This article has been written by Prashant Samantrai, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.com.
The term ‘secondment’ refers to a temporary movement or transfer of an employee of the organisation from one department to another, or from one group company to another for the achievement of specific goals of the management. In this era of knowledge-based global economy, the term has evolved to an assignment of employees of one organisation to another, be it domestic or offshore, for achieving specific organisational objectives, such as to provide service to a client organisation, to impart knowledge along with technology transfers, to intensively train the employees in skills otherwise not possible within the organisation, or for bringing in diverse practices within the organisation for increased flexibility. It is a prevalent practice across government, private, and charity sectors around the world. Secondment benefits the employees in terms of continuing education, enhancement of skills, networking opportunities, etc. Organisations use this as a tool to develop comprehensive talent management programs and improve their skill base.
Issues like payroll, control, accountability and monitoring, and consequences of termination of employment are inherent with the secondment of employees. Execution of an explicit secondment agreement between the parties involved is a key step to address these issues. The purpose of this article is to analyse the importance of secondment agreements so as to give the readers a fair comprehension of the subject.
What is secondment?
Secondment denotes the temporary movement of an employee from one part to another part within the same organisation, to another organisation within the same group, or to a different organisation altogether, such as a client or a business partner. The key feature of secondment is that the subject employee will return to his original organisation or department.
This type of arrangement proves to be valuable for both employee and organizational development in terms of knowledge transfer, the flexibility of operations, enhancing an employee’s particular skill set, keeping the costs in check, etc.
There are essentially three parties to a secondment agreement:
- Employer- The employer will dispatch its employee to another company.
- Secondee- The secondee is the employee who will be delegated to another company.
- Host- The host company will take on the secondee for a defined period.
Rationale behind secondments
From an organisational perspective, it provides the employer and hosts an opportunity to strengthen their relationship. Secondments, as a tool of human resource management, are used across the industry due to the variety of benefits it offers to the employees, such as low-risk opportunities for professional development without incurring personal cost, exposure to new management styles, and global exposure in case of overseas secondment.
Through secondments, an employer’s headcount may be adjusted in accordance with the ebb and flow of the business cycle or due to an overall increase or decline in productivity. It allows a business to deploy resources to different departments or to external companies instead of increasing or decreasing headcount intermittently. International secondments help employers to expose their employees to global markets and work environments without additional costs; at the same time, the host company benefits from the skill set of the secondee without incurring long-term employmentabo costs. For organisations, the secondment of employment is a strategic device for optimal use of their human resources by staying within their assigned budget for the same.
Types of secondments
Secondment can be broadly classified in the following manner:
- Internal secondment – Under this type, the secondee is assigned to work for a different department within the same organization. This can be understood with the following example.
Example 1: Sultan is an employee of Wasseypur Outsourcing Limited and is designated in its marketing department. Part of his role in the marketing team is to also promote employment opportunities in the business. For this, the management wants Sultan to further develop his interpersonal skills and learn the recruitment process and gives him a secondment to the human resources department for 3 months. He returns after the secondment being more comfortable with the recruitment process and dealing with people. The knowledge extension improves his performance on the job and allows him to promote the business with more insight and expertise.
- External secondment– under this type, the secondee is transferred to a different organisation altogether which is usually in the case of group companies such as holding or subsidiary companies or a company outside the group such as a client or with a business partner. This can be understood with the following example.
Example 2: Sardar runs a consulting business in Dhanbad and employs 6 graduates per year. He has a partnership with a law firm, Asgar Nasir & Associates, which has offices in multiple locations nationwide. Sardar chose Faizal, a graduate employed in his legal affairs department, to go on secondment at Asgar Nasir & Associates. Faizal will be sent to Mumbai for secondment for a period of 6 months and will return to his main office i.e. at Sardar’s, after that period.
Contractual issues under secondments
The Indian employment laws clearly demarcate between the employees who are defined as ‘workmen’ and those who are in the supervisory, administrative, and management roles (‘non-workmen’). These laws regulate and service conditions, payments and protect the rights of ‘workmen’ only. The service conditions of non-workmen are typically governed by the internal policies of the organisation and the terms of relevant employment contracts of the employees. Further, there is no specific statute that governs the secondment of an employee; therefore, the organisations prefer to enter into a contractual arrangement with detailed terms and conditions to regulate the secondment of an employee.
In the event an employee is seconded to another department within the same organisation, the terms of employment are governed essentially by the primary employment agreement executed at the time of the start of the employment.
The secondment of an employee to another organization, however, has complexities and includes a range of issues because the employee is technically working for the host, whilst still being employed under the primary employer. Some of these issues include:
- Who has a legal relationship with which party?
- Who will monitor the second employee’s performance?
- Who will be liable for the payment of remuneration?
- Who will be liable for the actions of the seconded employee and enforce discipline?
- What happens at the end of the secondment?
- How to end the secondment early?
- Who is responsible for the second employee’s safety?
- What happens if the employee resigns?
- Which laws will be applicable to the employee in case of overseas secondment?
These issues can be understood with following cases:
- In the case of Centrica India Offshore Private Limited vs. CIT, the issue raised was whether the services provided by the secondees to the Indian host amounted to ‘fees for technical services to be taxable in India.
- In the case of Sheela Devi Alias Parvati Devi vs. Choudhary Shrawan Kumar H.P. Krishi Vishwavidyalay, the issue decided was whether a secondment to transfer can be made without the consent of the employee concerned.
- In the case of ITER International Fusion Energy Organization, the issue was raised to challenge the decision of ending the secondment term by ITER and failure to investigate the harassment allegations of the complainant.
- In the case of International Telecommunication Union before the ILO administrative tribunal,, the complainant objected to the working conditions during the secondment, contending that the appraisal rules of terms of secondment were breached.
Essential components of the secondment agreement
These contractual issues under secondment of employees can be addressed by execution of a secondment agreement, after carefully negotiating some essential terms of the secondment, which are discussed as under:
1. Variation of terms of employment
In a secondment arrangement, the terms of the employment contract of the secondee will be varied inevitably. Therefore, the employer must ensure that the secondee agrees to such variation of terms before concluding the secondment agreement and the employer must ensure. Ideally, the secondee must be a party to the agreement or expressly consent to the terms which affect him.
Example clause: The agreement may only be varied with the express written agreement of the host, the employee, and the employer.
2. Remuneration, benefits, and responsibility
The employer and host must ascertain who amongst them will be responsible for remunerating the secondee during the period of their arrangement. In case, the employer agrees to remunerate the secondee, the employer and host must negotiate the terms of payment by the host to the employer for the secondee’s services to the host. The secondment being a temporary arrangement, the contractual arrangements between the employer and the secondee in relation to retirement funding and medical aid will not be affected, unless otherwise agreed.
Example clause: (1) The Employer shall continue to pay the Employee’s salary and any allowances, provide any benefits due to the Employee and make any deductions that it is required to make from the Employee’s salary and other payments in accordance with their Contract of Employment. (2) The Host shall reimburse the Employer the amount of any salary, enhancements, overtime, performance and excellence awards, and expenses properly and reasonably incurred in the course of performing the Post for the Host, excluding travel to and from his place of work.
3. Terms of service during a secondment
The employer and host must clearly set out the scope of work, work hours, performance measures for the secondee, outcome expectations, particulars of person or team to which the secondee will report, in order to avert and address any service-related issues pertaining to secondment. The secondee must be aware of and agree to these terms of service.
Example clause: (1) The Employer will supply the services of the Employee for 18.75 hours per week between Monday and Friday inclusive. In addition to the standard hours, the Employee may be required to work at other times as may be necessary for the proper performance of his duties, including participation on call. (2) The Employee will comply with the Host’s reasonable requirements and instructions as communicated by it to the Employee from time to time.
4. Performance management and discipline
Performance management of the secondee ought not to be neglected, especially in the case of secondment for a longer duration. The parties may include a mechanism as to how the employer will be kept abreast of the performance of the secondee. If key performance areas or performance measures differ related to services being provided under secondment, the secondee must be advised beforehand.
Example clause: (1) The Host will submit reports on the performance or conduct of the Employee as and when reasonably requested by the Employer. Any key performance targets shall be based on targets set by the Host. (2) All matters of grievance and discipline shall be dealt with by the Employer in accordance with the Employer’s normal grievance and disciplinary procedures. (3) The Host agrees to report to the Employer, at the earliest possible opportunity, any grievance raised by or on behalf of the Employee and on all matters which it believes may require disciplinary action.
5. Adherence to policies
A secondment agreement ought to record that the secondee will comply with policies and procedures of the host company, and shall be subject to the consequences in the event of non-adherence to the policies. Discipline, however, must remain the responsibility of the employer in cooperation with the host.
Example clause: The policies and procedures of the Employer shall apply to the Employee and take precedence over the policies and procedures of the Host, unless otherwise stated within this Agreement.
Primarily, the secondee will be entitled to annual leave as stipulated in the employment contract, and any reduction in the secondee’s contractual leave entitlement can be made without his express consent. Further, the employer and host will have to make provision for processing and approval of the leave application and replacement arrangements during the leave period depending upon the reason and duration of the leave.
Example clause: (1) The Employee shall be entitled to holidays during the Secondment Period in accordance with their Contract of Employment with Employer. The Employee shall book all leave to which they are entitled with the Host in accordance with the procedures of the Host and at times that are reasonably convenient to the Host. (2) In the event of sickness, the Employee shall notify both the Employer and the Host in accordance with the agreed procedures of each party. (3) The Employer shall not be obliged to make available to the Host the services of the Employee or any replacement during any period of incapacity on the part of the Employee due to illness or injury or as otherwise permitted under the Contract of Employment.
7. Health and safety
This clause may be included in order to monitor that the secondee observes ‘health and safety policies and procedures of the host and maintains a safe method of working and to delegate the responsibility of such monitoring and feedback.
Example clause: The Host shall be responsible for ensuring that the Employee observes its health and safety policies and procedures and maintains a safe method of working. The Employee will observe all reasonable safety instructions given to him from time to time by the Host.
8. Term of the agreement
Generally, this clause stipulates the duration of the secondment and automatic termination after the end of its duration. It is essential to clearly mention the same in the secondment agreement to avoid the risk of employment expectation by the host, particularly when the secondment continues for a long duration. The agreement may contain a provision for potential extension of secondment to address such a situation. Where the secondee is a foreign national, the term of secondment must be limited to the duration specified in the secondee’s work visa.
Example clause: The period of secondment shall commence on [date] and end on [date] after a period of 2 years. After [date] secondment shall terminate automatically and the Employee shall return to the Employer.
9. Termination of the agreement
Apart from the end of the term, other foreseeable circumstances must also be included such as the end of primary employment due to resignation, superannuation or otherwise, breach of agreement, unsuitability of secondee to the project. Parties may also provide for cancellation on notice or by agreement. The parties must essentially include the consequences of termination and their post-termination obligation towards each other.
Example clause: The Employer may terminate this Agreement at any time with immediate effect by notice in writing to the Host if the Contract of Employment is terminated for any reason. In addition, this Agreement may be terminated by notice in writing by any party having immediate effect if any of the other parties commits any serious and material breach of its obligations under this Agreement justifying summary termination.
The agreement may include provisions restricting the host from offering the secondee another secondment or employment, during or after the stated period of the secondment.
Example clause: The Host shall not provide any additional benefits other than those agreed to herein and shall not make any offer for employment during and after 1 year after the expiry of the term of this agreement.
The employer and secondee must undertake to keep all information confidential, acquired by the secondee during the period of secondment with the host; and this obligation ought to survive termination of the secondment. The clause must provide an understanding of the parties about the circumstances under which confidential information may be disclosed.
Example clause: The Employee agrees to adopt all such procedures as the Host may reasonably require and to keep confidential all Confidential Information and that the Employee shall not, (save as required by law) disclose the Confidential Information in whole or in part to anyone and agrees not to disclose the Confidential Information other than in connection with the provision of the Services. The Employer will not, however, be liable for any failure on the part of the Employee to observe this requirement
12. Intellectual property
The ownership of intellectual property created by an employee in the course of his employment vests with the employer, unless there is an agreement to the contrary. Therefore, in instances where the secondment involves creating new intellectual property, the host and employer must negotiate and clearly specify in the agreement who will own the intellectual property created by the secondee, in order to avoid future disputes.
Example clause: Any discovery, development, invention, improvement, design, process, formula, information, computer program, semi-conductor or other topography, copyright work, trademark or trade name or get-up made, created devised, developed or discovered by the Employee during the Secondment (whether capable of being patented or registered or not) either alone or with any other person in connection with or in any way affecting or relating to the business of the Host or capable of being used or adapted for use therein or in connection therewith (‘Works’) shall forthwith be disclosed to the Host and shall belong to and be the absolute property of the Host.
13. Data protection
This clause may be negotiated to specify provisions and measures to protect the data of the employer and the host during and after the term of the secondment. The employer and host may append their privacy notices to the secondment agreement to clearly set out what personal data each of them will process by way of secondee during the secondment and the reasons for doing so.
Example clause: The Employee and the Employer consent to the Host holding, disclosing, using, or otherwise processing any information about them which they provide to the Host or which the Host may acquire as a result of this Agreement.
14. Liability and indemnity
It is of paramount importance that the relationship between the parties is defined clearly so as to ascertain liability and responsibility of indemnity. The agreement must specify who will be responsible and to what extent, for acts, omissions, errors of the secondee, which may occur during the performance of his services towards the host. The parties must ensure that their insurance policies extend to cover the activities of the secondee. This clause may also clearly specify the tax implication in the event any liability arises.
Example clause: (1) The Employer shall not be liable for any act or omission on the part of the Employee during the Secondment and shall incur no liability for loss, damage, or injury of whatever nature sustained by the Employee during the Secondment Period. (2) The Host shall indemnify and keep indemnified the Employer against any and all claims, liabilities, actions, proceedings, costs (including legal fees on an indemnity basis), losses, damages, demands, penalties, fines, or expenses suffered or incurred by the Employer which, are attributable to any act or omission by the Host any other person.
15. Governing law
The secondment agreement must take into account the laws of the employer’s country and the host country. An international secondment involves the cross-border transfer of the secondee to a foreign company. It is essential in international secondments to clearly specify the law under which their relationship under the agreement will be governed.
Example clause: This Agreement shall be governed and construed in accordance with the laws of [Country], and the Courts at [Place] shall have exclusive jurisdiction over disputes arising pertaining to this Agreement. Further, the structure of a secondment agreement can be understood from this sample.
Pros and cons of secondment
Any secondment arrangement, regardless of duration, industry sector, or purpose of secondment involves three parties, i.e. employer, host, and the secondee. Therefore, the pros and cons must be considered from all three perspectives:
Usually, an employee is selected for a secondment due to knowledge and performance of a specific function, which puts the secondee already in a privileged position within his employer organisation. Additionally, it provides the following benefits to the secondee:
- Security: Secondee has the opportunity to gain new experience with a promise of returning to their original job, thereby providing secured employment.
- Education: A secondee is exposed to different work cultures, technologies, and leadership styles, in turn leading to the increased level of expertise of the secondee, without incurring a personal cost.
- Networking: Exposure to other organisations, their management, and employee groups increases the secondee’s network outreach, which is a useful resource for him and in turn his employer.
- Diversity: Each organisation has a different way of functioning. This variation of practices and personnel offers a wealth of experience.
- Motivation: Employees who are under the same role for a longer duration, can use some change and become rejuvenated with new opportunities and roles.
- Personal development: This is enabled when employees work in an environment having conditions to help attain additional skills.
- Career enhancement: Employees attract promotion and better employment opportunities when they cultivate and expand their skill set.
- Better opportunities: When exposed to different experiences, better avenues are available to employees, such as leadership and management opportunities.
- Nurture: Secondment accompanied by mentoring and clear objects becomes an encouraging experience for the secondees, and enables them to fulfill their potential.
On the other hand, it may also lead to an upheaval of personal life if the roles are not managed poorly. Secondments also pose a risk of loss of long-term value from the experience gained if they are not put to use. There is also a risk of not fitting into the original role in the employer organisation. The fear of missing out is an inherent psychological aspect here, where the secondee has concerns about missing out on employee benefits such as appraisal, bonus, promotion, etc.
The secondee’s employer and host organisation
Most of the benefits and hazards are similar for both employer and host organisations and therefore they are discussed here together. Most immediate benefits include building relations with other organisations, introducing novelty of operations, getting external perspective, gaining skills for the organisation, and addressing staff shortage or excess of human resources. It also helps the organisations to gain the reputation of being a good employer.
However, there is a risk that the secondee may be unmotivated after resuming back from secondment thereby not adding the desired value. Employers may also have to deal with dissatisfied employees who do not qualify for the secondment. A host may face challenges when the secondee finds it difficult to fit into the organisational culture and its value system.
Secondment of employment is a well-established part of human resource management in business operations. Secondments affect a huge range of factors that are considered vital to organisational success from productivity to the wellbeing of employees. A well-structured secondment programme supported by a secondment agreement leads to the employee as well as organisational effectiveness. On the contrary, a secondment with unclear responsibilities, accountability, and expectation leads to ambiguity and defeats its whole purpose. It is important therefore, to have a secondment agreement in place dealing with all probable legal eventualities during or after the period of secondment.
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