Outsourcing and the Personnel Paradox

摘要

Outsourcing has been heralded as a strategy permitting firms and hubs to simultaneously increase their competitive flexibility and reducerna variety of costs and legal liabilities (Kakamanu and Portanova, 2006; Merrifield, 2006; Cinelli and Huffman, 2006). However, in the United States, the competitive benefits of this strategy are being targeted through legal doctrines of control (In Re FedEx Ground Package System, Inc., 2005; Baker v. Flint Engineering & Construction Company, 1998). Consisting of behavioral, financial, and apparent dimensions, this doctrine of control has eroded the traditional independence of outsourcers by reclassifying their personnel as employees of hub organizations. When upheld by the courts, this reclassifi-cation has resulted in the imposition of new compensatory obligations on those using outsourcers, independent contractors, or independent business subsidiaries. Many of these firms have now been required to assume financial and legal responsibilities for overtime compensation, workman's compensation, payroll taxes, and civil litigation costs or judgments generated by their outsourcer cadre (Osterman, 2005). This, in turn, has raised the level of costs not generally anticipated with business models based on outsourcing (Osterman, 2005; Lavallie v. Pride International, Inc., 2004). To better manage these new financial and legal liabilities, this paper recommends that firms and hubs should take affirmative steps to (1) understand the legal complexities of the control doctrine as represented in emerging case law, and (2) introduce a variety of contractor management strategies designed to preserve true independence between themselves and their outsourcer cadre. As noted by the courts, freedom from costs and liabilities may only accrue to firms that maximize the autonomy of their outsourcers.