcing supplier, and all employees, assets, or third party contracts will remain with the company and will not be transferred to the outsourcing supplier.

Turkey Small Flag Turkey

No. Automatic transfer of employees, assets or third party contracts to the outsourcing supplier is not regulated under Turkish laws.

United Kingdom Small Flag United Kingdom

No transfers of assets or third party contracts would occur automatically. However, there will frequently be detailed contract provisions negotiated between the parties to the outsourcing arrangement to facilitate this. In the case of the other signatories to the third party contracts, their consent to the proposed transfer of their contracts to the new outsource service provider will ordinary be required.

If there are individuals who are wholly or substantially engaged in the services/functions which are being outsourced, however (and whether they be employed by the customer entity or its other service providers), then their contracts of employment may transfer automatically to the outsource service provider by virtue of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). In such event, all of their rights and obligations (including claims arising from employment related mistreatment by their previous employer) will transfer to the outsource service provider.

United States Small Flag United States

There are no statutes that would automatically transfer employees, assets or third party contracts to a service provider in the event of an outsourcing. Any such transfer would be part of the negotiated agreement between the customer and outsourcing provider. It is common for some segment of customer employees in the affected area to be "rebadged" as service provider employees. Although not as common as in the past, outsourcing providers do agree to the transfer of assets to be used in the outsourcing from the customer's balance sheet to the service provider's. It is also typical for some third party contracts relating to the outsourced scope of service to be assigned or at least managed by the service provider.

Australia Small Flag Australia

Unlike the operation of the Transfer of Undertakings (Protection of Employment) Regulations 1981 (UK) (in the case of employees), there is no automatic transfer of employees, third party contracts or assets by operation of law when outsourcing IT services. Generally the parties to an outsourcing agreement negotiate detailed contractual provisions to facilitate such transfers where required.

Updated: August 27, 2019