Contractual and legal considerations

The transition between logistics providers involves complex contractual and legal considerations. Normally, these will have been considered in advance and provisions will have been baked into the commercial agreement regulating an exit and setting out requirements on the transition of services and indemnity protections. If the supply chain contract is silent on transition, this can be both a blessing and a curse. It means the outgoing provider is not shackled contractually and has greater freedom to operate, but it also creates uncertainty and a vacuum risk regarding how the transition will take place, and who is responsible and/or liable for what in respect of employees.

TUPE assessments needed

TUPE laws ensure that employees of the outgoing logistics provider or supply chain entity are transferred to the new provider under the same terms and conditions of employment. This helps retain valuable skills and expertise within the supply chain, avoiding the disruption that could result from mass layoffs or talent loss. It also avoids a severance cost for the outgoing provider, as without TUPE they would be on the hook for termination liabilities unless they can redeploy the employees into alternative roles and/or projects.

TUPE laws will not apply in every case. In the UK, TUPE laws are broad and flexible, and would commonly apply to a change in logistics provider where there is a dedicated client service team that spends most of its time serving a particular client. Outside the UK, TUPE laws require a business transfer. That is challenging because what is frequently transferring in a change of logistics provider scenario is responsibility for performing an activity rather than a business. The risk that TUPE may not apply at the end of a contract also needs to be factored into the supply chain agreement, including agreeing who will be responsible for any severance costs and/or liabilities.

Continuity in operations

By protecting employees during a change of logistics provider, TUPE regulations help maintain continuity in operations. This minimizes the potential negative impacts on the supply chain that could arise from disruptions caused by the sudden loss of key personnel or the need to retrain an entirely new workforce.