10 Secondment Agreement Clauses Every Employer Needs

What Is a Secondment Agreement?

Secondment is a short-term process where an employee (the secondee) is sent to work with a host company while the primary employment contract between the secondee and his/her original employer remains valid. Secondments help organizations cover skills shortages, improve abilities of employees, build business relations and conduct organizational restructurings.

The secondment agreement is a document which regulates the process of secondment. The secondment agreement is usually a three-party agreement involving the original employer, the host company and the secondee himself/herself. The secondment agreement should be drawn up very carefully because there are certain pitfalls in secondments which can cause the most typical problems: unintentional dual employment, conflicts related to intellectual property and confidentiality, problems at the termination of the secondment period.

Key difference: secondment is not an employment transfer. The secondee does not become an employee of the host company. This difference has certain consequences for the process of secondment.

Jurisdictional variations exist in secondment laws, and this is especially important in North America. The US has at-will employment practices, and the major legal risk is not the continuity test but the joint employment concept that will make the host firm liable for wages and other benefits, alongside the employer. In Canada, the length of continuous service becomes important in determining the rights of the employee since a federal employer has to follow notice and severance rules under the Canada Labour Code after reaching certain lengths of service, while a provincially regulated employee must observe the employment standards act of his or her province. Always take legal advice in your jurisdiction, and for secondments across borders, always take care of tax and immigration issues.

What Are the Legal Risks of a Poorly Drafted Secondment Agreement?

There is a considerable legal and practical exposure faced by the three stakeholders (the original employer, the host firm, and the secondee) when there is no secondment agreement in place.

The 10 Non-Negotiable Clauses in a Secondment Agreement

Phase 1: Defining Who's in Charge

Clause 1: Employment Status and Continuity

There should be a clear provision in the secondment agreement that indicates that the secondee continues to be an employee of the original employer during the entire period of secondment without any interruption of his/her continuous employment relationship. The reason for this is to prevent the possibility of the secondee obtaining employment rights with the host organization and therefore having entitlements in terms of benefits, notice and joint-employer liabilities with the host.

For the United States, the danger of joint employer liability is the danger to be considered. The courts consider the direction of the work, the control of the pay and discipline of the employees and whether the entity hiring can hire and fire the employees in determining whether there is a joint employer. In Canada, on the other hand, it is continuity of service that is key since employment standards statutes provide that employees whose length of service reaches a threshold will have entitlement to notice and severance payments.

Clause 2: Employee Consent and Contract Variation

The act of sending an employee for a secondment represents a change to the working conditions of that employee, including place of work, immediate supervisor, working environment, and possibly nature of work being done. Such changes represent a variation of the employment contract and, while it might not necessarily be required by law to do so, it would generally make sense to get employee consent documented in such cases.

Furthermore, this clause must contain the fact that an employee is allowed to refuse the secondment. Forcing an employee into accepting a secondment without any consent would make it possible for the employee to file a case of constructive dismissal, especially in Canada, where the criteria for a fundamental change in employment terms have been established through previous cases. Documented voluntary consent provides an employer with protection against such actions.

Clause 3: Duration, Extension, and Curtailment

Each secondment agreement should include a clearly stated beginning and ending point of the secondment, along with provisions for extension or curtailing the secondment. Without such, there is a possibility of arguing that the temporary secondment has now become a permanent reassignment.

It is advisable that the clause specifies the notice periods required for early termination of the agreement on the part of the original employer or the host and any measures to be accorded to the secondee in case such an event occurs.

Clause 4: Responsibility of Reporting, Disciplinary Action, and Grievance Handling

As much as the host organization has the responsibility to guide the work of the secondee, employment responsibilities such as the right to conduct discipline actions and handle grievances need to remain with the original employer. A process for referral by the host needs to be included to specify how the host may refer conduct or performance issues to the original employer.

This allocation of authority is important in protecting both the host and the original employer.

Phase 2: From Payroll to Policy Compliance

Clause 5: Compensation, Benefits, and Reimbursement

Usually, the remuneration of the secondee is provided by the original employer and the host organization reimburses, wholly or partially, based on the agreement. The provision should cover

• • Who will be responsible for the payment of the secondee’s salary and when
  • The party liable for the contribution to retirement, health insurance, and other benefits
  • The system of reimbursement and the timeline
  • The way salary increment, bonuses, and other reviews are going to be performed during the period of secondment 

Disputes related to the financing of the secondment costs arise quite often without any provisions regarding them. They result in claims for the payment of the compensation and benefits of the secondee.

Clause 6: Host Policies and Legal Compliance

The secondee continues to be an employee of the original employer; however, he is supposed to follow the policies of the host organization while being at work. It covers policies about health and safety measures, use of information technology and data protection.

Drafting tip: if this clause is crafted too broadly, such as requiring the secondee to adhere to all host employment policies, then it will inadvertently imply that the secondee is part of the host’s employee pool, making a joint-employment determination likely. Limit the extent of host employment policies to be adhered to only to operational and safety requirements.

Clause 7: Liability and Indemnification

The liability provision apportions liabilities between the original and the host organizations where there is a loss or damage caused by the secondee while performing secondment responsibilities. This provision should include:

• • Conditions for when the host shall indemnify the original employer (vice versa)
  • If the insurance cover of the host organization covers the secondee
  • How vicarious liability should be apportioned for acts/omissions by the secondee

Without this clause, the parties may find themselves open to third-party liabilities that arise from the secondment.

Phase 3: Protecting Assets and Innovation

Clause 8: Confidentiality and Non-Disclosure

Secondees will have access to highly confidential information from the host organization, including client details, strategic plans, terms of business, and proprietary processes. The confidentiality provision must ensure that the secondee is obliged not to disclose information that:

• • Cover all confidential information provided to the host during the secondment
  • Survival of the termination of the secondment agreement
  • Permitted uses of the confidential information
  • Remedies for breach of the confidentiality obligation, including injunctive relief

Data privacy obligations come into play here, as well, for both countries. There is no comprehensive federal privacy act in the United States, and the obligations will therefore be determined according to the applicable state privacy laws and data protection obligations imposed by the Federal Trade Commission. Canadian secondments involving personal information that occur in the private sector are covered by either the Personal Information Protection and Electronic Documents Act, or PIPEDA, and its equivalents in the provinces.

Clause 9: Intellectual Property Ownership

Intellectual property ownership rights become very important when a secondee produces something (a patentable invention, software, a process, a report, or any other intellectual property). Generally speaking, intellectual property that an employee develops as part of his or her employment belongs to the employer. However, in the case of a secondment, the issue arises who the "employer" is in such a case.

The IP provision should specifically indicate the ownership of any intellectual property rights that might be created by either party during the secondment period. The importance of this provision is particularly relevant in a context of technology, research, or professional services where the creation of valuable intellectual property could occur.

The differences between default rules in the US and Canada are so significant that leaving this issue to default rules is not an option. Under US law, all copyrightable works created by employees in the course of their duties are automatically "works made for hire," owned by the employer under US copyright law, while patentable inventions are covered by both state laws and provisions of the employment agreement. Under Canadian Copyright Act, all work that is created within the scope of employment is automatically owned by the employer under copyright law, and any inventions are automatically owned by the employee unless the parties agreed otherwise. Because this difference depends on so many factors, do not assume anything. Clearly state the IP ownership in your agreement.

Phase 4: Managing the High-Risk Exit

Clause 10: Return-to-Work and Redundancy Protocol

End of secondment is another high-risk time period during the whole process. The end-of-secondment clause must specify all details regarding the situation when the secondment is finished:

• • Will the secondee go back to his/her initial job?
  • If the initial job does not exist anymore, what other positions may be considered?
  • In case there are no suitable positions available, how will the procedure for lay-off be organized?

In the USA, this is the place where the Worker Adjustment and Retraining Notification (WARN) Act may apply, if the secondee's return happens together with a larger lay-off event or closing of the facility, because WARN requires advance notification in the case of eligible mass lay-offs. In Canada, if the employee has enough continuous service, he/she is entitled to receive statutory notice and severance pay in case of the termination of employment under the Canada Labour Code or under the corresponding provincial employment standards act.

Key Takeaways: Secondment Agreement Checklist

Prior to entering into a secondment agreement, verify that the document covers all the below points:

• Status of employment stated as being employed with original employer
• Employee’s consent secured
• Date of commencing and ending the contract along with extension/curtailment terms and conditions
• Responsibilities and liability of disciplinary action covered
• Terms and conditions relating to compensation and payment clarified
• Scope of compliance with host company policy specified (operation-related only)
• Insurance liabilities and coverages divided between parties
• Obligations concerning confidentiality covered along with survival after secondment
•  Assignment of intellectual property rights clearly outlined
  

Getting the Paperwork Right

Ten clauses are too many to reconcile among three people, particularly when secondments last for months with possible extensions or cuts before time. Very few of the disputes listed above stem from malice. The truth is that the reason behind all those issues lies in an agreement that was drafted once and never looked at again until there was a problem.

Implementing a CLM platform that will maintain a standardized secondment agreement, take care of the crucial dates such as the deadline for the extension or the return to work date, and direct the document through the proper channels prior to signing it can solve many of the problems listed above. If your business uses the Microsoft 365 platform, you can choose Dock 365 contract management software that will allow your HR and Legal departments to draft, keep, and monitor secondment agreements in a familiar environment with automatic reminders of the clauses such as duration or return to work. Schedule a demo today!