Employment law aspects of outsourcing to the Channel Islands

Guernsey and Jersey's unfair dismissal regimes share similarities with the UK which can provide a considerable level of comfort to UK businesses contemplating an offshore arrangement. Of particular relevance is the extent to which both islands adopt a similar approach to the territorial scope of employment rights.

Where the regimes do differ is in relation to the limited impact of European legislation. For example, both islands provide limited protection from discrimination with protection largely limited to discrimination on the grounds of sex.

As in the UK, when deciding whether or not an employee can bring a claim for breach of Guernsey or Jersey's employment protection legislation, a two-stage test applies: first, does the employee have rights under the legislation and, second, can the employee enforce those rights in the employment tribunal?

In the UK, the case of Lawson v SERCO [2006] IRLR 289 has enjoyed status as the leading authority on the territorial scope of UK employment rights since 2006. In it, the House of Lords noted that the issue was not straightforward because an employee, and any given employment relationship, may have 'consecutive or simultaneous points of contact with different jurisdictions'.

Previously, until 1999, the legislation in the UK provided that employees 'ordinarily working' outside the UK did not have the right to claim unfair dismissal. The Lawson case stepped in to fill the gap left post-1999.

The Lawson case identified three or four categories of cases where an employee might enjoy protection from unfair dismissal. The first was employees ordinarily working in the UK, the second was peripatetic employees where the base is in the UK, the third was expatriate employees who have some special connection (such as working in a UK enclave in a foreign country or a British newspaper's foreign correspondent) and the fourth was a 'sweep up' category of employees with an 'equally strong' connection with the UK.

In setting out these categories, the House of Lords emphasised that it was setting ?out principles, rather than rules, and that each case would very much depend on its own facts.

The Lawson principles were updated this year in Duncombe v Secretary of States for Children [2012] UKSC 1, where the Supreme Court noted that it was a 'mistake' to torture the circumstances of any particular employment into the Lawson categories because these were merely examples of the application of the general principle.

Clarity

In Ravat v Halliburton Manufacturing and Services Ltd [2012] UKSC1, the Supreme Court commented that the Lawson analysis had created difficulty and combined the Lawson categories into a single question: where the employee does not work in the UK, is the connection to the UK sufficiently strong to enable it to be said that parliament would have intended that a UK tribunal would deal with the claim?

Mr Ravat had his home in the UK, was paid in sterling and paid UK income tax and national insurance. He spent 28 days working in Libya, followed by 28 days in the UK. The terms under which he was employed applied to other UK-based employees and were governed by UK law. He was repeatedly assured by his employers that his employment was governed by UK law, HR issues for him were dealt with in the UK (including his redundancy) and he was treated as a commuter under the employer's policy for international assignments.

The Supreme Court noted that, in comparison to any other, the UK was the place with which Mr Ravat's employment had the closer connection. Importantly: 'The vehicles which a multinational corporation uses to conduct its business across international boundaries depend on a variety of factors which may deflect attention from the reality of the situation in which the employee finds himself.'

A number of important issues emerge from the Ravat case: the Lawson categories are no longer (if they ever were) determinative of protection and a variety of factors can be taken into account when determining the employee's connection with any given jurisdiction.

Location, location

In Guernsey, the territorial issue is addressed in section 4 of the Employment Protection (Guernsey) Law, 1998 (as amended). This section provides that unfair dismissal protection is available to every employment other than employment where, under his contract, the employee ordinarily works outside Guernsey. Additionally, there is a carve-out in relation to employment for a fixed term of one year and employment on a Guernsey ship. In Jersey the relevant provision is contained in article 101 of the Employment (Jersey) Law, 2003 and provides that unfair dismissal rights only apply to employment where the employee works wholly or mainly in Jersey. Again, certain provisions will apply to work on board a ship save where the employment is outside Jersey.

There have been no cases before the Guernsey Employment and Discrimination Tribunal (or its predecessor adjudicators) in which the territorial scope of Guernsey's employment law has been considered. In Jersey there have been two cases, decided within a month of each other in 2009, which both followed Lawson (Anatoli Wagner v Aviation Staffing Company Limited, 1903-038/09 available on www.jerseylaw.je and Ronald Ingham v Incat Technical Services Ltd, 2601-011/09 available on www.jerseylaw.je) and it is likely that the island's tribunals and courts would follow the Ravat case to define the limits of the statutory protection.

The territorial scope of Guernsey and ?Jersey's respective unfair dismissal regimes is relatively clear by virtue of the express statutory limitation, combined with the decisions in Lawson and Ravat. Given that the majority of the employment offshoring done from the Channel Islands involves administration of the HR function from the ?Channel Islands (as opposed to working from, or in, the Channel Islands), it is unlikely that either islands' unfair dismissal regime will apply to the majority of offshored employees.

In light of the above circumstances, outsourcing employment functions to the Channel Islands can assist in limiting connectivity of the employment relationship with the UK. The circumstances relevant to the Ravat dynamic include:

? The governing law of the contract.

? Where the employee lives.

? Where employees are hired from.

? Where the work is carried out.

? Where HR functions are exercised from, including recruitment, training, appraisal and performance monitoring, payroll, benefits, disciplinary and grievance procedures, study leave and terminations.

? Source of terms and conditions.

? Where tax and national or social insurance-type contributions are paid.

? Who provides the routine administration aspects of employment e.g. staff rosters.

Many of these circumstantial aspects are readily provided from, or addressed by, Guernsey and Jersey's specialist OSPs. Bearing in mind the geo-political factors favouring the Channel Islands, for employers with a mobile and peripatetic workforce, outsourcing the employment functions may assist in limiting exposure ?to UK unfair dismissal claims from within that workforce.

Risk aware

It has become relatively commonplace for businesses to outsource parts of their functions to an offshore location. In recent years, the top destination for UK businesses offshoring functions has been India. However, the Channel Islands have also been active because of the particular expertise they have in the provision of employment, payroll and human resources (HR) services.

There are some routine legal issues to be considered by UK businesses when contemplating an outsourcing arrangement such as the extent to which TUPE impacts on the proposed outsourcing and requirements of confidentiality, data protection and tax regimes. Additionally, some regulated industries may have specific requirements for businesses which wish to offshore functions, the provision of flight crew in the aviation sector is an example.

As well as the pure legal issues, consideration should be given to non-legal or geo-political issues. These include cultural differences which might impact on working practices, language problems, infrastructure reliability and anti-money laundering (AML) regimes. Another non-legal factor relating to which OSP to use is whether or not the provider complies with ISO 9001:2000.

Bearing in mind these legal and geo-political considerations, the Channel Islands of Guernsey and Jersey are particularly attractive for outsourcing employment functions. On the legal side, both islands are recognised from a data protection perspective, allowing data to be transferred between the UK and the islands without concern. Both islands have favourable tax regimes backed up by bilateral assistance and double taxation arrangements with ?the UK.

On the geo-political side, the islands are in the same time-zone with the same language and equivalent working practices. A highly developed equivalent infrastructure and AML regimes, which have achieved ?'white list' status from the OECD (the same status as the UK), combines with a legal regime which has considerable overlap with the UK.