information technology outsourcing transactions process strategies and contracts 2nd ed phần 7 docx

7.3 The Employment Offer 367 • What is the vendor’s working day? Is it the same length as the cus- tomer’s working day? • What is the vendor’s dress code? How will it be implemented for employees working at a customer location? • Do any miscellaneous benefits (e.g., health facility, employee discounts, access to cafeteria, parking) need to be addressed? • Will the customer require information regarding employees after the transfer to the vendor for benefits administration or other purposes? • How will severance/redundancy be handled? What are the customer’s severance/redundancy obligations? • Will the vendor provide any redeployment assistance or outplacement services to terminated employees? • Review relevant customer–vendor policies, which may include: C Human resources procedures manuals C Employee handbooks C Equal employment opportunity (EEO) policies C Disciplinary/grievance procedures C Safety policies C Performance appraisal process C Union/collective bargaining agreements C Recruiting and offer letters 7.3 THE EMPLOYMENT OFFER The employment offer is often one of the most negotiated provisions of the out- sourcing contract. A useful negotiation tactic is to take a position on certain important terms in the RFP and, for other terms, ask the vendor what its position is. This tactic is helpful when the customer is not certain what its position will be on an issue or does not necessarily want to take a position early in the process. It also forces the customer to perform substantial, necessary due diligence at the RFP stage and allows the customer to use the vendors’ responses to the human resources section of the RFP as part of the selection process. The parties will need to draw on information contained in the RFP, the ven- dor’s proposal, and further due diligence performed as part of the negotiation process when drafting the human resources section of the outsourcing agree- ment. The following sections show issues that the parties should consider when drafting the human resources terms. (a) EMPLOYEES TO BE TRANSITIONED. The employees who will have offers made to them are typically listed in an exhibit to the agreement. This exhibit often lists each affected employee by identification number, together with his or Halvey.book Page 367 Tuesday, August 9, 2005 8:58 AM 368 Ch. 7 Human Resources her salary (adjusted for bonuses and matching contributions), the date that the employee started work with the customer, and the number of accrued vacation days. The employment start date should be specified with extensions of the start date for employees on leaves of absence or disability leave. Special provisions will need to be negotiated and included if affected employees are covered by collective bargaining agreements. (b) VENDOR VS. SUBCONTRACTOR HIRING. In some cases, a subcontractor rather than the vendor will make offers of employment to certain employees. This is more likely to occur in international transactions in countries where the vendor does not have a presence or in transactions where a significant part of the services are being subcontracted (e.g., network services). The customer should require the vendor to reveal any planned use of subcontractors in its proposal. The customer will need to consider what relationship, if any, it wishes to have with the subcontractor. The customer also may wish to obtain an indemnity from the vendor for any claims resulting from the subcontractor’s actions. (c) START DATE. In most cases, the customer will prefer that the employees being transferred to the vendor become vendor employees as of the date the ven- dor commences providing services. The vendor will in most cases resist a start date on or close to the date the agreement is signed on the grounds that the ven- dor needs time to prepare for the transition (e.g., preemployment screening, transfer of benefits). The transition period proposed by the vendor typically ranges from 30 to 90 days after the date the agreement is signed. In special cir- cumstances, the parties may agree to allow the vendor to commence the transi- tion process before signing the agreement. The customer, therefore, will need to begin to notify the employees to be transitioned of the proposed outsourcing transaction before the vendor takes any action. Any communications with the customer’s employees before the signing of the agreement should be prefaced with a notice that all activity is contingent upon signing an agreement with the vendor. (d) HIRING REQUIREMENTS. Often vendors will make offers of employment contingent upon the employee meeting certain preemployment screening requirements. Examples of such requirements include the following: • Credit check • Background check • Drug screening • Reference check Many customers are able to successfully negotiate the vendor’s acceptance of employees as is, without any preemployment screening. The ability of the cus- tomer to get the vendor to waive preemployment screening may depend on the strength of the customer’s own policies. (If the customer administers drug tests Halvey.book Page 368 Tuesday, August 9, 2005 8:58 AM 7.3 The Employment Offer 369 as a condition of employment, the vendor is more likely to be willing to waive its own drug testing.) Sample Clause. Vendor shall hire the Customer Employees who: 1. Are employed by Customer and have not been reassigned to an out-of- scope position within Customer as of the date the offer is made; 2. Accept the offer of employment from Vendor within __ business days from the date the offer is made; and 3. If requested by Customer, sign a release substantially in the form set forth in Schedule __ (clauses (1) through (3) collectively, the “Hiring Requirements”) (the Cus- tomer Employees hired by Vendor collectively, the “Transitioned Employ- ees”; each, a “Transitioned Employee”’). Vendor shall make hiring decisions regarding the Customer Employees based on the Hiring Requirements. Vendor shall be solely responsible for making such hiring decisions, subject to the provisions of this Section. (e) VENDOR EMPLOYMENT AGREEMENT. The customer should inquire as to whether the vendor will require the transitioned employees to sign an employ- ment or confidentiality agreement as a condition of employment. If the vendor does require any such agreements, the customer should request a copy of the proposed agreements for its review and comment. Provisions that warrant partic- ular consideration include noncompetition, ownership, and training provisions. (f) BASE SALARY. The agreement should specify the base salary to be offered to each of the transitioned employees and when the employees will be eligible for increases and should include adjustments for bonuses and other amounts agreed upon by the parties to account for disparities in employee benefits. Sample Clause. Each offer of employment to a Customer Employee shall include an initial base salary of not less than the base salary that each such Customer Employee received from Customer as of the Agreement Date, with any adjustments thereto made by Customer in accordance with Customer’s normal salary adjustment policies. The Customer Employees’ base salaries as of the Agreement Date, [plus the applicable adjustments], are set forth in Schedule ***. (g) POSITIONS. A concern of many employees is whether they will be offered employment for comparable positions. A manager may not wish to accept an offer of employment for a nonmanagement job even if the compensation is com- parable. In addition to being an issue of employee morale, the customer’s sever- ance plan may provide that severance payment will not be due if the employee is offered employment in a comparable position with comparable compensation. Sample Clause. [TRACK LANGUAGE IN SEVERANCE PLAN IF APPLICABLE] Vendor shall offer the Customer Employees employment in positions that are comparable to the positions in which such Customer Employees are employed as of the Agreement Date. Halvey.book Page 369 Tuesday, August 9, 2005 8:58 AM 370 Ch. 7 Human Resources (h) MINIMUM EMPLOYMENT PERIOD. When structuring the human resources portion of the deal, the customer should consider whether it wishes the vendor to commit to employing certain employees transitioned to the vendor for a certain period. Obtaining such a commitment from the vendor typically improves employee morale. The customer may wish to require the vendor to keep certain transitioned employees assigned to its account for a period (e.g., for a minimum of one to two years, through the migration to the vendor, through the migration to a new platform/system to be implemented by the vendor). In some instances, the vendor may suggest separating the employees into two classes: (1) temporary employees, who will only be employed for a set number of months, and (2) regular employees, for whom the customer may wish to obtain a longer employment com- mitment from the vendor. (i) HEALTH CARE BENEFITS. The agreement should specify which health ben- efits the transitioned employees will be eligible for, when the employees are eli- gible, and whether preexisting conditions and waiting provisions have been waived. Sample Clause. Each Customer Employee shall be eligible as of his or her Start Date for enrollment in Vendor’s healthcare plans, including [major medical, hospitalization, dental, vision, long-term disability, prescription, life insurance, and personal accident coverage]. Vendor shall provide each Customer Employee with health care coverage so that on the Start Date for the Customer Employee, he or she (and any qualified dependents) is covered by Vendor’s healthcare plans, and all pre-existing condition exceptions, exclusionary provisions, and waiting periods are waived with respect to the Customer Employee (and any qualified dependents). Vendor shall be respon- sible for any medical or health expenses incurred by the Transitioned Employees on or after the Start Date. (j) DEDUCTIBLE/CO-PAYMENT REIMBURSEMENT. Unless the employee start date coincides with the beginning of a new plan year, the customer should con- sider including a provision in the agreement that gives the transitioned employ- ees credit under the vendor’s plan for deductibles and co-payments made during the existing plan year. (k) VACATION. Because vacation is often calculated based on the employee’s years of service, this is an area where the customer may wish to negotiate that transitioned employees will receive credit for years of service with the customer for the purpose of calculating vacation with the vendor. The parties will also need to consider how accrued (but not taken) vacation will be dealt with. Will the vendor pick up the accrued vacation at least for the remainder of the calendar year? Will the customer buy the employee out of accrued vacation? Sample Clause. Vendor shall calculate paid time off for vacation [and sick leave] purposes for each Customer Employee using each Customer Employee’s length of service with Customer and Vendor. Halvey.book Page 370 Tuesday, August 9, 2005 8:58 AM 7.3 The Employment Offer 371 (l) SAVINGS PLANS. The customer will need to negotiate with the vendor how, if at all, the vendor will deal with the savings plan benefits of the transitioned employees. In some instances, the vendor will agree to roll over the benefits of all or some employees into the vendor’s plan. The ability and willingness of the vendor to roll over the transitioned employee’s benefits will depend largely on the terms of the vendor’s plan. If rollover is agreed to, the customer will need to assess whether the administrative costs for the rollover are included in the base fee. Additional issues to consider include the following: • If the customer has a matching contribution policy, does the vendor have a similar policy or, if not, is the transitioned employee receiving other benefits of comparable value? • How will unvested matching contributions with the customer be handled? • How will employee loans be handled? (m) PENSION PLANS. Questions to ask with respect to pension benefits include the following: • How will the existing pension benefits of the transitioned employees be handled? • Can they be transferred to the vendor’s plan? • What are the vendor’s pension benefits? • Are the transitioned employees immediately eligible to participate? • Will the transitioned employees immediately vest, will vesting be deter- mined by recognizing service with the customer, or will vesting be based only on service with the vendor? • Without immediate vesting and recognition of customer service, which employees are disadvantaged? Typically, the vendor will grant credit for years of service for vesting and eli- gibility purposes under the vendor’s plan but not for accrual purposes. Sample Clause. Vesting and eligibility under [Vendor-Defined Benefits Plan] shall be determined by the Customer Employee’s length of service with Customer and Vendor. (n) RETIREE MEDICAL BENEFITS. Does the customer provide retiree medical benefits? How will retiree medical benefits be handled by the vendor? Does the customer expect the vendor to assume responsibility for retiree medical benefits? (o) SEVERANCE/REDUNDANCY. The customer will need to perform due dili- gence (see Section 7.2) to determine what its severance/redundancy obligations are in an outsourcing context under its plans as well as pursuant to any legal or regulatory requirements. Provided that the customer does not owe severance/ Halvey.book Page 371 Tuesday, August 9, 2005 8:58 AM 372 Ch. 7 Human Resources redundancy payments to the transitioned employees, the customer will need to consider how severance/redundancy payments will be handled after transition. Many customers choose to negotiate enhanced severance/redundancy for transi- tioned employees, so that if an employee is terminated by the vendor within a certain number of years from contract signing, the employee will receive supple- mented severance/redundancy payments either comparable to, or a percentage of, what the employee would have received if he or she was still with the cus- tomer. The customer and the vendor will need to negotiate the administration of and financial responsibility for “enhanced” severance. Will the cost be built into the base fees or will the customer reimburse the vendor on a pass-through basis? The customer should also consider restricting enhanced severance/redundancy to those employees who are still on the customer’s account at the time of termina- tion, which will depend largely on the vendor’s staffing plans. (p) SERVICE CREDIT. Of particular importance to customer employees with a number of years of service is the extent to which the vendor will give them credit for their years of service with the customer for eligibility, participation, vesting, and accrual purposes for certain benefits (e.g., vacation, savings plans, pension plans, severance). Sample Clause. Except with respect to those plans for which the Cus- tomer Employee shall immediately vest pursuant to this Article, the Customer Employee shall be eligible for Vendor’s vacation and holiday program, disability plan and retiree health plan and other welfare plans based on the Customer Employee’s “service date” with Customer. (q) TUITION AID. If the customer currently provides tuition aid to the transi- tioned employees, the parties may wish to clarify each of their responsibilities with respect to classes in progress and classes that have been approved but have not commenced. (r) LOCATION. The customer’s severance plan may provide that severance payment is due if the employee is not offered employment within a certain geo- graphic distance from his or her current position. In order to avoid unanticipated severance liability, the customer should review its plan and, if appropriate, include language in the agreement regarding location. If the location of the job will not be in or near the employee’s current position, the parties may also need to discuss how relocation expenses will be handled. Sample Clause. [TRACK LANGUAGE IN SEVERANCE PLAN IF APPLICABLE] The Customer Employee shall be offered a position as of the Start Date that is at the same location to which the Customer Employee was assigned by Customer prior to that time or at a location within a reason- able commuting distance [definition to be negotiated] from the Customer Employee’s home. Halvey.book Page 372 Tuesday, August 9, 2005 8:58 AM 7.3 The Employment Offer 373 (s) MISCELLANEOUS BENEFITS. The customer should be sure that it has con- sidered all of the benefits it offers to employees. This is particularly important in international transactions, where a large portion of compensation is often pro- vided in in-kind benefits. (t) WORK HOURS. What are the vendor’s work days and work hours? If they conflict with the customer’s work days or hours, the customer may wish to con- sider including a provision requiring the vendor to allow the transitioned employ- ees to follow the customer’s work days and hours while on the customer’s premises. Does the vendor permit flex time and job sharing arrangements? Sample Clause. The work days, including daily work hours and holidays, of the Customer Employees located at any Customer location shall be the same as the work days and work hours in effect at that Customer location. (u) DRESS CODE. What is the vendor’s dress code? If it conflicts with or is stricter than the customer’s dress code, the customer may wish to consider including a provision requiring the vendor to allow the transitioned employees to follow the customer’s dress code while on the customer’s premises. (v) PERFORMANCE APPRAISALS. An issue that may be a concern of the employees is when performance appraisals will be administered. This is of inter- est particularly if the employees were scheduled to receive a performance review within a few months after contract signing and the reviews are tied to merit increases. (w) REPLACEMENTS. The parties will need to consider how jobs for employees not accepting offers from the vendors will be filled. Typically, the vendor will be responsible for filling these positions at its expense. Sample Clause. Vendor shall be responsible for filling the positions of any Customer Employees not hired by Vendor pursuant to this Article at compa- rable skill levels. Vendor shall be responsible for the salary and benefits for such replacements. (x) HUMAN RESOURCES REPRESENTATIVE. The customer should consider requiring the vendor to appoint one (or more depending on the size of the trans- action) representative who will be responsible for the transition. The representa- tive should be located at the customer’s site and not replaced or reassigned until the transition is complete. Sample Clause. The Vendor representative responsible for the transition of the Customer Employees from Customer to Vendor shall be _______ (the “HR Representative”). The HR Representative shall be located at _______. Vendor shall not replace or reassign the HR Representative without Cus- tomer’s consent (except due to voluntary resignation, death or disability) until _____ months days after the Start Date. There shall be no additional charge for the services of Vendor’s human resources team. Halvey.book Page 373 Tuesday, August 9, 2005 8:58 AM 374 Ch. 7 Human Resources (y) ADMINISTRATIVE AND FINANCIAL RESPONSIBILITY. The agreement should set forth each of the parties’ administrative and financial responsibilities with respect to the transitioned employees. This includes payroll responsibilities (often there is a lag between the start dates and when the employees are trans- ferred over to the vendor’s payroll system), severance administration and finan- cial responsibilities, and responsibility for stay incentives. Sample Clause. Customer shall continue to pay wages, provide benefits and make employer contributions on behalf of the Customer Employees until the Start Date, and Vendor shall promptly reimburse Customer for all such wages, benefits and employer contributions paid by Customer from the [Agreement Date] until the Start Date. Customer’s obligation to continue to pay wages, provide benefits and make employer’s contributions shall termi- nate on the Start Date. 7.4 COMMUNICATION AND TRANSITION PLAN The customer and the vendor will need to prepare a rollout schedule for imple- menting the transition (or, if applicable, termination) of the employees. General guidelines for communicating and transitioning are set forth as follows: • General Tips for Communicating with Employees C Keep records of all information communicated to the employees by the customer and the vendor. A representative from the customer should attend and keep a record of all meetings the vendor has with the customer’s employees. (The customer may want to consider taping such meetings.) C All communications sent to customer employees should be reviewed and approved by the customer in advance. • Communication/Transition Plan C Identify and orient customer–vendor transition teams C Develop a communication/transition plan that deals with the con- cerns of senior management, IT management, and employees to be retained, transitioned, and laid off at each site C Define a timetable for communications and transition C Develop communication materials (in the appropriate languages), including employee handouts, employee bulletins, e-mail announcements, vendor materials, and questionnaires C Conduct initial employee meetings (determine at which meetings the vendor should be present) C Address union/collective bargaining issues Halvey.book Page 374 Tuesday, August 9, 2005 8:58 AM 7.5 Contract-Related Issues 375 C Once the agreement is signed, the customer and vendor should con- duct meetings with senior management, IT management, and employees to be retained, transitioned, and laid off at each site C Vendor to make employment offer C Vendor to send out offer letters or, in certain countries outside of the United States, transfer letters confirming the transfer of employment C Employees to accept employment offer within a specified number of days C Customer to transition administrative responsibility to the vendor (e.g., payroll) C Customer and vendor to ensure that all notification, authorization, and consent requirements have been complied with 7.5 CONTRACT-RELATED ISSUES In addition to the section or exhibit of the outsourcing contract that outlines the terms upon which the employees will transition to the vendor, human resources– related issues typically are addressed in several of the general sections of the out- sourcing contract. As discussed as follows, these general sections may include the representations and warranties, the indemnities, and rights upon termination. (a) REPRESENTATIONS AND WARRANTIES. The customer is often asked to represent that there are no pending claims by the employees being transitioned. If there are claims, these claims are typically identified in an exhibit to the out- sourcing agreement. (b) INDEMNITIES. Each party should indemnify the other party against (1) representations made by the party to the employees, (2) violations of federal, state, or other laws or regulations for the protection of persons or members of a protected class or category of persons by the indemnifying party’s employees and the employees of the party’s agents and subcontractors, (3) work-related injury, illness, or death caused by the indemnifying party (except as may be cov- ered by the indemnifying party’s workers’ compensation insurance), and (4) any claim by the transitioned employees arising out of the employment relationship [for the customer, add: “before the start date”] [for the vendor, add: “on or after the start date”]. (c) RIGHTS UPON TERMINATION OF THE OUTSOURCING CONTRACT. The customer should consider whether, upon the termination or expiration of the agreement with the vendor, the customer wants the right to solicit employees of the vendor. In addition, the customer may wish to restrict the vendor’s ability to solicit certain employees of the customer. Halvey.book Page 375 Tuesday, August 9, 2005 8:58 AM 376 Ch. 7 Human Resources 7.6 STAY INCENTIVES Often the customer and the vendor wish to provide incentives to certain employ- ees to stay through a critical period. Examples of the types of employees to whom stay incentives are typically offered include the following: • Employees who are to be laid off because the data center (or other loca- tion) that they service will be closed but whose services are necessary until the closing • Key employees either retained by the customer or transitioned to the vendor who are critical to the transition process or to a particular project • Employees to be hired by the vendor on a short-term basis whose ser- vices are necessary for that term • All employees who stay with the vendor through the transition to the vendor or migration to new systems A discussion of the different types of stay incentives that may be used is pro- vided in Appendix 7.1. Halvey.book Page 376 Tuesday, August 9, 2005 8:58 AM [...]... Affected Employees; varied percentage/amount offered to Affected Employees; payable if the Affected Employee has not quit or been terminated for cause prior to the completion of the migration of the Affected Employee’s location 377 378 Ch 7 Human Resources STAY INCENTIVE SAMPLE CONTRACT LANGUAGE 5 Lump-sum payment to selected Affected Employees; varied percentage/amount offered to selected Affected Employees;... internal control structure and procedures for financial reporting Outsourcing agreements in turn must include adequate provisions to address these concerns, tighten the methods and procedures related to the creation, processing, and use of information needed in financial reports, and ensure the needed security for the related data The following issues, for example, may have to be addressed with specificity... businesses to collect and disseminate financial information such as credit information and credit worthiness information There are also many state laws and regulations (b) SERVICES TO THE FINANCIAL INDUSTRY 6 California Bill SB 1386 has been incorporated into California’s Civil as Sections 179 8.82 and 179 8.29, and became effective on July 1, 2004 7 California Bill AB 1950 has been incorporated into California’s... seq and 45 CFR §§ 164.102 et seq 8.2 Selected Information Privacy Laws 391 • Authorization Patients must give specific authorization before a covered entity may use or disclose protected information in most nonroutine circumstances—such as releasing information to an employer—or use the information in marketing activities • Policies and procedures Covered entities must establish policies and procedures... permitted and required uses and disclosures of the protected health information by the business associate It must provide that the business associate will (1) not use or further disclose the information other than 392 Ch 8 Information Privacy and Security Issues as permitted or required by the contract or by law; (2) use appropriate safeguards to prevent misuse or disclosure of the information; and (3)... be assigned to one official, who will manage and supervise the personnel and the use of security measures to protect data The covered entities must implement written policies and procedures, review these policies and procedures periodically, and update them as needed They must also document in writing their actions, activities, or assessments taken or conducted All documentation must be retained for... about the information they were collecting and how it would be used, and to provide a reasonable means for parents to review the personal information collected from their children and to refuse to permit its further use While the information collected on the Mrs Fields’ Web sites—mrsfields.com, pretzeltime.com, and pretzelmaker.com—was not disclosed to third parties, the company allegedly collected personal... collection and use of the data gathered from the children, discipline in the operations, and adequate record keeping are essential Children’s names and personally identifiable information and their parents’ involvement in the registration process and their consent should be kept together and up-to-date, and saved in an easily accessible format, for audit purposes Using and applying a strict record-creation and. .. some cases, this information might be highly sensitive Given the strategic and monetary value of these compilations, databases have been copied, stolen, misused, or even altered Disputes and litigation have ensued Numerous federal and state laws were passed, and government and private actions have taken place, out of concern for the protection of individuals, to combat identity theft and for other purposes... the information in accordance with these standards The five Physical Safeguards include facility access controls, and control of workstation use, workstation security, and other device and media For example, 24 Federal Register, Volume 68, pp 8334-8381 (February 20, 2003) 8.2 Selected Information Privacy Laws C ATEGORY 393 S TANDARDS Administrative Safeguards Security management process Assigned security . 414 (d) Information Privacy and Security Outside the EU and the EEA 414 8.6 OFFSHORE OUTSOURCING 415 8 .7 PRACTICE TIPS 4 17 (a) Evaluate the Needs and Potential Legal Liabilities 4 17 (b) Draft. incurred substantial expenses and were required by court order to implement costly changes. In other instances, government action precluded or hampered contemplated transactions and delayed the. 371 Tuesday, August 9, 2005 8:58 AM 372 Ch. 7 Human Resources redundancy payments to the transitioned employees, the customer will need to consider how severance/redundancy payments will be handled