Choosing an Employer of Record Partner: Legal Pitfalls to Avoid

As more and more companies turn towards global workforce management solutions like Employers of Record (EOR), it’s important that they fully understand the nature of the legal relationship they are entering.

The use of outsourcing companies and Employer of Record (EOR) service providers has become common practice amongst many international organizations. However, the growing popularity of these workforce solutions has led to increased regulatory and judicial scrutiny of such arrangements.

This, in turn, places an important obligation on EOR service providers to ensure that the services they offer are properly structured to limit their clients’ exposure to liability. A good example of this was the case in Kenya of ‘Arendse & 182 others v Meta Platforms, Inc & 3 others’, also referred to as the ‘Meta Case’. In this case, Facebook, a subsidiary of Meta Platforms, Inc. and Meta Platforms Ireland Limited (collectively “Meta”) was indirectly involved through its outsourcing partner, Source Kenya EPZ Limited (“Sama”).

The Meta Case in Kenya's Labour Court

In the Meta Case, the employees were employed as Facebook Content Moderators by Sama, pursuant to an outsourcing contract between Sama on the one hand and Meta on the other.

Following the announcement of a redundancy exercise by Sama, the employees filed a petition against Sama and Meta alleging, amongst other things, that:

1. Their fundamental human rights were breached over the course of their employment

2. The purported redundancy exercise amounted to unfair termination as it was done without justification and in violation of the law.

Rulings

In its rulings on the applications filed by the employees to suspend the redundancy exercise pending the final determination of their human rights petition, the Employment and Labour Relations Court at Nairobi (“ELRC”) held, amongst other things, that Meta is the primary employer of the employees and not Sama, who is merely an agent.

Some of the key factors considered by the ELRC in making its decision include:

1. Absence of a proper employment contract between Sama and the employees:
   The ELRC found that the employees were not issued employment contracts. Rather, they were given simple offer letters which did not state the name of their employer or contain other material terms of employment that could help determine this.

2. Absence of a comprehensive outsourcing contract between Sama and Meta:
   The ELRC also found that there was no proper outsourcing contract between Meta and Sama. As such, the Meta Case was outside the scope of the usual outsourcing arrangement where there is a clear and documented division of roles and responsibilities between EORs and their clients and expressly states which party would be considered the employer.

Implications

Notwithstanding that there were other factors considered by the ELRC in making its decision such as the facts that:

1. Meta provided and solely owned the platform on which the employees carried out their work and;

2. Meta controlled the performance of said work.

There is a chance that the ELRC’s rulings would have been in Meta’s favor had proper employment contracts and an outsourcing contract been put in place.

Although the employees’ petition is yet to be finally determined, the rulings delivered thus far by the ELRC raises material concerns for outsourcing arrangements in Kenya. EOR service providers have an obligation to ensure that their processes and documentation are well structured so as to minimize the risk of liability that their clients could be exposed to in connection with the employment relationships created.

It is also equally important for companies looking to engage EOR service providers to conduct proper due diligence to ensure that they only engage EOR service providers that understand the law and common practice in the jurisdiction(s) of service.

At Atlas, we understand the driving force behind the use of EOR service providers. We provide our clients with the flexibility that they require to access a global pool of talent whilst avoiding the hassles of establishing legal entities in different countries, which in turn allows them to focus on growing their businesses.

We do all the heavy lifting by assuming the responsibility as the legal employer to ensure our clients comply with local employment regulations. Our processes and documentation have been specifically designed for this purpose and we possess the requisite in-country knowledge and experience to help our clients expand their global reach whilst meeting local regulations.