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Choosing the best business outsourcing model and the associated legal risks – Business Daily

The present economic pressures on local companies are forcing many to send work to outsourced service providers. However, when deciding whether to outsource or not, companies need to consider applicable employment laws, the outsourcing model to adopt and the specific companies to engage.
There are multiple outsourcing models. One plan includes terminating all employees in one area of the business, such as the legal team, human resources or customer service, and hiring a company to conduct those tasks.
The employment question that arises from this model is whether the employees can be terminated and reasons thereof.
In Kenya, employment relationship is at will basis, which means that it can be legally terminated at any time for any reason except for an unlawful one. Employees can be terminated as long as there is a mutual agreement to do so.
However, in circumstances where there exists a collective bargaining agreement or employment contract which dictates termination procedures, companies must abide by such provisions.
Similarly, in selecting the employees to be terminated for purposes of outsourcing, companies should have special consideration for employees falling under the protected characteristics such as gender, race, ethnicity, disability among others.
Companies should consider the risks of employment discrimination claims and be proactive to prevent court cases.
Another outsourcing model requires the company to terminate the employees and the outsourcing company hires them the same day so that there is no break in employment. This occurs when the tasks are company-specific and the employees are vital to the continuation of the work.
Generally, employers spend months, and sometimes years, training employees to do their specific job tasks. Once the job tasks are learned by the employees, the outsourcing company may either take in the employees for similar job tasks or terminate them.
Because the employees are at will, they have the freedom to determine if they want to accept the employment offered by the outsourcing company or leave altogether.
If they refuse to accept the position with the outsourcing company, there is an argument that the employees failed to mitigate their damages, again rendering little to no damages. If the outsourcing company terminates the employees after one year, they can no longer bring an employment discrimination claim against the transferring company.
The outsourcing contract should be drafted to minimise the risks of finding that the transferring company and the outsourcing company are joint employers to the employees. If there is a finding of joint employment, the company could continue to be liable for employment-related claims brought by the employees.
In addition to a strongly drafted outsourcing contract, the employees should be under the sole control and management of the outsourcing company once they are transitioned to the outsourcing company to avoid joint employment disputes.
In addition to these specific employee protections, the management, with the help of lawyers should ensure that the transition plan and the service level contract have a governance process in place so that the transferred or outsourced employees are under the control of only the outsourcing company.
This would alleviate any joint employer concerns. If a company retains a measure of control over the employees of the outsourced service provider, it may find itself responsible for any employment or labour-related dispute.
For example, a disgruntled outsourced employee may sue company A although they work company B. This occurs when the outsourcing company retains control over the employees expressly or by conduct. Control by conduct may include instructions to employees, management of leave and remittance of salaries which taken together satisfies the control test on the employment relationship.
The new employer is not only liable to the employee for all claims that may arise after the outsourcing, but also jointly and severally liable to the former employer for all claims of the transferred employees that arose before the transfer, such as outstanding salary payments, leave and overtime payments, and expenses claims.
Note, however, that the former employer is not released from its obligations towards the employees with the transfer of the employment relationships. In any case, the company is liable for all claims of the employees that fell due before the outsourcing.
The outsourcing company must inform employees of the reason for the transfer and its legal and economic implications. This information ought to be availed in good time before the execution of the transfer. In so doing, it is expected that employees will have sufficient time to review the planned measures and submit suitable proposals to the employer on how best to handle the process.
Mr Onyango is an advocate of the High Court. Email:[email protected]



Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.