Outsourcing involves a transfer by a business (customer) to a third party (supplier) of the operational responsibility for the provision of a distinct business function, process, or service. Given the inherent transfer of responsibility, many outsourcing arrangements involve a transfer to the supplier of those employees who were engaged by the customer in the activity that is being outsourced. Macedonian law does not specifically regulate outsourcing transactions. Nonetheless, the Macedonian Law on Labor Relations 2005 (Labor Law) is harmonized with the EU Transfer of Undertakings Protection of Employment Directive 2001/23/EC of 12 March 2001 (TUPE) and, therefore, applies to the transfer of employees both on the initial outsourcing and on any subsequent or second-generation outsourcing.
Like TUPE, the main effect of the Labor Law is the transfer of employment contracts of employees involved in outsourced functions to the supplier. Broadly, the objective of the Labor Law is to preserve the continuity of employment and terms and conditions of those employees who are transferred to a new employer on an outsourcing basis. This means that employees employed by the customer when the outsourcing takes effect should become employees of the supplier on the same terms and conditions. However, many questions arise during the process, including which employees are employed in the undertaking, what happens to those who choose not to transfer or are to be made redundant, what happens when the outsourced services are to be offshored, and what liabilities are retained or transferred.
According to the Labor Law, when a company’s activities, parts of its operations, or specific tasks are transferred from the previous employer (transferor) to a new employer (transferee), all rights and obligations arising from existing employment relationships are fully transferred to the transferee. The Labor Law specifies that the “tasks or activities” covered under this provision include those related to production, service delivery, or other similar functions performed by legal or natural persons at designated locations. Additionally, regardless of the legal basis for such a transfer and the transfer of ownership rights, the transferee is regarded as a legal or physical person who continues to perform the tasks or activities of the previous employer or similar tasks or activities for a period of at least one year.
All employees involved in the activities being transferred from the transferor to the transferee must be transferred to the transferee. However, this transfer is not automatic – both the transferor and the transferee must take specific steps to implement it in accordance with Labor Law.
The transferor and transferee must notify and consult with the affected employees about the planned outsourcing at least 30 days before the transfer takes place. This advance notice gives employees enough time to make informed decisions regarding their continued employment. Consultations should be carried out through employee representatives or trade union organizations, or directly with employees if no representatives are available. The purpose of these consultations is to discuss any planned measures that may impact employees, including the proposed transfer date and the legal, economic, and social implications for them.
The transfer of employees does not, in itself, justify the termination of their employment unless there are economic, technical, or organizational reasons that necessitate changes in the workforce. However, employees who refuse to transfer to the transferee may have their employment terminated on these grounds, and they will be entitled to severance pay. In any case, the transferor must notify the Macedonian Employment Agency of its intention to transfer or terminate the employment of all affected employees due to redundancy. The transferor also must provide the affected employees a formal termination notice along with an offer for transfer to the new employer. The employees must have at least 15 days to provide their responses on whether they accept to transfer or not.
Employees, employee representatives, or trade union organizations can seek judicial protection in the event of a violation of the Labor Law. Employers who fail to comply with their obligations under the Labor Law may face penalties ranging from EUR 500 to EUR 3,000, depending on the size of the business. Additionally, the legal representatives of these employers may incur fines between EUR 250 and EUR 400.
By Gjorgji Georgievski, Partner, Dzena Anastasova, Associate, and Mila Kostic, Junior Associate, ODI Law
This article was originally published in Issue 12.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.