UK Law and Practice Contributed by: Richard Brown, Louisa Chambers, Adam Wyman and Michael Ross, Travers Smith LLP
that the customer is entitled to financial compensation in the form of service credits or liquidated damages. From the customer’s perspective, the effectiveness of a service credits/liquidated damages regime depends on two main factors. First, the customer must ensure that the service levels/KPIs measure the aspects of performance about which it is most concerned – oth - erwise it may have no meaningful remedy at all under the service credits/liquidated damages regime. Sec - ond, the service levels/KPIs need to reflect a satisfac - tory standard of performance. If they can still be met even when the practical outcomes – from the custom - er’s perspective – are sub-standard, then they will not provide a meaningful level of contractual protection. It is also important that the relevant service levels/KPIs are sufficiently precise and objectively measurable. Many outsourcing contracts also include benchmark - ing clauses, which allow a customer to determine if other service providers can offer the same services at a lower price or better services at the same price. A benchmarking exercise will typically involve the appointment of a third-party benchmarking consultant to measure the services and processes provided by the existing service provider against other providers known to be leaders in the same outsourcing indus - try. The contracting parties will need to agree whether the findings of the benchmarking consultant’s report should result in an automatic adjustment to the ser - vice charges, for example, or simply result in a non- binding renegotiation. 4.7 Digital Transformation Given the points made in 4.5 Data Protection and Cybersecurity about the direct liability of data proces - sors for compliance with certain data protection obli - gations, cloud-based outsourcing suppliers will often include provisions designed to protect their position. More generally, as noted at 3.3 Digital Transformation , there is typically less scope when using cloud-based suppliers for customers to negotiate “bespoke” con - tractual protections. However, regulators – for whom data protection and cybersecurity in the cloud has been a particular focus – are increasingly less accept - ing of cloud service providers’ traditional lack of trans - parency and refusal to risk-share on data issues. This has forced some providers to improve their standard
positions in this area or offer sector-specific addenda that include enhanced protections. Given the limited opportunity to negotiate terms, it is all the more important for customers to carry out due diligence on potential suppliers in order to confirm that the service provided by the cloud-based supplier will comply with Data Protection Laws.
5. Employment Matters 5.1 Employee Transfers
In the UK, most arrangements are governed by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the “TUPE regulations”). The effect of the TUPE regulations is that employees who are wholly or mainly assigned to the services being out - sourced automatically transfer by operation of law to the new provider of the services. The TUPE regulations apply to an initial outsourc - ing, where the customer’s employees who are wholly or mainly assigned to the activity being outsourced will transfer to the supplier. They will also apply to a change in supplier, where employees of the out - going supplier who are wholly or mainly assigned to the services will automatically transfer to the incom - ing supplier. The TUPE regulations also apply to an insourcing, where the outsourcing is terminated and the activities are brought back in-house. In this situa - tion, the relevant employees would transfer from the incumbent supplier back to the customer. Where the TUPE regulations apply, the relevant employees will transfer on their existing terms and conditions, with continuity of employment preserved. All accrued employment rights and historic liabilities in connection with the transferring employees will also transfer. Market Practice The TUPE regulations apply by operation of law and it is not possible to contract out of them. However, in practice, the parties to an outsourcing arrangement will typically allocate the employment risks through warranties and indemnities in the outsourcing con - tract. It is usual for the parties to allocate the risks on
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