Do You Have the Right Contractual Documentation in Place to Support Your Secondment Arrangements?
The case of MF Global UK Ltd (In Special Administration), Re emphasises the importance of ensuring that the right contractual documentation is in place between organisations when one seconds employees to the other.
The consequences can be costly to the host if there is no contract in place to make it clear the extent to which it is liable to indemnify the employer for the employment costs of the secondee.
The Facts
MF Global UK Ltd (MFG UK) and MF Global UK Services Ltd (Services) were wholly owned subsidiaries of MF Global Holdings Europe Limited (Holdings).
Services seconded its staff to MFG UK, though there was no express contract between them. However, there was an express contract between Services and Holdings, under which Holdings would procure that the recipients of Services' secondees (i.e. MFG UK) would reimburse Services for the cost of employing the seconded staff.
After MFG UK and Services went into administration, a key question became whether an implied contract existed between MFG UK and Services, under which MFG UK was obliged to reimburse the full employment costs associated with the seconded employees, including £35m due to a defined benefit pension scheme (the Scheme).
The High Court
Based on the evidence before it, the interaction between the parties and MFG UK's concession that, in paying Services the employment costs of the seconded staff it was fulfilling contractual obligations (the Concession), the High Court concluded that an implied contract had existed between Services and MFG UK.
MFG UK appealed on the basis that the judge had given insufficient consideration to the principle that no contract should be implied unless it was necessary. It also sought to withdraw the Concession.
The Court of Appeal
The Court of Appeal allowed the retraction of the Concession, but still concluded that an implied contract existed between MFG UK and Services. It therefore dismissed MFG UK's appeal, leaving them liable for the sums owed to the Scheme.
Best Practice
The decision in this case demonstrates the need for organisations to give proper consideration to how their secondment arrangements are structured and recorded. Even within the same group it is sensible to formally record the extent to which the host will indemnify the employer as this will avoid the potential for future dispute and unexpected financial liabilities.