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What Are Tripartite Agreements?

By December 10, 2018 No Comments
What Are Tripartite Agreements?

At its core, the tripartite agreement is simple: it is literally “any agreement taking place between three parties concerning one matter.” For companies either in the process of expanding internationally or for those that have already done so, this usually involves their own workforce. Because organizations are looking to get up and running in new territories as quickly and as inexpensively as possible, they often turn to outsourcing providers to get access to the labor they need. Those three parties—the hiring company, the outsourcing provider, and employees—make up the tripartite agreement in this case. In this particular situation, however, agreements may not be so straightforward.

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Intra-Group Transfers and Tripartite Agreements

Tripartite agreements tend to be a bit more complicated when intra-group transfers of employment contracts occur. Typically, these actions are formalized via the tripartite agreement entered into between the original employer, the new employer, and the employee.

Once these agreements are drafted, all parties involved agree that the original employment contract is A) transferred to the new employer, and B) the contractual relationship with that first employer is terminated without compensation or specific procedure.

  • In other words, if an employee leaves Company A to work for Company B
  • Under the tripartite agreement, that employee acknowledges that Company B will remain true to the terms in their original contract, and that they have no formal relationship with Company A in any way moving forward.
  • In this specific case, the employee’s length of service would also be maintained. So, even though the employee just started working with Company B, they would still be considered to have been employed for the five years they worked for Company A, too.
  • They’re not technically starting a “new job” in the strictest sense of the term.

It’s important to note, however, that an employer still has a firm obligation to guarantee that any dismissal or disciplinary action taken is both fair and reasonable, given the circumstances. On the larger topic of international mobility, tripartite agreements do not actually exclude the interest, or even the necessity, of creating an additional contractual document with a new foreign employer going into greater detail on certain terms and conditions. Oftentimes, this is particularly important with regards to market-specific laws governing employment contracts.

It’s that last point in particular that often proves to be a point of confusion for companies entering into new markets. In France, for just one example, an employment contract can only be terminated in one of three ways:

  • Through the resignation of the employee,
  • Via dismissal by the employer, or
  • By mutual agreement between the parties.

The Recent French Tripartite Agreement Ruling

In 2014, the French Supreme Court ruled that termination through mutual agreement may only be valid if compliance is maintained with the procedure outlined in the labor code’s Approved Contractual Termination. Under this procedure, employees  benefit from an indemnity that is at least equal to what they would have received in case of dismissal. This alone has created a cloud of uncertainty around intra-group transfers in the country.

The Supreme Court was asked whether Approved Contractual Termination still had to be followed within the larger context of intra-group transfers. In 2016, the Supreme Court said that this does NOT apply—and that it is only valid for the purpose of “securing the termination of the employment contract, which leads to the definitive loss of employment.” By design, this is not what is happening in the case of an intra-group transfer.

In truth, France has regularly played an important role in determining the shape that tripartite agreements take around the world. In 2017, French law strengthened the obligations of home employers and host companies when employees are posted to France. When an employee is working abroad in France, they remain under contract with their original employer—and that employer is responsible for paying the employee’s remuneration.

Expand with an Experienced Partner—No Matter How Far You’re Going

But again, all of this can change in subtle-yet-important ways depending on the country. It also serves as a reminder that, while the idea at the heart of tripartite agreements is simple, the larger implications for companies expanding internationally are anything but. If nothing else, all of this acts as a way to underline the importance of working with the right partner organization when expanding internationally. They can lend their insight and expertise in a way that allows them to focus on these types of issues while you devote all of your attention to running the business you’re invested in to begin with.

Velocity Global has helped hundreds of companies break into new international markets, each with specific needs, challenges, and goals. If your organization is considering taking the leap of expanding internationally, reach out to Velocity Global today; our International PEO (Professional Employer Organization) solution can have you operating in new markets in as few as 48 hours. Ready to take the first step in widening your global footprint? Let’s talk.