Project Management investigate

Cloud and staff rights: Where does the law stand?

Most experts agree that shifting work to the cloud will take its toll on inhouse IT jobs, so businesses need to find out how employment law relates to this technology trend.

Organisations moving processes and services to the cloud are bound to be thinking about the impact any move might have on staff rights. Employers know how existing regulations can apply to typical IT outsourcing, which often entails loss of employment or changes to staff terms and conditions, but may be wondering how those rules relate to the cloud.

With outsourcing, a series of cross-indemnities and related provisions in contracts offer protection against the automatic transfer of employees, including the costs of dismissals and changes to terms. But it is not yet clear how the existing traditional principles will apply in the context of the cloud.

In Europe, the Acquired Rights Directive (ARD) governs the automatic transfer of staff from one employer to another where there is considered to be a relevant transfer, regardless of contractual terms.

The ARD is implemented in the UK by the Transfer of Undertakings (Protection from Employment) Regulations 2006 (TUPE). If the ARD or TUPE is applied, employees automatically transfer to the new employer and receive enhanced protection against dismissal and changes to their terms and conditions.

Whether the ARD or TUPE applies when a company moves to the cloud comes down to whether there is a "relevant business transfer".

In a nutshell, this means the transfer of a business that continues in the same way after it has changed hands. TUPE goes a step further than the ARD to specify that a relevant transfer will also include a service-provision change, or SPC.

Service-provision changes

This type of change occurs when a customer reassigns a contract with a supplier to provide services or brings a certain service back inhouse. For an service-provision change to occur, there must be an organised group of employees based in Great Britain whose principal purpose is to carry out those activities on behalf of the client.

If there is a relevant transfer SPC, those employees assigned to the services will transfer. It must be employees who are dedicated to a specific service for a specific client. It will not be enough that an employee assists in providing the service by chance or because of a shift pattern or if they split their time evenly between different clients.

In debating whether the ARD and TUPE will apply to cloud services, on entry or on exit, the tests of whether there is a relevant transfer and who is assigned remain.

If, for example, the cloud provider's workforce is split evenly between working on different clients and it cannot be demonstrated that a particular group is assigned to providing a particular IT service to a certain client, it is unlikely that TUPE will apply on exit.

If, however, TUPE applies and the employees are assigned so that a cloud supplier has either to take on the legacy staff or carry the redundancy liability, this situation has the potential to challenge the economic basis of the deal.

Cloud suppliers may seek protection for any necessary redundancy costs as a contractual term. Equally, the customer may seek to include a contractual obligation for the supplier not to assign a specific group of employees to provide its services and to agree that TUPE will not apply on any exit.

Implications of offshore IT provision

An added complication caused by cloud is that the IT provision may now be coming from offshore. Provided there is an assigned group of employees based in Great Britain, TUPE can apply to a service-provision change, even if the service is subsequently provided offshore, and assigned employees will transfer.

Assignment may be more difficult to show where there is a public provision of cloud services, rather than a private agreement. Neither the ARD nor TUPE will of course apply if the client and the supplier - or old supplier and new supplier - do not have any employees based in Europe.

However, local equivalents could apply and should be checked. In addition, if they do not apply, the parties can always contractually agree that the employees will transfer or give the employees the opportunity to transfer.

At various points in the contract lifecycle, employers will have to consider whether resources have been transformed and whether a service is being delivered in a wholly different way. To determine whether staff transfer, they will also have to consider whether a particular group of employees has been specifically assigned to provide the services.

About

Jonathan Exten-Wright is a partner at law firm DLA Piper and a specialist in employment law.

14 comments
cybershooters
cybershooters

I can just imagine trying to have a conversation with Microsoft about TUPE. Realistically no-one is going to be TUPEd except in limited scenarios where you really have taken your stuff from point A and moved it to datacenter X. In the US with right to work States, it's basically goodbye.

Deadly Ernest
Deadly Ernest

and state to state due to the various laws. In Australia we have a number of laws relating to industrial relations and most favour the unions and employees. Some are also varied depending upon the state or nation wide union award. But one essential aspect is large payouts for stuff redundancy cuts. In some cases the application of the redundancy aspects of the awards and laws can result in people being laid off due to the company ceasing to work in that area (either employment field or geographical location) can mean the staff get the equivalent of several months wages, all based on longevity with the company. This is a factor that needs to be taken into account with all outsourcing, yet I've rarely seen the top decision makers (CEOs and CFOs) do that, and then they wonder why they get such a huge jump in the wages bill due to the redundancy payouts to the affected staff. I know of one case several years ago where a company was looking at outsourcing a specialised manufacturing section, but didn't in the end as the redundancy payments were the equivalent of running the section for four years. In the end they chose to simply not employ any staff who retired or left, and did more overtime while contracting out any work they couldn't do in-house. Within three years all the staff got fed up with the growing demands for working overtime and either quit or retired if old enough. At that point all the work was contracted out.

info
info

I'm not sure if it's just in Canada, but it would seem to apply anywhere: 1) Company decides to go 'Cloud' and/or outsource; Believes sales pitch that no in-house staff are necessary; 2) Lays off all in-house staff; 3) Waits for any mandated time period, while the 'Cloud'/Outsourced company cherry-picks any ex-employees to work for them; 4) Company goes fully over to IT provided by 'Cloud'/outsourcing. I don't see any 'rights' or anything for the the employees anywhere in there. The company isn't being 'acquired' by another, or shifting their employees over to another entity. *Bang*, you're gone... If you're good, or just lucky, you'll get picked up for around the same rate (if you fight hard for it) you were let go at... I know a LOT of people here that settled for 3/4 what they were making before, because they thought themselves lucky to 'keep' their jobs, and didn't want to rock the boat.

joeller
joeller

The Railroad had something like that called the "right to follow the work." This was negotiated by the UTU so that when companies entered agreements so that trains that traditionally ran over one railroad would under terms of the agreement run under another, or freight that was classified at one yard would be moved to be classified at another company's yard, the trainmen working for the first company who were furloughed due to lack of work would have the right to be transferred to the other company. As I understand it, (though I could be wrong) this was a union agreement not a law. Given the degradation of union contracts nowadays I doubt it is in effect any more.

macmanjim
macmanjim

In the US, many states are right to work or employment at will. This means BARRING a contract, the relationship can be terminated by either party at any time. This "power" isn't a federal mandate as each state has it's own employment laws. Not all states are right to work. The other thing to consider is that IT jobs aren't union, not that I have ever seen. This shift to the cloud reminds me of the shift from horses to cars. A lot of buggy whip makers were left without work. They seemed to move on to other things...I think it will be the same here. The jobs in IT I don't see affected as much as PMs, developers and database people. Support jobs are going away though, IMO, as the technology gets better, more self-evident and companies move to the cloud. If you work for Google or that ilk great, but those jobs will be few. Because of this, I would discourage anyone from going into IT.

dl_wraith
dl_wraith

Even in the UK, ARD/TUPE is quite specific and can be avoided by a canny employer. Usually an employer will deliberately 'shuffle the deck' of a business they acquire to ensure that the chances of ARD/TUPE applying are diminished. Canny cloud providers may do a similar thing.

dba88
dba88

Due to the powers that employers in the US have politically, in concert with US employment laws being clearly on the side of employers, it doesn't take a rocket scientist to assume that any upcoming legal decisions will be biased toward the employer with the employee, as usual, getting the crappy end of the deal!

GAProgrammer
GAProgrammer

Although it doesn't apply to the US, it will be interesting to see which parts of ARD and TUPE get applied here.

davidmartinomalley
davidmartinomalley

Look, one of the biggest benefits touted by a move to the Cloud is lower costs, and since employees are usually a companies biggest costs, the savings will come from cutting employees. Now, those whose job are to be cut will have to do one of two things: Go work for the cloud companies or re-skill themselves and find new positions within their companies. Either way, that's not a reason to discourage others from entering IT. If you're not willing to totally re-learn your job every 5-7 years, IT is not for you, and that's the primary reason you shouldn't enter IT.

Fairbs
Fairbs

I'm in IT and in a union. I believe you're right though that it is rare.

john.a.wills
john.a.wills

Mine, for example. I work in a college. The teachers belong to one union, the classified staff to another. Classified staff include janitors, librarians, secretaries, clerks, accountants, building engineers, messengers and... IT folk. This has sometimes been quite useful to me as an employee, although I cannot certify that it has been good for the college as a community of students. I imagine (I have not actually checked) that I make a good bit more money than the janitors, but we have a great deal of common interest.

NickNielsen
NickNielsen

"At will" describes the ability of either the employer or employee to terminate the relationship without cause at any time. The only state that is not "at will" is one of the northern plains states (Montana or North Dakota, I think). Right to work laws govern the unionization of the workplace.

jk2001
jk2001

"Right to work" is a euphemism that means a union cannot force all the employees in a work unit to join the union. How that corresponds with "right to work" baffles me, but I think they just chose the name because it was appealing. The union bargains collectively for everyone in t he unit, but doesn't get all the dues. Rather they get a fee for negotiating the contract, which doesn't include dues. This is considered a major anti-union law, because it depletes the union's bank account, making it harder for the unions to organize new worksites. Union organizing drives can take years, and it's entirely speculative: they are funded from the union's capital account, before any dues are collected.

Deadly Ernest
Deadly Ernest

and that's another issue that is nothing to do with this. There are many arguments for and against unions, but I'll leave them out unless you want to start another thread in the Watercool to discuss unionism.