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India Orders Shutdown Impacting Millions of Outsourced Technology and Financial Sector Workers

The Government of India invoked the 2005 Disaster Management Act to declare a broad shutdown of businesses in India for a period of twenty-one (21) days, beginning March 25, 2020 in aid of containing the spread of COVID-19 (the “Order”). The Order requires that commercial and private establishments be closed down, while exempting narrow categories of businesses from shutdown, including “[t]elecommunications, internet services, broadcasting and cable services, IT and IT enabled Services (for essential services).” Businesses in these categories are advised “as far as possible to work from home.”

This action by the Indian government poses concern and some immediate challenges for companies that outsource critical business process functions to India. This is because business process outsourcing (“BPO”) agreements often involve offshore access to personal information and other confidential data, and frequently contain highly restrictive terms that are incompatible with work-from-home arrangements.

This Alert addresses immediate action steps to consider if your company outsources any critical BPO process functions to India:

Is Your Vendor Providing IT or IT Enabled Services for “Essential Services”?

The Order exempts banks, insurance offices, and “IT and IT enabled Services for essential services” from mandatory shutdown, but provides no specific explanation or guidance about what constitutes an essential service, or whether such service must be essential for purposes of India, or whether providing IT or IT enabled Services that are essential outside of India qualifies. If your company receives a critical service from a vendor based in India and provides services that you believe are essential here in the United States, consider preparing a brief description and explanation of why the vendor’s service is essential, and as may be applicable, why it is not possible or practicable for the vendor’s employees to work from home during the shut-down period. With that information in hand, engage in discussions with your vendor to coordinate your interpretations of the Order and what it does (or does not) require as it relates to your company.

Review BPO Agreement Terms.

Any company engaged in a BPO relationship with an India-based service provider should carefully review the BPO agreement to determine if a work-from-home arrangement is permissible, and if not, whether and how to amend the agreement to address the circumstances presented by the Covid-19 pandemic. Many offshore BPO agreements contain some or all of the following types of provisions, each of which may be implicated by the Order:

  • Restrictions on service locations from which services may be performed
  • Prohibitions on the ability to process data outside of the designated service locations or to make data available to personnel outside of the service locations
  • Requirements to physically and logically segregate work areas and network and communications capabilities
  • Restrictions on relocation of the service locations without advance notice and consent of the company
  • A right to access the vendor’s offshore service locations
  • Prohibitions on use of a company’s property outside of the service location
     

Determine Whether Business Continuity Plan Requirements Apply.

BPO agreements typically require the vendor to have business continuity plans in place. Review these provisions to determine if they apply and what is required of the vendor under the current pandemic. The vendor may have an obligation to invoke its business continuity plans, and these plans may include arrangements other than work-from-home. Initial issues to consider include the following:

  • Has there been a qualifying or triggering event which requires the vendor to invoke the business continuity plan?
  • When does the obligation to invoke the business continuity plan arise?
  • Does the triggering event have to be in effect for a minimum period of time?
  • Does the business continuity plan allow for alternative work sites?
  • Can services be shifted from an impacted facility to a facility in another geography?
  • Is the vendor required to provide alternate transportation methods when public transit is not available?
  • Is there a specific recovery time objective for when services must resume?
  • Does failure to implement business continuity or meet recovery time objectives constitute default?
     

Consider Options Given Contract Terms, Including Self-Help.

For those companies that cannot easily allow their BPO workforce to switch to a work-from-home arrangement, it may be necessary to explore alternative methods of performing the outsourced functions. To that end, companies should understand what rights they have to exercise self-help or to step in to take over the outsourced functions, either on a temporary or permanent basis. Before exercising such rights, a company should at a minimum evaluate the following:

  • Is the BPO agreement exclusive?
  • Does the BPO agreement contain any other restrictive covenants?
  • Does a pandemic constitute a force majeure event or otherwise provide relief from exclusivity or other contractual restrictions?
  • What timeline applies before the company may exercise self-help or step-in rights?
  • Who absorbs the costs and expenses of moving services back on-shore, in-house or to another location or vendor?
  • If the only alternative is to take over the services completely, what are the company’s termination rights, and does the vendor have the right to cure?
     

Engage IT and Other Internal Subject Matter Experts to Address Logistical Issues.

If offshore work-from-home arrangements are authorized, consider the logistical issues that need to be addressed to make the arrangement possible. These include:

  • How to provide the equipment (laptops, printers, etc.) needed to perform services from home, and who covers the expenses?
  • Establishing requirements for connectivity and for hardware and software assets in terms of security, access, back-up and data retention
  • Communicating, monitoring and enforcing these requirements
  • Assessing the impact on any service level agreements
     

BPO agreements are heavily negotiated and highly complex agreements. We encourage you to consult with counsel in exploring your options and rights.

 

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Authors

Julie E. Korostoff

Member / Chair, IT Transactions & Outsourcing Practice

Julie E. Korostoff serves as Co-chair of Mintz’s Licensing & Technology Transactions and Outsourcing Groups. She leads a wide array of technology transactions, including licensing and distribution agreements, and is recognized for her work in the financial services and digital health industries.
Meredith M. Leary is a Mintz litigator with extensive project management and case management experience in the life sciences, software, and manufacturing industries. Meredith's practice focuses on risk assessment and mitigation in the litigation and arbitration contexts.

Laura A. Stacey

Special Counsel

Laura A. Stacey is a Mintz Special Counsel with an extensive background in commercial transactions, licensing, IP, technology, and privacy. Laura drafts, reviews, and negotiates complex commercial transactions and license agreements. Her clients range from small businesses to Fortune 50 companies.