The Gate Gourmet saga highlights issues to do with the use of contracted-out services and temporary labour that have long-term importance to employers and users of temps.
Faced with increasing overseas competition and budget pressure, some employers - particularly those in the hospitality, agriculture and construction sectors - are responding by appointing contractors or staffing companies supplying cheap, temporary labour, with relatively few employment rights, often from poorer parts of Europe.
There is nothing technically wrong with contractors and staffing companies supplying temps on this basis, provided they comply with the law. In particular, the following issues need to be addressed:
the end user or contractor must follow fair procedures in any dismissals or reorganisations prior to their engagement;
the staffing company must pay at least the minimum wage (subject to certain permissable deductions);
tax and national insurance contributions (NICs) must be properly accounted for by the appropriate person, whether this is the employer under PAYE legislation or the staffing company under section 44 of the Income Tax (Pensions and Earnings) Act 2003;
the Working Time Regulations, and immigration legislation including the provisions of the Workers Registration Scheme for workers from new EU member states, must be complied with.
But driving down contractorsí margins so they have to engage migrant temps on the lowest possible terms may expose end users to other risks. Some organisations are concerned about damage to reputation by being associated with the use of cheap labour, especially as they may be criminally liable if they have colluded in or turned a blind eye to tax scams, breaches of employment laws or the use of illegal workers.
Even if the end user of the outsourced service is entitled to terminate the contract following an industrial relations, PR or legal problem relating to the use of temps and/or migrants, and can identify a suitable replacement contractor, the end user may still be lumbered with a problem regarding the existing workforce (below).
UK businesses can guard against the risks associated with outsourcing by following a number of approaches. If the aim is to cut costs, and it seems labour costs may be targeted, the end user of the service should make sure it understands how they are going to be cut, and consider knock-on effects if the contractor should encounter a problem with its labour force.
Organisations sensitive to adverse PR should require contractors and companies providing staff to undergo audits relating to their staffing terms, and compliance with key legislation, in respect of temps. They should also avoid outsourcing important services to a contractor that will be difficult to replace if a problem arises. If they do make such an appointment, they should beware of the consequences of screwing down margins that are already narrow.
End-user organisations should also make sure they adopt best practices to minimise the risk of temps gaining employment rights against them. They should remember that supplier indemnities are of little practical use unless they are backed by insurance, and this will not usually be available in respect of employment, tax and immigration liabilities relating to temps.
Transfer responsibilities
When things go wrong with a contract, any replacement contractor - or the end-user organisation if it decides to take the service back in-house - will probably inherit some or all of the contractorís workforce under Tupe, including any claims from those workers. The cost of doing this will be included in the new contractorís bid, so the end user is unlikely to receive competitive quotes from prospective contractors, and cost savings may become hard to achieve.
User unfriendly
In the light of recent case law on tempsí rights, it seems that in many (especially lower-paid) cases they may be deemed by the courts to be employed by end users of their services. This may lead to issues with claims against end users relating to unlawful deductions from wages, unfair dismissal and redundancy claims, as well as making them liable for other employment law breaches, immigration offences, and unpaid tax and NICs. Over the last 10 years of specialising in this area Tarlo Lyons has developed best practice approaches to mitigating these risks.
Want more information?
For further information please contact Kevin Barrow, partner who leads the recruitment and outsourcing groups at Tarlo Lyons at kevin.barrow@tarlolyons.com or on DDI 020 7814 5423.
Contracting out services to save money can expose organisations to financial penalties
This Tarlo Lyons briefing authored by Kevin Barrow was commissioned by People Management magazine and first published in the September 2005 edition of People Management magazine
