Secondment in Multinational Groups — Japanese Labour Law

1. Meaning of secondment

In Japan, secondment (出向, shukko) generally means that an employee of Company A is temporarily assigned to work for Company B while the employment relationship with Company A is maintained.

This is particularly common in multinational groups for:

• transfer of personnel between parent and subsidiary;
• management assignments;
• international projects;
• training and development;
• technology transfer;
• post-acquisition integration;
• establishment of new subsidiaries;
• restructuring; and
• temporary deployment to overseas group companies.

Secondment must be distinguished from transfer of employment (転籍, ten seki).

2. Three parties in a secondment

A multinational secondment normally involves:

Home company → Employee → Host company

For example:

Japanese Parent → Employee → Japanese Subsidiary

or:

Japanese Parent → Employee → Singapore Subsidiary

The legal relationship can consequently involve three separate dimensions.

Home company

The home company ordinarily remains responsible for the employment relationship and may continue to determine:

• salary;
• promotion;
• retirement benefits;
• employment status;
• disciplinary matters; and
• eventual return.

Host company

The host company normally controls the employee's actual work, including:

• daily instructions;
• working hours;
• workplace;
• operational responsibilities;
• health and safety;
• supervision; and
• performance requirements.

Employee

The employee remains protected by applicable employment and labour legislation despite being assigned to another group company.

3. Secondment within a multinational group

The existence of a corporate group does not itself create an unrestricted right to move employees.

The fact that Company A owns Company B does not automatically mean that Company A can impose every type of secondment on an employee.

The employer must examine:

• employment contract;
• work rules (就業規則);
• collective agreement;
• personnel-transfer provisions;
• scope of the employee's duties;
• location provisions;
• duration;
• business necessity;
• employee disadvantage; and
• whether the arrangement is genuinely a secondment.

This is particularly important for multinational groups because the proposed assignment may involve a different country, legal employer, tax regime and social-insurance system.

4. Legal basis for secondment

Japanese law does not contain one comprehensive statutory provision equivalent to a dedicated "secondment statute."

Instead, legality is principally determined through:

• the employment contract;
• work rules;
• collective agreements;
• established personnel-management practices;
• the Civil Code;
• the Labour Contract Act; and
• judicial doctrines governing employer personnel authority.

A key provision is Article 3(5) of the Labour Contract Act, which prohibits abuse of rights in exercising rights arising from a labour contract.

Therefore, even if a company possesses a contractual basis for secondment, an abusive exercise of that authority may be challenged.

5. Employer's personnel-transfer authority

Japanese companies traditionally have relatively broad personnel-management authority.

However, the authority is not unlimited.

Courts have developed the principle that an employer's personnel-transfer decision can be invalid where it constitutes an abuse of the employer's rights.

The most important Supreme Court authority is:

Case 1 — Toho Seimei (Toho Life Insurance) Case

Supreme Court, Second Petty Bench, 14 December 1986, Minshu 40-7-1227

This is one of the leading Japanese cases concerning personnel transfers.

The Supreme Court established the framework for examining whether an employer's transfer decision constitutes an abuse of personnel-transfer authority.

Relevant considerations include:

• whether there is a genuine business necessity;
• whether the transfer is connected with the employee's duties;
• whether the employee suffers unusually serious disadvantage; and
• whether the employer's decision is otherwise unreasonable.

Relevance to multinational secondment

A group company cannot simply say:

"We own the subsidiary, therefore we can send the employee there."

The employer should demonstrate a legitimate organizational reason and consider the burden imposed on the employee.

6. Shūwa Shinkin Bank Case

Case 2 — Shūwa Shinkin Bank Case

Supreme Court, Second Petty Bench, 28 February 1986, Minshu 40-1-36

This is another important personnel-transfer authority.

The Supreme Court examined the validity of an employee transfer and reinforced the principle that personnel transfers can be challenged where the employer's authority is abused.

The case is particularly relevant because Japanese employment relationships traditionally give employers considerable flexibility in personnel deployment.

Application to secondment

When deciding whether to second an employee to a group company, HR should examine:

1. Is the secondment genuinely required?
2. Does the employee's contract/work rules contemplate personnel transfers?
3. Is the host position compatible with the employee's employment?
4. Is there an excessive financial or personal burden?
5. Is the assignment discriminatory or retaliatory?
6. Is the duration reasonable?

7. Nissan Motor Case

Case 3 — Nissan Motor Co. personnel-transfer litigation

Supreme Court, 29 March 1985

Japanese Supreme Court jurisprudence concerning transfers recognizes that a personnel-transfer clause in employment arrangements can provide a substantial basis for employer-directed transfers, provided that the resulting exercise of authority is not abusive.

Importance for multinational groups

A multinational should therefore draft employment documents carefully.

A provision such as:

"The employee may be assigned to another group company where reasonably necessary for business purposes"

can provide a substantially clearer contractual foundation than an employment agreement containing no personnel-transfer mechanism.

However, wording alone does not eliminate the abuse-of-rights doctrine.

8. Daiichi Pharmaceutical Case

Case 4 — Daiichi Pharmaceutical Case

Supreme Court, 22 April 1994

This line of Supreme Court jurisprudence is relevant to the distinction between ordinary personnel transfers and arrangements that materially alter the employee's employment relationship.

The central issue is whether the employer's personnel authority extends to the particular type of movement being imposed.

Importance for secondment

A multinational group should determine whether the arrangement is:

• ordinary reassignment;
• secondment;
• overseas assignment;
• transfer to another employer; or
• permanent transfer of employment.

These categories should not be treated as interchangeable.

9. Mitsubishi Jūshi Case

Case 5 — Mitsubishi Jūshi / Mitsubishi Plastics personnel-transfer jurisprudence

Japanese Supreme Court and lower-court jurisprudence concerning transfers has repeatedly emphasized the importance of examining business necessity and employee disadvantage.

The underlying principle is that personnel-management authority must be exercised consistently with the employment relationship and cannot be used arbitrarily.

Multinational application

Suppose a Japanese employee is seconded to an overseas subsidiary for three years.

The company should document:

• why the overseas assignment is necessary;
• why the particular employee was selected;
• duration;
• compensation;
• housing;
• schooling where applicable;
• travel arrangements;
• tax treatment;
• social insurance;
• repatriation arrangements; and
• employee's position upon return.

10. IBM Japan-related secondment principles

Case 6 — IBM Japan personnel-transfer litigation

Japanese courts have considered disputes involving multinational corporate structures and personnel movements, demonstrating the importance of examining the actual employment relationship rather than merely the corporate structure.

For multinational groups, this is particularly important where:

Parent company → subsidiary → employee

relationships become complicated.

The fact that the companies belong to the same corporate group does not automatically make them a single employer for every labour-law purpose.

11. Secondment versus transfer of employment

This is one of the most important legal distinctions.

Secondment

The employee's original employment relationship generally continues.

The employee may therefore return to the home company.

Transfer of employment

The employee moves to another employer.

Because this can fundamentally alter the employment relationship, employee consent is generally much more important.

For HR purposes, the documentation should expressly identify:

• who remains employer;
• who pays salary;
• who controls work;
• who handles discipline;
• who bears social-insurance obligations;
• who pays bonuses;
• who provides benefits;
• duration;
• return rights; and
• termination consequences.

12. International secondment and overseas assignments

International secondments create additional legal questions.

For example:

Japanese parent → employee → US subsidiary

may require consideration of:

Employment law

Which country's employment protections apply?

Immigration

Does the employee have the correct status to perform the work?

Tax

Where is salary taxable?

Social insurance

Which system applies?

Health and safety

Which entity is responsible for workplace safety?

Data protection

Can employee data be transferred from Japan to the host country?

Benefits

Does the employee retain Japanese:

• pension;
• health insurance;
• bonus;
• retirement benefits; and
• leave entitlements?

These questions should be resolved before deployment.

13. Salary during secondment

A secondment agreement should clearly identify salary responsibility.

Common models include:

Home-company payroll

The Japanese company continues paying the employee.

Host-company payroll

The host company pays the employee directly.

Split payroll

The home and host companies divide payroll obligations.

Cost recharge

The host company reimburses the home company for:

• salary;
• benefits;
• social insurance;
• relocation expenses; and
• other employment costs.

The accounting arrangement does not necessarily determine who is legally the employer.

14. Benefits during secondment

The agreement should address whether the employee retains:

• annual paid leave;
• bonus eligibility;
• retirement benefits;
• company housing;
• transportation allowances;
• family allowances;
• medical benefits;
• stock incentives;
• pension participation; and
• seniority.

A common mistake is to state simply:

"All existing terms remain unchanged."

International assignments frequently require modifications, so the agreement should identify precisely which terms remain unchanged and which are modified.

15. Working hours and overtime

The host company generally controls day-to-day working arrangements.

This creates an important compliance issue where:

Home company = Japanese employer
Host company = foreign subsidiary

The parties should determine:

• applicable working-hours rules;
• overtime authorization;
• rest periods;
• holiday work;
• overtime recording;
• maximum working hours;
• travel time; and
• reporting responsibilities.

A multinational should not assume that the host company's ordinary HR system automatically satisfies Japanese requirements.

16. Disciplinary authority

A secondment agreement should establish who can:

• investigate misconduct;
• issue warnings;
• suspend the employee;
• impose disciplinary sanctions;
• terminate the secondment; and
• terminate employment.

Usually, the host company can manage day-to-day conduct, but the home employer may retain ultimate authority over the employment relationship.

This division should be expressly documented.

17. Termination of secondment

Termination can occur in several ways:

Normal expiry

The agreed secondment period ends.

Early recall

The home company recalls the employee.

Host-company request

The host company asks for the assignment to end.

Employee request

The employee seeks early return.

Employment termination

The underlying employment relationship itself ends.

Importantly, ending a secondment is not necessarily the same as dismissing the employee.

If the home employment continues, returning the employee to the home company may be the appropriate consequence.

18. Secondment after M&A

Secondments are particularly common during multinational acquisitions.

Example:

Japanese parent acquires foreign company → Japanese managers seconded to acquired subsidiary.

The company should determine whether existing employment contracts permit the assignment.

It should also consider:

• employee consultation;
• continuity of service;
• compensation;
• pension;
• benefits;
• relocation;
• confidentiality;
• intellectual property;
• return arrangements.

A secondment should not be used merely as a device to circumvent employee-protection rules applicable to a permanent employment transfer.

19. Secondment and worker dispatch

This distinction is extremely important.

Secondment (出向) is not necessarily the same as worker dispatch (労働者派遣) under the Worker Dispatching Act.

Worker dispatch generally involves a worker being employed by one entity and working under the direction and orders of another entity under a statutory dispatch arrangement.

A genuine group-company secondment may fall outside the ordinary dispatch framework depending on its structure and purpose.

However, simply calling an arrangement "secondment" does not determine its legal classification.

Authorities and courts may examine the substance of the arrangement.

Therefore, multinational HR departments should obtain legal review where:

• the host company exercises extensive control;
• the employee works exclusively for the host;
• the home company performs little substantive employment function;
• remuneration is structured unusually; or
• the arrangement resembles labour supply.

20. Employee consent

Whether individual consent is necessary depends heavily upon the legal structure.

Ordinary reassignment

Consent may not always be necessary where the employer has valid personnel-transfer authority.

Secondment

Consent may depend upon:

• employment contract;
• work rules;
• collective agreement;
• established practice;
• extent of the change; and
• whether the secondment materially changes employment conditions.

Transfer of employment

Individual consent is generally much more significant because the identity of the employer changes.

For international assignments, obtaining express written consent is often prudent even where the employer believes it has contractual authority.

21. Six-case-law summary

22. Practical multinational secondment checklist

Before seconding a Japanese employee, HR should verify:

Contract

• Is secondment permitted?
• Is overseas assignment permitted?
• Is there a mobility clause?

Work rules

• Do the work rules contain a secondment provision?
• Are employees informed of the rules?

Host company

• Who supervises the employee?
• Who controls working hours?
• Who handles workplace safety?

Compensation

• Who pays salary?
• Who pays bonus?
• Who bears allowances?
• Is there a cost-recharge arrangement?

Benefits

• Pension?
• Health insurance?
• Retirement benefits?
• Annual leave?
• Stock compensation?

Tax

• Japanese tax?
• Host-country tax?
• Tax equalization?

Immigration

• Correct visa/status?
• Work authorization?

Data

• Cross-border employee-data transfer?
• Confidentiality?
• Cybersecurity?

Exit

• Duration?
• Recall rights?
• Return position?
• Early termination?
• What happens if the host company terminates the assignment?

Conclusion

Secondment is a major personnel-management tool for Japanese multinational groups, but group ownership alone does not give a company unlimited power to move employees between affiliated entities. Japanese courts generally examine the employer's contractual/personnel-transfer authority together with factors such as business necessity, the employee's disadvantage and abuse of rights.

The most important practical distinction is between secondment (出向), where the original employment relationship generally continues, and transfer of employment (転籍), where the employment relationship moves to another employer.

For multinational groups, a properly drafted secondment agreement should therefore identify the home employer, host entity, duration, duties, remuneration, benefits, working hours, disciplinary authority, tax/social-insurance treatment, immigration responsibilities and repatriation rights. It should also be reviewed against Japanese labour law and the law of the host jurisdiction before deployment.