What are the Differences and Distinctions between Dispatch, Secondment, Quasi-Delegation, Contracting, Disguised Contracting, and Worker Supply?

Not only for IT companies and IT-related projects, but for all businesses, human resources and labor-related practices can often lead to complex legal issues. Particularly, matters related to employment can directly affect job security, and can often lead to serious disputes. Among these issues, the most problematic ones tend to arise from the utilization of workers in tripartite relationships, such as secondment and dispatch, where an intermediary is involved. This also includes operations based on contracts such as subcontracting and quasi-delegation. In cases where disputes arise in a tripartite relationship involving an intermediary, there are concerns that it may turn into illegal personnel business practices such as disguised subcontracting and labor supply.

This article organizes the methods of personnel utilization, such as secondment, dispatch, quasi-delegation, and subcontracting, which tend to be ambiguous in HR practices. It also explains the points to be careful about to prevent them from becoming illegal practices like disguised subcontracting and labor supply.

IT Companies and IT Businesses are Overflowing with Legal Issues in Human Resources and Labor

Our firm, Monolith Law Office, offers two main areas of IT-related legal services to businesses. One is to provide support from a legal perspective to cutting-edge IT companies and IT businesses, where the “defensive” aspect of the law tends to be thin. The other is to provide particularly meticulous legal support in the field of “IT”, which has tended to be thin in traditional corporate legal affairs. The latter targets all general companies, regardless of whether they are IT companies or not, as it has become impossible to be unrelated to IT in today’s world.

In activities based on the two pillars of “IT” and “law”, legal issues related to secondment and personnel dispatch are areas of high importance. Although these may seem unrelated to IT at first glance, considering the current state of the IT industry, they are areas where problems are likely to occur.

In the IT industry as a whole, or in the utilization of IT-related engineers, the reason why complex human resource utilization involving intermediaries such as secondment and dispatch tends to increase is that many of them operate on a project basis. IT projects, which often involve a large budget and a large number of people over a certain period of time, can be a promising market for companies that provide services using human resources. In addition, the following article explains the comprehensive obligations for managing such projects, taking into account the personalityistics of IT projects.

https://monolith.law/corporate/project-management-duties [ja]

What is common to many project-based tasks is the need to aim for the achievement of a common goal, the completion of the project, while involving the power of many personnel, within a limited period and budget. In IT companies and IT businesses, the way human resources are utilized and how to make it legal is an important issue, and the reason for this is here.

Types and Differences of Human Resource Utilization Involving Intermediaries

The utilization of IT professionals is a promising market for businesses engaged in human resource services such as staffing and recruitment. It is also well known that many IT companies are conducting business by having their employees stationed at client sites under SES contracts.

The common methods of utilizing human resources through intermediaries include secondment, dispatch, quasi-commission, and contracting.

What is Secondment?

Secondment can be defined as an employee of one company becoming an employee of another company while remaining employed by the original company. The difference from a simple transfer is not only a change in location or job content, but also a change in the entity giving orders and instructions. However, secondment creates a dual employment relationship between the seconding and receiving companies, and the original employment relationship is not lost, distinguishing it from a so-called “job change”.

Secondment is often used for purposes such as personnel exchange and employment adjustment between group companies, and securing opportunities for education and training, not limited to IT companies or IT-related businesses.

What is Dispatch?

Some people may wonder how dispatch differs from secondment. The definition of dispatch is legally defined (the underlined and bold parts are added by the author).

Japanese Worker Dispatch Law Article 2 (Definition of Terms)

In this law, the meanings of the terms listed in the following items shall be as defined in the respective items.

1. Worker Dispatch Employing workers under the employment relationship, and having them work for another person under the command of another person, excluding those that promise to employ the worker to another person.

In other words, both secondment and dispatch are based on the premise of an existing employment relationship, and a new command and control relationship is established, and labor is provided there. However, in the case of dispatch, it is stipulated that it “does not include those that promise to employ the worker to another person”. This means that an employment relationship does not exist between the worker and the dispatch destination, which is the difference from secondment. In the case of secondment, a labor contract is concluded between the secondment destination and the worker, and a labor contract is concluded twice, so it is distinguished from dispatch in this respect.

What are Quasi-Commission and Contracting?

Quasi-commission and contracting do not necessarily involve personnel employed by a company, unlike secondment or dispatch. For example, when a freelancer or sole proprietor works on-site at a client’s company, contracts are usually concluded in the form of quasi-commission or contracting. However, when a company that employs IT professionals concludes a quasi-commission or contracting contract with another company and has its employees stationed on-site, the distinction from secondment or dispatch becomes unclear.

There are many differences between quasi-commission contracts, which require the performance of commissioned duties with due care, and contracting contracts, which emphasize the “completion of work”. However, in terms of the difference from secondment or dispatch, both do not establish an employment relationship between the client (usually the user in system development, etc.) and the worker, and do not establish a command and control relationship. In simple terms, the client is neither employing the engineer nor becoming the engineer’s boss, but merely ordering work from the company.

When stationing personnel on-site based on quasi-commission contracts or contracting contracts, it is important to ensure that the on-site engineers are “engaged in the work contracted by their own company”. Even if close coordination with the person in charge at the site is necessary for the work, if a direct command and control relationship is established, there is a legal obligation to hire, which is an important point to avoid illegal personnel utilization such as disguised contracting.

The so-called “SES contract” is a type of quasi-commission contract. Therefore, the essential points to understand about SES contracts are:

• It does not impose an obligation to “complete work” (difference from contracting contract)
• There is no command and control relationship with the person in charge at the site (difference from dispatch)

For more details on the concept of “completion of work” that personalityizes contracting contracts, please refer to the following article.

https://monolith.law/corporate/completion-of-work-in-system-development [ja]

Definition of Disguised Contracting and Worker Supply, and Why They Are Illegal

With the understanding of the contents of secondment, dispatch, quasi-delegation, and contracting, we can simultaneously understand what disguised contracting is. Also, it is important to know about “worker supply”, a topic deeply related to disguised contracting. Worker supply is prohibited with penalties under current law, and understanding this not only prevents disguised contracting but also becomes important when concluding a legal secondment contract.

What is Disguised Contracting?

In a nutshell, disguised contracting refers to a situation where, despite having concluded a contracting agreement on the surface, such as in a contract, the actual labor is in the form of dispatch. The difference between dispatch and contracting lies in whether or not a command and control relationship is established with the company at the resident site. In other words, from the perspective of the company sending the workers to the site, it is illegal not to conduct a legal staffing business after obtaining permission for the staffing business. Also, from the perspective of the company on the site that accepts the workers, it is illegal not to employ them directly if they want to command and control the workers.

For a more detailed explanation of the definition of disguised contracting, its countermeasures, and improvement measures based on laws and regulations, refer to the following article.

https://monolith.law/corporate/criteria-for-disguised-contract [ja]

What is Worker Supply?

In the above article, we also explain in detail what worker supply is, in conjunction with the explanation of disguised contracting. Worker supply refers to making others work under someone else’s command, other than those applicable to dispatch, and is prohibited with penalties under current law. The fact that worker supply is prohibited by law is also the basis for making disguised contracting illegal. It is best to understand what worker supply is while being aware of the overall flow in the discussion of why disguised contracting is illegal.

The issue related to worker supply is how to distinguish between legal secondment and illegal worker supply. This point depends on whether it was a business, i.e., a business that is assumed to be conducted repeatedly and continuously, as the term “worker supply business” suggests. For example, if the purpose of the secondment is as follows, it is often not evaluated as a worker supply business.

• When the main purpose is personnel exchange, personnel development, career development of workers, etc., rather than utilization as labor force
  
• When the purpose is to adjust the labor force within group companies and related companies, and it is clear that it is different from “trouble payment” where the purpose is to make them quit

Summary

There are various ways to utilize workers, ranging from directly employing talent to other methods. However, it is important to first understand the basic principle of Japanese labor law, which is that there should be no intermediaries between the person who works (the worker/employee) and the person who employs (the company/employer). In other words, if you manage workers through directives and orders, you are also obligated to protect the rights of the workers by employing them. The illegality of disguised contracting and worker supply is backed by this perspective. The same applies to the reason why there is no need to comply with labor laws in contracts such as quasi-delegation and contracting.

The reason why there is a risk of illegality if sufficient attention is not paid to legal issues when seconding or dispatching workers can also be uniformly explained. Terms such as secondment, dispatch, quasi-delegation, disguised contracting, and worker supply should not be understood separately, but should be understood in relation to each other based on the basics of labor law. In practice, if the distinction between these becomes ambiguous, consult a legal expert such as a lawyer.