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Secondment Agreements – Whose Liability Is It, Anyway?

Seconding, generally speaking, means detaching someone from his or her regular organization for temporary assignment elsewhere. Secondment arrangements are used in many different situations. For example, companies might second staff to their customers or clients on a secondment basis for a period of time (typically between three and twelve months) to work within the client’s organization. Expat assignments are also commonly set up as secondments, both for assignments within a corporate group as well as between unrelated businesses.

The liability and indemnity clauses within a secondment agreement are key provisions, but oftentimes not enough thought is given to the way they are structured and drafted. A common mistake is to include liability and indemnity provisions that are appropriate to a services agreement, but entirely inappropriate for a secondment agreement. This can happen when the drafter misunderstands the nature of a secondment and how it differs in certain fundamental ways from a services arrangement. In a services arrangement, the service recipient is paying for a service to be provided. The service provider is usually fully responsible for delivering the service, including supervising its employees and seeing that the work is done to an appropriate standard and within an agreed timetable. A services agreement will often include provisions that put the responsibility for the work on the service provider, including indemnities to protect against the negligence of the service provider’s employees in the performance of the work or any workplace injuries. 

But such liability and indemnity provisions are usually inappropriate in a secondment arrangement. In a secondment, the seconding company is providing an employee instead of providing a service. A seconding company sometimes is only compensated for the employee’s costs (perhaps with a small administrative fee added) as opposed to a full service fee. During the secondment, the employee works within the host company’s organization and is controlled and supervised by the host company’s management. In terms of the performance of day-to-day duties, the seconded employee is often indistinguishable from the host company’s own employees. In these circumstances, why should the seconding company be liable for the work performed by an employee over whom it has no control (or only very little control) during the secondment period? Many of the risks and liabilities arising out of the seconded employee’s work are more appropriately carried by the other party — the host company. Careful thought needs to be given to the structure and drafting of liability and indemnity provisions in secondment agreements so that liabilities are assigned in a way that makes sense, given the nature of the relationship and in light of the insurance policies of the two entities. Applicable local laws also need to be considered to determine how a secondment might impact workers’ compensation insurance and personal injury claims to ensure that all parties have adequate protection.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.