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Human capital risks

175 Comments · Business outsourcing

Change management is a human resource issue, involving a well-understood pattern of overcoming resistance, instituting changes, and reestablishing standard operating procedures.

Some change management consultants have expressed this as unfreezing-moving–refreezing the organization.

In this section we are not addressing the risks associated with change management; rather, we focus on the technical risks involved with the thorny issues of equal employment, immigration, and foreign trade regulations.

Each of these topics touches the BPO project on the margins and must be understood and managed.

Onshore outsourcing usually has minimal human capital risks because it is strongly in the domestic BPO vendor’s interest to understand and comply with all U.S. employment laws and regulations.

Moreover, the vendor is highly motivated to assist clients with any labor issues they may face as a result of engaging vendors in an outsourcing relationship.

The human capital issues most likely to arise in an onshore outsourcing project are those associated with equal employment opportunity regulations.

For instance, BPO buyers must be especially careful when outsourcing results in reductions in force reduction-in-force (RIF).

Such reductions must be handled in a manner that is transparently related to business interests and has not selectively targeted a protected class of individuals.

Other human capital risks associated with onshore outsourcing concern those that stem from collective bargaining and labor relations laws and regulations.

For instance, the U.S. Supreme Court has established basic guidelines governing whether and when subcontracting should be deemed a mandatory subject of bargaining under the National Labor Relations Act (NLRA).

Beginning in the early 1980s, the National Labor Relations Board (NLRB) issued several decisions that created additional uncertainty when evaluating the bargaining status of outsourcing on subcontracting decisions.

The NLRB’s lack of clarity on the obligations of employers to the collective bargaining process is unlikely to be resolved any time soon.

To reduce risk, companies should consult with labor attorneys as part of the BPO opportunity analysis to determine the likely disposition of their preferred strategy and its implications for possible liability exposure.

BPO buyers that use an offshore outsourcing vendor can benefit from an absence of many of the employment liabilities that are present in the United States.

Many foreign countries do not have laws governing employee matters such as those in the United States, including workplace discrimination, sexual harassment, on privacy.

At the same time, companies must understand the labor laws that govern their outsourcing vendor. India, for example, has a radically different system of employment law than the United States.

“At will” employment, which allows employees in the United States to easily terminate or lay off employees, does not exist there. Under a much more restrictive concept called “termination indemnity,” employers must follow a lengthy notification process before letting Indian employees go.

They must also indemnify employees for some of the wages they would have earned if they had remained under their employment.

Failure to follow the appropriate process can result in fines for an employer operating in India. Additionally, employers cannot enter into contracts under which individual workers sign away suck rights.

Similar employment laws restricting an employer’s right to terminate workers exist in many countries that are hotbeds of outsourcing.


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