Outsourcing work to AI vendors: what happens to the staff

Some organizations move whole functions to a vendor that runs them with AI: customer support, document processing, claims handling, back office work. Others simply switch on an AI tool and stop needing a team. For the people doing that work, the legal outcome can be very different. In the EU, the first can be a transfer of an undertaking, where jobs move to the new provider on the same terms; the second usually is not, and the question becomes redundancy. This page explains the line between them.

The short answer: under the EU Acquired Rights Directive, if an economic entity that retains its identity passes to another employer, the employees' contracts and rights pass with it, the transfer alone is not a ground for dismissal, and both employers must inform and, where measures are envisaged, consult employee representatives. If only the activity moves, with no significant assets and no major part of the workforce taken over, the Court of Justice has held that the Directive does not apply.

What counts as a transfer

Directive 2001/23/EC applies to any transfer of an undertaking, business, or part of one, to another employer as a result of a legal transfer or merger (Directive 2001/23/EC, Article 1). There is a transfer where an economic entity retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary. It covers public and private undertakings engaged in economic activities, whether or not they operate for gain; an administrative reorganisation of public authorities is not a transfer.

The Directive codified the earlier Directive 77/187/EEC. In Case C-13/95 (Süzen, 11 March 1997), the Court of Justice ruled that the earlier Directive did not apply where a client ends a contract with one provider and gives similar work to another, if there is no concomitant transfer of significant tangible or intangible assets or taking over by the new employer of a major part of the workforce, in terms of their numbers and skills (Judgment in Case C-13/95).

Three AI scenarios

• A team moves to an AI-enabled outsourcer. The provider takes on most of the staff, or the systems and data they work with, and keeps running the function. This is the classic case for a transfer: the people go with the work, on their existing terms.
• The work moves, the people do not. A vendor takes over the activity using its own AI platform, hiring none of the team and taking no significant assets. On the Süzen reasoning, this is unlikely to be a transfer, so the jobs stay with the original employer and any cuts are redundancies; see AI and layoffs: consultation and notice rules.
• An in-house AI tool replaces tasks. No other employer is involved, so there is no transfer at all. Redundancy and consultation rules, and the employer's duties when introducing AI, are what matter; see introducing AI agents at work.

Each case turns on its facts and on national law, which can go further than the Directive. Where a group moves work between countries, its European Works Council may also have to be informed and consulted.

What passes to the new employer

• Contracts and rights: the transferor's rights and obligations under employment contracts or relationships existing on the date of transfer pass to the transferee (Article 3(1)). Member States may make both jointly and severally liable for obligations that arose before the transfer.
• Collective agreements: the transferee must continue to observe their terms until they end or another agreement applies; Member States may limit this, but not to less than one year (Article 3(3)).
• Dismissal protection: the transfer in itself is not a ground for dismissal by either employer, though dismissals for economic, technical or organisational reasons entailing changes in the workforce are not ruled out (Article 4(1)). If the transfer involves a substantial change in working conditions to the employee's detriment and the employment ends because of it, the employer is regarded as responsible for the termination (Article 4(2)).

Information and consultation

Under Article 7, both the transferor and the transferee must inform the representatives of their affected employees of:

• the date or proposed date of the transfer;
• the reasons for it;
• its legal, economic and social implications for the employees;
• any measures envisaged in relation to the employees.

The transferor must do this in good time before the transfer; the transferee in good time and before its employees are directly affected. Where either envisages measures, such as new AI tools, changed roles or job cuts after the transfer, it must consult the representatives in good time with a view to reaching an agreement. It is no excuse that a controlling company did not provide the information (Article 7(4)). Where there are no representatives through no fault of the employees, the employees themselves must be informed in advance (Article 7(6)).

Practical steps

• Employers: before signing with an AI vendor or outsourcer, work out whether staff, data, systems or contracts will move. If they will, plan for a transfer: due diligence on employment terms, information and consultation on both sides, and no dismissals because of the transfer itself. If the vendor's AI platform will deploy high-risk systems for managing the transferred staff, the AI Act duties apply too; see AI at work and workers' rights.
• Workers: ask whether your role is part of the deal, whether your employment will transfer, and which terms carry over. Your representatives or union are entitled to information; see AI and unions.

This page is general information about EU rules, not legal advice. National transposing laws, such as rules on service provision changes in some countries, can differ.