HRO Outsourcing

1. HRO Outsourcing Key legal considerations Mark O’Conor Partner, Location Head of Technology Media & Commercial 6 December 2007

2. The HRO legal taxonomy Contract law Data & privacy law Applicable industry regulation Employment law Foreign law Insert filename here

3. Brief agenda • Creating the contract • Why do deals fail? • Getting the requirements right • Incentivising performance • Contractual pre-nup: providing for future discretion to extend/insource/retender • Dealing with change • Offshore complications • Employment law • Data and privacy law Insert filename here

4. Why are deals failing? • Break the cycle of failure by identifying the causes of failure? Insert filename here

5. The real reasons for failure The real cause occurs at the conceptual/structural level • Misalignment of expectations and economics • A failure in how the deal was bought and/or sold • Improperly run RFP process • A relationship which cannot cope with change • Consistent pattern of adversarial negotiations • The "nail it down" approach – "your mess for less" Insert filename here

6. Is it because HRO is a more recent phenomenon (no precedents)? • ITO largely commoditised • Some types of BPO are relatively well understood (eg F&A, payroll, logistics) • Other types of service are, however, being outsourced for the first time (eg "front office" administration, legal processes, procurement, higher end of HR functions) • Result = lack of appreciation of what is actually required, and how it interfaces with other parts of the business • Increasing market maturity • ever widening scope of service: beyond payroll to include graduate recruitment, benefits administration etc Insert filename here

7. The HRO difference • Overlap with the provision of legal advice • HR professionals deal with legal questions daily • what maternity rights do I have? • I’m upset about my review, I want to make a formal complaint • I’ve tripped in the workplace, I want compensation • We’ve heard there’s an outsourcing coming up, we demand details • Can a supplier take on this liability? • HR-related laws change rapidly • who has the obligation to monitor? • who pays for the cost of compliance? • Higher impact of failure? • salary not paid, statutory deadline missed, release of sensitive personal data etc Insert filename here

8. Getting the contract right • What are the key risks? • Due diligence and baselines • Assumptions and dependencies • Service descriptions • Unfamiliar service areas • Inflexible or inappropriate charging structures • Changing business, legal and regulatory landscapes Insert filename here

9. Due diligence • Supplier obviously needs to know what it is taking on • But data gathered late • Data less available • Risk transfer by contract term Insert filename here

10. Assumptions and dependencies • Assumptions • The near inevitable consequences of insufficient data/due diligence • Risk = potential open season for post contract renegotiation • Dependencies • Reasonable for the customer to accept that it will still have to "do its part" • But are the dependencies within the reasonable control of either party? Insert filename here

11. Service description – its place in the contract • Lynchpin of the Contract – describes the scope of the "deal" and sets out what the customer will get for its money • Underpins most of the contract: • the cost of those services (Charges schedule) • the performance of those services (Service Level regime) • the supplier's dependency on the customer to enable it to provide those services (customer responsibilities schedule) • the transition to new services (Migration Transition Plan) • the Supplier's technical solution for providing those services (Technical Solution) • requirements on exit Insert filename here

12. What do you usually GET? • Brief bullet points • Muddled responsibilities/actions • No symmetry with Service Levels or Charges • No descriptions of expected outputs • Uncertain or final-delivery based timescales • Incorporation of vague marketing-style text from proposal documentation Insert filename here

13. The importance of line of sight Sch 2 T's & C's Sch 3 Sch 5 Sch 10 Clause 2 "The Supplier shall provide the Services" Requirements Charges At what price? SL's To what level and what if missed? Supplier's Solution Insert filename here

14. Inappropriate charging structures • Lowest cost is not always best price • Unitary/volume based pricing models are increasingly in vogue, but you'll need to consider: • ranges of operation • elements to be excluded from its operation • impact of transitioning third party contracts Insert filename here

15. Changing requirements • Why change arises • How to manage change • Classification of change • Chargeability • Provide for right to extend, and all information needed to insource or retender Insert filename here

16. Service Levels – visually Level of service Actual service level achieved 100% 90% 80% Desired service level Minimum service level SC SC Service credit regime Breach? Breach? Time Insert filename here

17. Governance and resolution • It's all about the relationship… • Key attributes: • transparency • information flow and availability • communication • Micro management? • Removing emotion from the process • Resolution and avoidance of deadlock • escalation • expert determination • mediation • The importance of the retained function Insert filename here

18. Offshore legal considerations Insert filename here

19. Offshore legal considerations • what local / international laws apply to the service? • can you really step-in? • how will governance work (reports, teleconferences, meetings)? • personal data transferring outside of the EU • choice of law • staff issues • tax Insert filename here

20. Employment law issues • The potential application of TUPE • when you outsource the HR function • when you change provider • when you take the function back in-house • TUPE probably applies because an activity is changing hands • who will bear the redundancy costs? • relocation? • consultation • cherry picking and lemon dropping • you will be expected to provide indemnities for pre-transfer liabilities • Other employment law issues • to what extent will you be involved in • disciplinary action, managing ill health issues, grievances, recruitment etc • ensuring that the HR service matches your own ethos • fighting cases that you would otherwise settle? • particularly tough areas of employment law change • discrimination law, equal pay law, dismissal law etc Insert filename here

21. Data and privacy issues • inevitable that personal data will be processed, likely that it will involve sensitive personal data • Personal Data: • relates to a living individual who can be identified from the data, or, from the data and other information in the possession of, or likely to come into the possession of, the data controller • biographical in significant sense • purpose of processing • impact or potential impact on individual • four types of data: • electronic data; • data forming part of a relevant filing system • data forming part of an accessible record • data recorded by a public authority • implications:- • EU Model Terms for ex-EEA transfers: DP 8th principle • Eighth Data Protection Principle – Personal Data shall not be transferred to a country outside the European Economic Area unless that country ensures an adequate level of protection for the rights and freedoms of data subjects • extensive contractual provisions • focus on both physical and logical security: DP 7th principle • indemnities and rights of termination Insert filename here

22. HRO Outsourcing Key legal considerations Mark O’Conor Partner, Location Head of Technology Media & Commercial 6 December 2007