Secondment Agreements Across Borders 

A cross-border secondment agreement is an arrangement under which an employee of a company in one country is temporarily assigned to work for an overseas group company, subsidiary, affiliate, or other host entity while the original employment relationship may continue.

For example:

A Japanese parent company sends an employee to its Indian subsidiary for three years. The employee continues to have an employment relationship with the Japanese company, works under the day-to-day direction of the Indian company, and receives salary partly in Japan and partly in India.

Cross-border secondment is more complicated than domestic secondment because it simultaneously raises questions of employment status, governing law, immigration, taxation, social insurance, working hours, remuneration, employer responsibility, occupational safety, termination and repatriation.

Japanese case law recognizes that the substance of the arrangement and the actual allocation of rights and obligations matter greatly.

1. Meaning of cross-border secondment

A typical arrangement has three parties:

1. Home employer / seconding company
2. Host company
3. Seconded employee

There are commonly two contractual layers:

A. Home employment agreement

The employee remains employed by the Japanese parent or home-country company.

B. Secondment agreement

A separate agreement regulates the temporary overseas assignment.

It may address:

• assignment period;
• host location;
• duties;
• reporting structure;
• salary;
• allowances;
• housing;
• schooling;
• tax equalisation;
• social insurance;
• working hours;
• leave;
• health insurance;
• disciplinary authority;
• confidentiality;
• intellectual property;
• termination;
• repatriation; and
• responsibility for employment claims.

2. Three different structures must be distinguished

1. Overseas secondment while home employment continues

The employee remains employed by the Japanese company but works for the overseas subsidiary.

2. Dual-employment arrangement

The employee has employment relationships with both the home and host companies.

3. Transfer to the foreign company

The original employment ends and the employee becomes an employee of the foreign entity.

These structures have very different legal consequences.

A document calling an arrangement a "secondment" does not necessarily determine its legal character. Courts may examine the actual contractual rights, control, payment arrangements and responsibilities.

3. Japanese law concerning secondment

Under Japanese labour law, secondment (shukko) generally involves maintaining the employment relationship with the original employer while placing the employee with another entity.

Article 14 of the Labour Contract Act provides that an order for temporary transfer can be invalid where it constitutes an abuse of rights, taking account of the need for the transfer, the circumstances concerning selection of the employee and other circumstances.

Japanese judicial practice also recognizes that a secondment may be ordered without individual consent where employment rules and collective agreements contain sufficiently detailed secondment provisions and the particular secondment is reasonable.

The important Supreme Court authority is Nippon Steel Corporation Case, Supreme Court, 18 April 2003. The Court upheld a secondment order where the employment rules and collective agreement contained detailed provisions concerning secondment, the business reason was legitimate, selection was reasonable, and the employees did not suffer significant disadvantage.

For an international secondment, however, additional issues arise because the employee crosses national borders.

4. Essential clauses in a cross-border secondment agreement

A properly drafted agreement should normally contain the following.

A. Parties

Identify:

• home employer;
• host company;
• employee;
• relationship between the companies.

B. Nature of employment

The agreement should clearly state whether:

• the Japanese employment continues;
• the host entity becomes an employer;
• a dual employment relationship exists; or
• the employee merely provides services to the host entity.

This is one of the most important clauses.

C. Assignment period

Specify:

• commencement date;
• original end date;
• extension mechanism;
• maximum duration;
• early termination;
• repatriation date.

Indefinite or repeatedly extended secondments can create uncertainty concerning the employee's continuing relationship with the home employer.

5. Governing law

The agreement should specify the applicable law.

For example:

"This Secondment Agreement shall be governed by Japanese law, subject to mandatory provisions of the law applicable at the host location."

However, a governing-law clause cannot necessarily eliminate mandatory employment protections in the country where the employee actually works.

Japan's Act on General Rules for Application of Laws contains special rules concerning employment contracts. Consequently, cross-border employment arrangements require analysis not merely of the contractual choice of law but also of mandatory employee-protection rules applicable to the actual employment relationship.

A recent Tokyo District Court decision concerning an employee seconded to an overseas subsidiary considered the parties' choice of Japanese law in determining the applicable law to the employee's claim for unpaid remuneration.

6. Salary and compensation

The agreement should specify:

• basic salary;
• host-country salary;
• overseas allowance;
• housing allowance;
• cost-of-living allowance;
• hardship allowance;
• schooling allowance;
• travel allowance;
• bonus;
• currency of payment;
• exchange-rate mechanism;
• tax equalisation.

A particularly important question is who remains responsible for salary.

Japanese case law: Nippon Seima Case

In Nippon Seima Case, Osaka High Court, 28 March 1980, an employee was sent overseas while the employment relationship with the original company continued.

The court distinguished between:

• continuation of the employment relationship; and
• responsibility for payment of salary and bonuses.

The fact that the original employment relationship continued did not automatically mean that the original company was always responsible for every payment. The parties' agreement concerning allocation of payment obligations was important. However, where the foreign entity became unable to pay, the original employer could bear responsibility under the circumstances and the implied agreement concerning protection of the employee's treatment.

Practical lesson: A secondment agreement should expressly state who pays salary and who bears the risk if the host entity fails to pay.

7. Tax equalisation

Cross-border assignments frequently create taxation in both countries.

The agreement should therefore address:

• home-country taxation;
• host-country taxation;
• withholding;
• tax filing;
• tax equalisation;
• tax protection;
• hypothetical tax;
• employer-paid taxes;
• tax gross-up;
• responsibility for penalties caused by employee non-compliance.

Japanese administrative case material has considered overseas secondees whose compensation was split between Japanese and foreign currency and whose employer arrangements allocated foreign tax liabilities between the home and host entities.

8. Social security and insurance

The agreement should identify responsibility for:

• Japanese health insurance;
• Japanese pension;
• employment insurance;
• workers' compensation;
• host-country social insurance;
• private international medical insurance.

Social-security treatment may depend on the destination country and applicable bilateral social-security agreement.

This is particularly important because remaining employed by a Japanese company does not automatically mean that every Japanese social-security regime will continue unchanged throughout an overseas assignment.

9. Working hours

The agreement should specify:

• normal working hours;
• host-country working-time rules;
• overtime;
• holidays;
• rest periods;
• time recording;
• approval of overtime.

The fact that the employee is paid by the Japanese company does not necessarily remove the application of mandatory working-time rules in the country where the employee actually works.

Sanwa Plant Industry Case

In Sanwa Plant Industry Case, Tokyo District Court, 11 September 1990, an employee was sent overseas for approximately eight months to work on a foreign construction project.

The employee performed substantial overtime and holiday work. The court considered whether the contractual overseas assignment payment could lawfully absorb overtime compensation.

The court rejected an arrangement that effectively deprived the employee of statutory overtime protection without sufficient clarity or a sufficient payment basis.

The case illustrates an important principle for international assignments: an overseas assignment allowance cannot simply be treated as an unlimited substitute for legally required overtime compensation.

10. Control and supervision

A secondment agreement should clearly allocate:

Host company

Usually responsible for:

• daily instructions;
• work allocation;
• attendance;
• workplace rules;
• performance management;
• local safety;
• operational supervision.

Home company

Usually responsible for:

• continuing employment;
• career management;
• home-country benefits;
• repatriation;
• long-term employment status;
• certain disciplinary decisions.

The precise allocation must be documented.

11. The importance of "substance over form"

This is particularly important where a Japanese company seconds employees to an overseas subsidiary or where a foreign company sends employees to Japan.

The Supreme Court of India addressed this issue in Northern Operating Systems Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, 19 May 2022.

Although it was a tax/service-tax dispute rather than a Japanese labour case, the Court examined the real nature of a cross-border secondment by looking at the agreements collectively and at:

• who controlled the employees;
• who paid them;
• reimbursement arrangements;
• duration;
• responsibility for their work;
• the relationship between the companies; and
• the actual substance of the assignment.

The Court emphasized that there is no single determinative factor and that the agreements must be examined in substance rather than merely by their labels.

Practical lesson: Calling a document a "secondment agreement" does not by itself establish the legal relationship.

12. Six important case laws

1. Nippon Steel Corporation Case

Supreme Court, 18 April 2003

The Supreme Court upheld an employee secondment where:

• employment rules contained secondment provisions;
• the collective agreement addressed secondment;
• the transfer had a legitimate business purpose;
• selection criteria were reasonable; and
• the employee did not suffer significant disadvantage.

Principle: A properly structured secondment system can permit an employer to order secondment without obtaining separate individual consent in every case.

2. Nippon Seima Case

Osaka High Court, 28 March 1980

The employee was sent overseas while the employment relationship with the original company continued.

The court considered who was responsible for salary and bonuses during overseas secondment and recognized that payment responsibility must be determined from the parties' arrangements rather than simply assumed from continuation of employment.

Principle: Continuation of the home employment relationship and responsibility for compensation are separate questions.

3. Maruman Case

Tokyo District Court, 14 December 1968

This is an older overseas-assignment case concerning the legal relationship of an employee sent abroad.

It is significant in the development of Japanese conflict-of-laws analysis concerning overseas employment and illustrates the importance of identifying the continuing employment relationship and the contractual arrangements governing overseas service.

Japanese scholarship on cross-border employment identifies Maruman, Nippon Seima, and Nishiden as important overseas-secondment precedents.

Principle: Overseas assignment does not automatically terminate the underlying employment relationship.

4. Nishiden Case

Tokyo District Court, 16 March 1999

This case is another important Japanese overseas-secondment authority concerning the relationship between the employee, the Japanese employer and the foreign assignment.

It is generally discussed together with Maruman and Nippon Seima in relation to the legal treatment of overseas secondment and the continuing employment relationship.

Principle: The legal consequences of overseas secondment depend on the actual contractual arrangement rather than simply on the geographical location of the work.

5. Sanwa Plant Industry Case

Tokyo District Court, 11 September 1990

The employee worked overseas and performed extensive overtime and holiday work.

The court examined whether the agreed overseas remuneration adequately covered statutory overtime.

Principle: An overseas assignment agreement must not be drafted so broadly that mandatory overtime rights are effectively waived without a legally sufficient and clearly defined arrangement.

6. Northern Operating Systems Case

Supreme Court of India, 19 May 2022

The Supreme Court examined an international secondment arrangement involving overseas employees sent to an Indian group company.

The Court examined the entire arrangement, including:

• secondment terms;
• control;
• reimbursement of salary;
• responsibility for the employee's work;
• duration; and
• the relationship between the companies.

It applied a substance-over-form approach when determining the character of the arrangement for tax purposes.

Principle: Cross-border secondment documentation must correspond with the actual commercial and employment relationship.

13. A secondment agreement should allocate disciplinary authority

One of the most frequently overlooked issues is discipline.

The agreement should specify:

Without these provisions, a serious dispute can arise concerning who has authority to discipline or terminate the employee.

14. Termination and repatriation

The agreement should clearly distinguish between:

A. Termination of secondment

The employee returns to Japan but remains employed by the Japanese company.

B. Termination of employment

The underlying Japanese employment relationship itself ends.

C. Host-company termination request

The host company asks the Japanese company to remove the employee.

These are legally different events.

The agreement should also state what happens if:

• the host company closes;
• the employee commits misconduct;
• performance is unsatisfactory;
• the employee becomes medically unable to work;
• immigration status expires;
• the assignment becomes commercially unnecessary.

15. Occupational safety and overseas accidents

The home employer should not assume that sending an employee overseas eliminates its responsibilities.

A particularly relevant Japanese case is:

National / Central Labour Standards Inspection Office (Kuraray) Case

Tokyo High Court, 2 December 2021

An employee of Kuraray had been seconded to a Belgian subsidiary and died by suicide while on assignment in Germany.

The case concerned whether the employee's overseas circumstances fell within the Japanese workers' compensation framework and illustrates the difficult legal questions surrounding workers sent abroad by Japanese companies.

Principle: Overseas secondment can raise continuing Japanese workers' compensation and social-security questions, particularly where the employee remains connected to the Japanese employer.

16. Immigration must be separated from employment law

A secondment agreement should never be treated as a substitute for immigration compliance.

Before deployment, the parties should establish:

• appropriate visa/status;
• permitted work activities;
• work authorization;
• assignment duration;
• dependent visas;
• local registration;
• immigration reporting.

The host company should not permit the employee to perform activities beyond the permitted immigration status.

17. Confidentiality and intellectual property

Cross-border assignments increase the risk of:

• transfer of confidential information;
• access to group-company databases;
• export of technical information;
• employee inventions;
• customer information;
• trade secrets.

The agreement should therefore address:

• confidentiality;
• data security;
• intellectual property ownership;
• inventions;
• return/deletion of information;
• cybersecurity;
• post-assignment obligations.

Where Japan and another country have different IP or confidentiality rules, the agreement should expressly coordinate them.

18. Data protection

International secondment commonly involves transferring employee information between:

• Japanese HR systems;
• foreign payroll providers;
• host-company HR systems;
• immigration advisers;
• insurers;
• tax advisers.

The agreement should therefore address lawful processing and international transfer of:

• passport information;
• salary data;
• family information;
• health information;
• tax records;
• performance data.

19. Recommended contractual structure

For a Japanese multinational, a practical documentation package is:

Document 1 — Original Japanese employment contract

↓

Document 2 — Global mobility / overseas assignment policy

↓

Document 3 — Secondment agreement between home and host companies

↓

Document 4 — Employee secondment/assignment letter

↓

Document 5 — Host-country employment or local compliance document, if required

↓

Document 6 — Tax equalisation agreement

This structure reduces ambiguity about which document governs which aspect of the assignment.

20. Key drafting checklist

A cross-border secondment agreement should expressly answer:

1. Who is the legal employer?
2. Does Japanese employment continue?
3. Is the employee also employed by the host company?
4. Which country's law governs?
5. Which mandatory local employment laws apply?
6. Who controls daily work?
7. Who conducts performance reviews?
8. Who can impose discipline?
9. Who can terminate the assignment?
10. Who can terminate employment?
11. Who pays salary?
12. Who bears bonus obligations?
13. Who pays tax?
14. Is there tax equalisation?
15. Which social-security system applies?
16. Who pays medical insurance?
17. Who bears workers' compensation risk?
18. What working-time rules apply?
19. How is overtime compensated?
20. What happens upon early repatriation?
21. What position will the employee receive after return?
22. What happens if the host company becomes insolvent?
23. What happens to housing and schooling benefits?
24. Which confidentiality obligations survive?
25. Which dispute-resolution mechanism applies?

Conclusion

Cross-border secondment agreements should be treated as employment-risk allocation documents, not merely assignment letters. Japanese case law demonstrates that courts look closely at the underlying employment relationship, the secondment rules, the employee's treatment, payment obligations and the actual circumstances of the assignment.

The most important principles are:

• clear authority for secondment;
• reasonable and documented business purpose;
• clear allocation of employer responsibilities;
• express salary and benefit provisions;
• careful governing-law provisions;
• compliance with mandatory host-country law;
• proper treatment of overtime and working hours;
• tax and social-security allocation;
• clear disciplinary and termination authority; and
• a defined repatriation mechanism.

The Nippon Steel case is particularly important for the validity of secondment orders, while Nippon Seima, Maruman, and Nishiden are important for overseas employment relationships. Sanwa Plant Industry highlights working-time and overtime risks during overseas assignments, and Northern Operating Systems demonstrates the importance of looking at the substance of an international secondment rather than relying solely on the label used in the agreement.