Hybrid Consult

Outsourcing is a global phenomenon and one of the fastest growing business models in Nigeria.
Labour outsourcing is a business model where an enterprise retains another to provide its manpower needs in consideration for a fee. It is a triangular employment relationship where a labour contractor recruits and deploys personnel to client companies (end users) on need basis. Under this arrangement, while there is a contract of employment between such deployed employees and the labour contractor, no such contractual relationship exists between the employees and the client (user company) even though they work directly for them.

The need to cut costs and remain competitive in the global market has fuelled the growth of outsourcing as a business model. But while outsourcing offers numerous benefits and opportunities for the user companies and the labour contractors respectively, this business model is not without its legal risks and challenges.

Nigerian labour and employment laws are not only complex but also continue to evolve. The sources of Nigerian labour and employment laws are diverse including the Nigerian Constitution (as amended), the received English Law, Nigerian legislation, caselaws, trade and industry customs and practices, Collective Bargaining Agreements and International Labour Conventions. Among these sources, caselaws and international labour conventions ratified by Nigeria are fast redefining employment law and the law of labour relations in Nigeria. The Constitution of the Federal Republic of Nigeria (Third Alteration) Act (2010) elevated the National Industrial Court of Nigeria (NICN) to a superior court of record and conferred it with exclusive jurisdiction over all labour and employment related matters. The jurisdiction of the NICN over unfair labour practices and its powers to invoke and enforce international labour conventions is an important innovative provisions of the third alteration to the 1999 Constitution.

From the client companies’ perspective, there is the potential risk of making the client company a co-employer of the outsourced staff with attendant joint liabilities, especially in cases where the client companies have exercised evidence-based control over such staff. Our Courts have held that client companies may become co-employers where the ‘primacy of facts’ dictate such conclusion. And because labour outsourcing creates a triangular employment relationship, it is sometimes difficult to locate rights, duties and responsibilities among the parties.

The application of the doctrine of vicarious liability in such tripartite employment arrangements may also pose some problems. Vicarious liability is a common law doctrine according to which an employer is made liable for the torts (civil wrongs) of his employee, committed in the course of employment. Where, for instance, a logistic company employs and deploys a driver to a client company, and the driver while driving the client company’s vehicle in the course of his work, injures a passerby or damages the property of a third party. Who is vicariously liable in such instance? The labour contractor or the client company? A similar example is where an outsourced security personnel commits fraud against a client’s customer or assaults a visitor to the client company’s office.

There are also potential corporate and reputational risks. Where a company retains outsourced staff, will such staff demonstrate sufficient ethics, loyalty and professionalism? Would client companies’ trade secrets be safe with them or will it get to the competitors? How do we also guarantee the welfare of the outsourced staff to prevent industrial relations crisis and disruptive staff exit?

From the labour contractors’ perspectives, outsourcing also poses some risks. There have been cases where client companies dictate and influence staff disciplinary process and sanctions to the labour contractors, and some of which expose the contractors to costly litigations. A deficient Service Level Agreement (SLA) between the parties may also expose the labour contractors to legal risks and avoidable liabilities.

It is also not uncommon to see parties (labour contractors and client companies) make different assumptions about the outsourcing contract. The legal risks and challenges thrown up by labour outsourcing underscore the need for the parties to have a properly structured SLA which clearly defines the terms of the outsourcing contract. Unaddressed issues in SLAs are recipes for labour contractor – client relations crisis, conflicts, service disruptions and failures, capable of affecting the client’s operations.
Finally and perhaps most importantly, the practice of labour outsourcing is currently undergoing some reforms, hence very soon, it will certainly not be a case of business as usual again, and as such, corporate organisations, especially end users must begin to put relevant internal machinery and changes in place in response to this very imminent reforms. Corporate organisations, especially user companies, must also regularly audit and review their internal outsourcing legal, operational and management processes with a view to managing legal risks, especially the risk of co-employership and the attendant joint liability.
It is against this background that this important seminar is conceived. The seminar offers corporate organisations, especially the user companies essential tips in managing legal risks in labour outsourcing.