Practical Law Multi-Jurisdictional Guide 2012/13: Outsourcing - United States


Originally published in the Practical Law Company - Practical Law Multi-Jurisdictional Guide 2012/13: Outsourcing in June 2012.

This article is intended to provide lawyers who practice outside the United States with an understanding of the business and legal considerations inherent in outsourcing transactions. It describes the terms typically contained in an outsourcing agreement, business and legal concerns relating to employees and data, and a brief overview of laws that apply to outsourcing transactions.



- National regulations

1. To what extent does national law specifically regulate outsourcing transactions?

The US legal system is a dual regime of federal and state laws. A combination of federal and state laws may apply to certain issues that relate to outsourcing transactions, including tax and labour law. Parties to an outsourcing transaction must have a clear understanding of the federal and state laws that apply to the particular transaction.

Federal law -

Federal law applies in all jurisdictions in the US (and can pre-empt state law) in specific areas, for example:

- Patents.

- Trade marks and copyright.

- Immigration and insolvency.

As yet, there is no comprehensive federal law that regulates outsourcing transactions, although in 2004 a temporary ban was imposed on the offshore outsourcing of certain federal agency contracts (see Question 2, Public sector). In the last two years, several attempts have been made to enact outsourcing-related federal laws, none of which have yet been passed or signed into law. One of these attempts, the anti-outsourcing Bill informally known as the Creating American Jobs and End Offshoring Act (S.B. 3816), was defeated. The Bill would have, among other things:

- Provided tax incentives to business entities that move jobs to the US.

- Eliminated tax deductions for expenses incurred by companies when moving work overseas.

- Prohibited US companies from deferring taxes on the income of their foreign subsidiaries.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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