A proper secondment agreement in Ontario must clearly designate the Employer of Record. It protects both companies by clearly allocating responsibilities for CRA payroll taxes, WSIB premiums, and daily liability while the employee works temporarily for the host corporation.
In today’s fast-paced corporate environment, sharing highly skilled employees between different companies or subsidiaries is a brilliant way to handle special projects. This arrangement, known as a secondment, is incredibly common in tech hubs like Markham and Waterloo, as well as in the financial districts of Toronto. However, simply sending your employee to work at another office on a handshake deal creates massive legal vulnerabilities for both organizations involved.
When an employee is caught between two companies, questions of liability immediately arise. If the employee gets injured on the host company’s floor, who files the Workplace Safety and Insurance Board (WSIB) claim? If they harass a coworker or damage equipment, who is legally responsible? A meticulously drafted B2B secondment agreement clarifies these boundaries, ensuring that HR departments and corporate counsel are protected from unexpected employment lawsuits in the Superior Court of Justice.
Step-by-Step Process for Structuring a Secondment Agreement in Ontario
Whether you are loaning an executive to a joint venture in Hamilton or bringing in a specialist from an Ottawa partner firm, following a structured drafting process is crucial for compliance and risk management.
Step 1: Identify the Home and Host Employers
The agreement must explicitly define the “Home Employer” (the company that originally hired the employee) and the “Host Employer” (the company receiving the temporary services). The contract should clearly state that the Home Employer remains the official employer of record. This means the Home Employer maintains the original employment contract, preserves the employee’s seniority, and handles standard human resources administration. The Host Employer merely directs the daily tasks for the duration of the specific project.
Step 2: Allocate Payroll, CRA, and WSIB Duties
Money matters and statutory compliance must be crystal clear. Generally, the Home Employer continues to run payroll, deduct Canada Revenue Agency (CRA) income taxes, and remit Canada Pension Plan (CPP) and Employment Insurance (EI) contributions. The Host Employer then pays a monthly invoicing fee to the Home Employer to cover these costs plus an administrative markup. However, systematically sending employees to an unrelated company for a fee or markup in Ontario can legally classify the Home Employer as a Temporary Help Agency (THA) under Part XVIII.1 of the Employment Standards Act, 2000 (ESA). Unless the corporations are “associated employers” under Section 4 of the ESA, the Home Employer must hold a valid THA licence. Under rules in effect as of June 2026, THA licences are issued for 2-year terms for an application fee of $1,500 CAD. Failing to comply can expose the Host Employer to massive administrative penalties ranging from $15,000 to $50,000 CAD for knowingly using an unlicensed THA.
Furthermore, employers must understand that statutory WSIB obligations cannot be shifted by contract. Under the Workplace Safety and Insurance Act, 1997 (WSIA), the Home Employer remains the official employer of record and is legally responsible for reporting earnings and paying premiums. However, under WSIB’s “lent or hired out” worker policy, if the employee is injured at the host’s workplace, the accident costs and injury claims (experience rating) are automatically attributed to the Host Employer. Therefore, the secondment agreement should focus on setting up a clear mutual indemnification mechanism to handle these insurance cost reallocations.
Step 3: Define Daily Control and Performance Reviews
If the Host Employer is unhappy with the seconded employee’s work, how is discipline handled? The agreement should clarify that while the Host Employer has the right to direct daily tasks and set deadlines, all formal disciplinary actions or performance reviews must be funnelled back through the Home Employer. Allowing the Host Employer to directly discipline or fire the employee blurs the legal lines and can result in joint-employer liability in a wrongful dismissal suit.
Step 4: Include Confidentiality and Termination Clauses
During the secondment, the employee will likely have access to the Host Employer’s trade secrets. The agreement must mandate that the employee signs a strict non-disclosure agreement (NDA) protecting the host’s intellectual property. Finally, outline how the secondment can be terminated early. It is a common mistake to assume that a B2B clause (like a 14-day termination notice) automatically shields the company from constructive dismissal claims when an employee is recalled early. A bilateral commercial contract cannot bind the employee. To legally return the worker to their original role, salary, or location without triggering a constructive dismissal lawsuit, you must execute a separate tripartite agreement or obtain the employee’s explicit consent in a formal, individual secondment letter.
How Much Does a Secondment Agreement Cost in Ontario?
The financial setup of a secondment involves legal fees for drafting the contract and the ongoing business-to-business transfer fees.
| Cost Category | Estimated Range (CAD) | Details |
|---|---|---|
| Legal & Licensing Fees | $1,000 – $4,000 | Ontario corporate lawyer fees plus a $1,500 CAD 2-year licensing fee if the arrangement requires a Temporary Help Agency (THA) permit. |
| Host Company Invoice | Employee Salary + 15-25% | The host repays the home company for wages, benefits, CRA taxes, and admin costs. |
| WSIB Premiums | Varies by Industry | Legally paid by the Home Employer; the B2B agreement can only include indemnity clauses to reimburse experience rating and claim costs. |
How Long Does the Process Take?
Negotiating and drafting a comprehensive B2B secondment agreement usually takes 2 to 4 weeks. It is also important to remember that the employee must consent to the arrangement. Presenting the secondment offer to the employee and giving them time to review it adds about a week to the timeline. A typical secondment placement lasts anywhere from 6 months to 2 years, after which the employee returns to their permanent role.
Frequently Asked Questions (FAQ)
Who pays severance if the employee is terminated during the secondment?
Generally, the Home Employer is legally responsible for paying statutory termination pay and common law severance, as they hold the primary employment contract. However, the B2B agreement can include an indemnity clause forcing the Host Employer to cover these costs if they caused the termination.
Can the Host Employer hire the employee permanently?
Yes, but this is usually governed by a non-solicitation clause in the secondment agreement. If the Host wants to poach the talent, they generally must pay a pre-agreed “placement fee” or buyout penalty to the Home Employer.
Does a secondment interrupt the employee’s years of service?
No. Under the Ontario Employment Standards Act, a temporary secondment does not break the continuity of employment. The employee’s seniority and vacation entitlements continue to accrue with the Home Employer.
Do we need the employee’s written consent to second them?
Absolutely. You cannot force an employee to work for a completely different legal entity without their agreement. Forcing a transfer could be viewed by the courts as a constructive dismissal.
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