What is a secondment?
A secondment is where an employee is assigned by an employer to temporarily work for another company or organisation. An employee may be seconded for the purpose of training, exchange/sharing of knowledge/experience between companies, and to meet the workforce needs of another understaffed company (due to employees going on maternity leave, etc.).
If the employee is assigned to work for another company (“Host”), does that mean that the Host is now the employer?
No. Secondments are of a temporary nature and do not alter the employment relationship between the employee and the transferring company (“Employer”). This is so even if the Host exercises control and direction in the manner in which the employee carries out his or her work, and pays the employee’s wages during the secondment period, it is still up to the Employer to make such arrangement (e.g. the Employer reimburses the Host for the wages paid) with the Host.
In Comex Services Asia Pacific Region Miri v Grame Ashley Power [1987] 2 ILR 34, referring to The Law of Industrial Disputes, Vol. I, Third Edition by O.P.Malhotra), the Industrial Court explained the legal effect of a secondment:
“…so long as the contract [of employment] is not terminated, a new contract is not made, and the employee continues to be in the employment of the original employer. Even if the employer orders the employee to do certain work for another person, the employee still continues to be in his employment. The only thing that happens in such cases is that the employee carries out the orders of the master; hence he has the right to claim his wages from the employer and not from the third party to whom his services are lent or hired. It may be that such third party may pay his wages during the time he had hired his services, but that is because of his agreement with his real employer. However, this does not have the effect of transferring the service of the employee to the other employer…”
Since the aforesaid employment relationship is not altered by the secondment, the onus is still on the Employer to discharge all of the statutory obligations of an employer, such as contributions to EPF, SOCSO, EIS, etc.
What is the difference between a secondment and a transfer?
A secondment is a temporary arrangement which does not affect the employment relationship between the Employee and the Employer. A transfer usually means a permanent transfer, and where the transfer is made from one company to another, the law deems it to be a termination of employment with the first company and re-employment with the second company. Read our previous article on transfers to learn more.
Who can fire the employee during the secondment? Is it the Host or the Employer?
As the employee remains an employee of the Employer during the secondment, it is the Employer (not the Host) who has the right to discipline (or dismiss) the employee. While the Host may exercise control and direction over the employee during the secondment, if the employee fails to carry out the Host’s directions, the Host cannot dismiss him immediately but can only complain to the actual Employer. It is then up to the Employer to determine whether the Employee should be disciplined or dismissed.
Can an employee refuse the secondment?
Employers generally have the prerogative to assign to their employees any work or to transfer to any location that they deem necessary for the business, so long as the instruction is made in good faith and does not involve any fundamental, detrimental change to the employee’s terms and conditions of employment. Assuming the absence of mala fide and/or detrimental change to the employee’s terms and conditions of employment during the secondment, a refusal by the employee to be seconded could constitute an act of insubordination that warrants disciplinary actions.
It is therefore advisable, though not strictly mandatory in all cases, to get the employee’s consent to the secondment, prior to implementing it.
How should companies carry out the secondment?
Care should be taken to ensure that the secondment does not result in break in continuity of the employee’s length of service, or any other fundamental, detrimental change in the employee’s terms of employment, such as reduction in salary and employment benefits, as this could constitute constructive dismissal. If the secondment results in a significant change to the employee’s work location (eg: another country, or another location/state which would materially increase the employee’s travel time), the Employer should ensure that the terms of the secondment account for this so that the employee is not “worse” off financially when they are seconded.
Also, since the employee will be assigned to another location to carry out work which may make supervision over the employee or administration of matters relating to the employee difficult, employers should include provisions in the secondment agreement which require the Host to provide necessary assistance to the Employer.
Companies who foresee that they may need to second their employees, should also look into their existing policies and/or contracts of employment to ensure that there is a clause which expressly allows the employer to second or transfer its employees to different companies, in order to meet the business needs of the employer.
If a secondment is terminated, can the employee sue the Host for unfair dismissal?
No, as a secondment does not create an employment relationship between the employee and the Host.
What happens when the secondment ends or is terminated? Does that mean the employee is dismissed?
As the secondment does not result in a change in the employee’s employment relationship with the Employer, the end or termination of the secondment does not automatically result in the termination of the employee’s employment. When the secondment is terminated or comes to an end, the Employee will return to the original Employer and continue their employment as normal before the secondment.
In certain situations, a termination of the secondment may also be followed by a termination of employment with the Employer. For example, where the Employee commits gross misconduct during the secondment period, the secondment will be terminated and the employee will also be dismissed for gross misconduct, and these two things may happen simultaneously. However, the dismissal must still come from the Employer.
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This article was written by Donovan Cheah (Partner) and Adryenne Lim (Legal Executive). Donovan has been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific 2017, 2018 and 2019, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.
Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory. Have a question? Please contact us.
