Traps of Labor Secondment

Lee signed a labor contract with Company A, an ink company, with a monthly salary of 50,000. Company A temporarily suspended production, and Lee was arranged to work for A’s affiliate Company B. During the secondment period, B paid 30,000 to Lee every month. 4 months later, Lee terminated the labor contract with the reason that A failed to pay the wages in full, and claimed the wage difference and economic compensation. The labor arbitration commission, the court of first and second instance all supported Lee’s claim. In this case, the relationship among Lee, A and B is a typical “Labor Secondment”, which is a special employment method that usually occurs between affiliates, for example, the vice general manager of a group company is seconded to a subsidiary to serve as a CEO.

Regarding “Labor Secondment”, neither the “Labor Law” nor the “Labor Contract Law” has provided any articles. The “Opinions on Several Issues Concerning the Implementation of the Labor Law” and the “Regulations on Work-related Injury Insurance” have prescribes the social insurance and work injury liability related to “Labor Secondment”. Article 74 of the former stipulates that a seconded employee’s social insurance premium shall be continue to be paid by the original employer and individual in accordance with the provisions, the period of paying insurance premium shall be calculated into the payment period. Article 43 of the latter stipulates where an employee suffers a work injury during secondment period, the original employer shall bear the work-related injury insurance liability, but the original employer may agree on the compensation method with the secondment unit. In addition, Article 7 of the former has provided a guideline that during the secondment period, relevant clauses in a labor contract may be modified upon negotiation by the employer and individual.

Because there are very few provisions on “Labor Secondment”, if parties failed to make a comprehensive agreement, there may be disputes, such as the content of work, wages, welfare benefits, economic compensation and etc. In practice, HR may take the following two aspects for reference.

First, from the perspective of labor relationship, it is recommended to communicate with the individual regarding the change of location, position and etc., and obtain his written consent. Furtherly, the employer would be better to sign a supplementary agreement with the individual regarding those changes, such as location, position, welfare and etc.

Second, it is recommended to sign a tripartite agreement by the individual, the employer and the secondment unit. Each party’s rights and obligations could be clarified in this agreement, such as working hours, location, content, wages and welfare, occupational hazards, the economic compensation for the termination of a labor contract, work-related injury, etc., and the party which shall undertake relevant liabilities, for example, the secondment unit shall undertake relevant liabilities during the secondment period. Another risk needs to be reminded is that the secondment period shall not exceed the labor contract period, otherwise the secondment unit might be deemed as having a de facto labor relationship with the employee.

In order to reduce potential negative impacts and risks of the employer, due to the problems of the secondment unit, such as wage arrears, bankruptcy and etc., the employer would be better to follow up with the operation status and financial information of the secondment unit, especially when such unit is not an affiliate; and it would be better to keep an eye on the actual work status of the individual, if it found the secondment unit may infringe the rights and interests of the individual, it shall step in, and ask the unit to stop and correct such behaviors in time when necessary.