Secondment Guessing?

by DLA Piper
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Often, it makes practical sense to send an experienced worker from his/her home country to another country rather than engage an independent contractor or hire a new employee in that destination country. This is precisely when experienced global employers explore the possibility of a secondment.

In a secondment (a term coined in the British army circa the Boer War), an employee is deployed to, and renders service for, an affiliate entity while remaining employed by his or her home country employer. Its opposite is localization, where the employee’s employment with the home company is terminated and replaced with a new employment agreement with the destination country’s entity or affiliate. These are the most common secondment structures, although there are hybrid variations as well.

There are advantages and drawbacks to each approach.

From an administrative standpoint, traditional secondment trumps others because it only requires the execution of a secondment agreement. Nonetheless, that structure may present other difficulties: (1) obtaining a work permit/visa for the employee may be complicated in certain countries that require a local entity/employer to sponsor the employee; (2) countries may have durational limitations after which a foreigner needs to make local statutory contributions and/or be localized (e.g., 183 days for income tax under most tax treaties); (3) a shadow payroll may be required in the host country even if the employee remains on the home country’s payroll; and (4) a seconded employee is fully subject to the destination country’s employment laws and also often covered by his/her home country’s employment laws.

Localization initially imposes a higher administrative burden at inception since it requires termination and rehiring. This triggers the problem of dealing with accrued benefits payouts following a technical termination and a question on whether to recognize continuous service. Further, localization does not automatically mean that the employee’s rights are dictated solely by foreign law; US laws may still apply if the host country employer is controlled by the US employer although that risk can be contractually circumscribed with both choice of law and choice of forum clauses. Martinez v. Bloomberg LP, 740 F.3d 211 (2d Cir. 2014)(finding UK choice of law and forum selection clauses contained in the transfer agreement of a US citizen employee transferred to his employer’s UK entity sufficient to bar litigation of US discrimination law claims in the US).

Regardless of which option, there are some common denominators:

1. Draft secondments carefully.

Templates generate regrets; every secondment agreement should be customized – to the employee’s position, to its duration, and to the requirements of the destination country’s law. It should set out clear expectations between the employer, employee and destination country employer, if applicable. It should address the inevitables: what types of additional benefits will the employee be entitled to while abroad; who has responsibility for obtaining visa or work permits; how compensation and taxes will be handled; data protection and the protection of personal information; restrictive covenants, confidentiality and protection of intellectual property; and the responsibilities and duties of the employee.

2. Tempus fugit.

Virgil was right: time flies. A secondment, by its very nature, is temporary. Regardless of how long before it happens, employers should prepare how to successfully repatriate the employee; send the employee to an alternative secondment; or terminate the secondment (and the employee) without complications. This might be eased with provisions such as these (but, caveat lector, these clauses will not be enforceable everywhere):

Waiver of Termination Benefits: You hereby waive any rights or claims you may have for all termination payments or benefits (including, without limitation, notice periods and/or pay, severance pay and extensions or continuations of any benefit program) provided by the laws of any country other than under the law of [home country].

Consent to Injunctive Relief: If the Company files an action in any court to enjoin you from filing or maintaining a claim in any court, agency or other tribunal of any country other than [home country] in violation of this letter agreement, you agree that the Company shall be entitled to legal, equitable or other remedies, including, without limitation, injunctive relief. Further, you waive the right to contest or oppose entry of an injunction against you and you stipulate to an entry of judgment against you. You acknowledge that: 1) the Company is likely to succeed on the merits of the claim that you are not entitled to termination payments or benefits provided by the law of any country other than [home country]; 2) the Company will be irreparably harmed if an injunction is not granted and you take action to collect termination payments or benefits; 3) you will not be harmed by the entry of an injunction; and 4) that the entry of an injunction is in the public interest.

Non-exclusive Remedies for Breach: You acknowledge and agree that if you make a claim for termination payments or benefits provided by the law of any country other than [home country], then the Company may withhold any payments, services and options which otherwise would be provided to you including, without limitation, unexercised stock options, tax assistance or reimbursement, housing payments, transportation allowance, COLA, tuition, moving expenses and severance pay. This clause is not meant to afford you a choice between the benefits that may be withheld and the benefits provided by the law of a country other than [home country]. These remedies are non-exclusive.

At-Will Employee: You will be an at-will employee of the Company. As such, you understand that you have the unqualified right to terminate the employment relationship at any time for any reason; you understand and agree that the Company shall have the same unqualified right. Nothing said or done by either you, the Company or its affiliates shall affect these rights unless it is incorporated into a formal written contract which not only bears the notarized signatures of both you and the Company’s president, but also revokes or amends this letter agreement by explicit reference to its date of signature. This letter agreement is not a guarantee of any fixed term of employment.

3. Consider scaling.

For employers with dozens of secondments in place on a regular basis, there are additional options. Such employers should consider scaling by setting up a GEC (“global employment company”) to serve as paymaster of its seconded workforce. By creating — for example — a Bermuda-based GEC, the parent employer then seconds employees to that entity which, in turn, reseconds them across the globe as needed but managing payroll, benefits, taxes, etc. through the GEC.

* * *

Now you are ready to send your employees off… But wait! There is more but no space here. Okay, maybe enough for just one more caution. Companies entering into new countries where they do not have a presence must consider the risk of being deemed a permanent establishment or taxable presence. That risk can often be mitigated by including provisions in the secondment that do not allow the employee to enter into contracts on behalf of the company, or by specifically setting out the scope of the employee’s duties.

 

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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