WE LIVE in the age of globalisation. If you doubt it, remember that your next call to the National Rail Enquiries about the 10.15 service to Derby may be answered by someone in Bombay or Bangalore.
Behind the rhetoric of a globally integrated, knowledge-based economy is a more sobering reality. Many corporations will “shop around” jurisdictions to identify those where workers are cheapest and unions are weakest. In the United States, which is predicted to lose millions of jobs to India and China in the next few years, surveys have suggested that this issue ranks in the minds of voters above the handling of the war in Iraq.
American economists have referred to this global search for cheap labour as the “race to the bottom”; one memorably likened the sound of jobs being exported overseas to a “giant sucking noise”. We British lawyers prefer technical jargon, so possibly the most significant geopolitical change to our working lives over the past 50 years is disguised in the words “offshore outsourcing”.
The process is not a new one. What is new is the nature of the jobs that are moving overseas. After the global shift of manufacturing jobs a generation ago, white-collar jobs are heading the same way.
There are various models of offshore outsourcing. Perhaps the most straightforward is a supply contract between a British corporation and an overseas service provider. The corporation outsources those functions not dependent upon location in the UK. The service provider, perhaps based in India, recruits workers locally at a fraction of the cost. In recent years, functions exported in this way have included payroll administration, information technology support, software programming and telephone callhandling. But the list is growing.
For lawyers, offshore outsourcing raises many interesting issues. Commercial lawyers must carefully draw up the supply contract in a way that best preserves the chances of a swift exit for the UK-based company if the overseas supplier performs poorly and damages the reputation of the brand.
The UK-based business will need to ensure that it can quickly outsource the work to a different provider if necessary. Commercial lawyers will also be acutely aware that contracts with overseas suppliers may prove to be worthless if there is no adequate mechanism for enforcing high standards.
Another troublesome issue relates to the transfer of personal data outside Europe. The EU directive on personal data in effect bans the movement of personal data overseas unless the destination country has adequate levels of privacy protection. Many offshore jurisdictions are not safe harbours for personal data, at least not by EU standards. So the supply contract may need to impose standards on the service provider that are higher than those imposed by local law. Interestingly, the Indian Government recently announced the imminent adoption of data-protection legislation in an attempt to meet EU standards.
Employment lawyers will be scratching their heads at their annual conference this week over the circumstances in which the TUPE regulations — which safeguard employees’ rights where businesses change hands between employers — can apply to offshore outsourcing. In principle, there is no reason why TUPE should not apply in the right circumstances. In practice, it will have cost ramifications. The parties will have to reach agreement on who pays redundancy monies to workers unwilling to move halfway across the world to work.
A fascinating issue concerns the rights of offshore employees to take employment tribunal proceedings against British companies, especially as UK law will provide better protection than local law on many issues. The extra-territorial reach of UK law is a complex issue, not helped by the fact that different tests apply depending on whether the claim brought is for breach of contract, unfair dismissal or unlawful discrimination.
The trade union response has been to highlight the risks of “social dumping” as corporations chase ever cheaper sources of labour. The International Labour Organisation (ILO) has also pushed for compliance with its conventions on fundamental rights at work. The unions are, of course, resistant to offshore outsourcing, but have also focused on seeking and enforcing consultation rights in the hope of dissuading employers from examining the offshore option. This approach has had a few small successes.
For example, in a consultation agreement reached with the finance trade union UNIFI in January, Barclays agreed to consult when considering offshoring. It also agreed to “give consideration” to ILO conventions as part of its “supplier evaluation process”.
It is not impossible that legislation is introduced to obstruct offshore outsourcing. In the US, Senator John Kerry has already proposed a number of such measures. They include a legal right for consumers to know the geographical location of a worker with whom they are dealing, the ending of tax breaks for companies that send jobs offshore, and the introduction of public procurement rules that prevent the offshore outsourcing of government contracts.
In Britain, the Government’s reaction has been more muted. In a speech in March, Tony Blair said: “Globalisation is not our enemy but our friend.” However, as one union leader memorably remarked, it may yet bequeath us “a nation of fat cats and hairdressers, with nothing in between”. Lawyers who hope to be in the first category would do well to ask themselves how much of their own work could easily be done overseas.
The author is a member of the Employment Lawyers’ Association and a partner in Russell Jones & Walker. This article will form part of a debate on offshore outsourcing at the association’s annual conference in Marlow tomorrow
