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  1. #1
    Members larus's Avatar
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    O/T - Employment Status On Out-Sourcing Contract


    0 Not allowed!
    Question for the sages of NSC.

    I run a small company providing business/IT support and, with one of my customers, I have an outsourcing contract to maintain/develop their business system. There is a contract with them which covers me being on-site a certain number of days per year, and also a full-time person (this person is employed by me, on my payroll and is therefore on PAYE).

    The customer has mentioned to me that they have concerns about the legality of this person being my employee, but being based fully on their site so they are seeking legal advice as to whether they need to employ him directly rather than being my employee.

    So, my question is, can an employee of my company who works fully on this customer site have any legal rights in respect of the customer? This situation has been on-going for many years and works well. I do accept the boundaries could be blurred.

    Note :this is nothing to do with HMRC, as the person is payed via PAYE, so HMRC won't care as it's not a tax avoidance issue. Also, I am not a agency but have a specific contract which details the services/responsibilities/resources required.

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    • #2
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      theres a rule of thumb that after 2 years of contracted employment it looks awfully like the role should be a permanent staff. the test is if they are replacable, i.e. if they are ill or go off on a long holiday is there a person to fulfill the contracted role? if not, it looks like its not a genuine contract position and "disguised employment". since the only people who'd care are the employee and the tax man, its unfortunate the company have sought legal.
      The English know how to make the best of things. Their so-called muddling through is simply skill at dealing with the inevitable.
    • #3

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      The employee is entitled for certain rights. For example if you were to lose the contract and another firm won it, then your employee would be eligible to transfer to the new firm.

      However I don't think there is any particular legal responsibility for your client to take over employment responsibilities. Although they should probably be liable for any redundancy costs, if they were to terminate the contract with you.

      Alternatively they may want to bring the role back in-house to reduce costs. That is a discussion you can have with them if you wish.
      In this scenario, TUPE would apply to your employee, to protect their terms of employment.

      Normally you would expect to have certain clauses in place in your contract around poaching of each other's staff and any compensation which may be attributable.
      This doesn't appear to be necessary in this case, as your client is being up-front with you about the discussion.
    • #4
      aka Cap'n Carl Firecrotch Westdene Seagull's Avatar
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      Quote Originally Posted by beorhthelm View Post
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      theres a rule of thumb that after 2 years of contracted employment it looks awfully like the role should be a permanent staff. the test is if they are replacable, i.e. if they are ill or go off on a long holiday is there a person to fulfill the contracted role? if not, it looks like its not a genuine contract position and "disguised employment". since the only people who'd care are the employee and the tax man, its unfortunate the company have sought legal.
      The employee he is talking about is employed not a contractor so this doesn't count.

      Not sure why the customer is concerned, employees working permanently from a customer site is very common - I did it when I was employed by EDS for nearly 4 years. Capita do it all over the country - there really isn't a legal issue just as long as you abide by employment law.
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    • #5
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      In this day and age it is really common to have this situation. Sounds like the customer is trying to pull some sort of fast one.
    • #6
      Members larus's Avatar
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      Quote Originally Posted by Uh_huh_him View Post
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      The employee is entitled for certain rights. For example if you were to lose the contract and another firm won it, then your employee would be eligible to transfer to the new firm.

      However I don't think there is any particular legal responsibility for your client to take over employment responsibilities. Although they should probably be liable for any redundancy costs, if they were to terminate the contract with you.

      Alternatively they may want to bring the role back in-house to reduce costs. That is a discussion you can have with them if you wish.
      In this scenario, TUPE would apply to your employee, to protect their terms of employment.

      Normally you would expect to have certain clauses in place in your contract around poaching of each other's staff and any compensation which may be attributable.
      This doesn't appear to be necessary in this case, as your client is being up-front with you about the discussion.
      Thanks for the feedback from everyone.

      My contact has been running with them for in excess of 15 years. The employee used to be their employee, but they out-sourced to me and was transferred to me (given option of transfer or redundancy) and chose to transfer so it’s viewed as having been continuous employment with me. Any reduandancy costs are clearly with me and not the customer.

      The company has changed parents a few times in that period.

      Due to the nature of the skills, in reality there is no alternative supplier - although I do not abuse this. Always taken a long term view that a happy customer is a loyal customer. The MD stated he was concerned and HR has raised the issue a few times but he has dismissed their concerns in the past. However, he said he needs to ensure there is no liability and I know that the employment/contract law changed in the recent past around contractors and benefits etc.
    • #7

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      Quote Originally Posted by larus View Post
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      Thanks for the feedback from everyone.

      My contact has been running with them for in excess of 15 years. The employee used to be their employee, but they out-sourced to me and was transferred to me (given option of transfer or redundancy) and chose to transfer so it’s viewed as having been continuous employment with me. Any reduandancy costs are clearly with me and not the customer.

      The company has changed parents a few times in that period.

      Due to the nature of the skills, in reality there is no alternative supplier - although I do not abuse this. Always taken a long term view that a happy customer is a loyal customer. The MD stated he was concerned and HR has raised the issue a few times but he has dismissed their concerns in the past. However, he said he needs to ensure there is no liability and I know that the employment/contract law changed in the recent past around contractors and benefits etc.
      In a lot of outsource agreements redundancy liability is often with the receiver of the services.
      I assume you are factoring this cost into the overall charge for the services, so I guess it would be a moot point.

      It might be worth adding a clause to your contract (if it's not there already) to make it explicit that you retain liability for any redundancy costs/claims arising from termination of the contract.
      You seem to be happy to indemnify your client against this and it should give them peace of mind on the agreement.
    • #8
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      I think there was a recent legal case relating to university facilities staff that may be influencing your customer to look at this.

      Basically their union argued that the outsourced staff were employed full time at the university and should be treated as university employees in terms of their benefit entitlements.

      Sorry I can't be more specific it was something I absorbed from the radio in the car.

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