Global expansion presents many business opportunities, from engaging a larger talent pool to reducing labor costs. However, it also comes with legal challenges that lead to significant penalties if businesses fail to maintain compliance.
To avoid the risks of noncompliance, a company may enter into a tripartite agreement that states the legal rights and obligations of each party involved in the expansion. Still, while tripartite agreements are useful for compliantly growing your international workforce, they are not always straightforward.
In this article, we define the meaning of a tripartite agreement, cover common use cases of tripartite agreements, and recommend a simpler way to maintain overseas compliance without legal headaches.
What Is a Tripartite Agreement?
A tripartite agreement, or tri-party agreement, refers to any legal agreement between three separate parties.
For example, an employer interested in compliantly hiring talent in another country without undergoing the lengthy process of establishing a local entity may enter into a tripartite agreement with the foreign talent and an employer of record (EOR), which would legally employ their talent on the company's behalf. In this case, the three parties involved in the tripartite agreement are the employer, the employee, and the employer of record.
While the meaning of a tripartite agreement is simple in theory, its structure and requirements differ depending on the local laws of a particular country and the use case of the tripartite agreement.
Intra-Group Transfers and Tripartite Agreements
Tripartite agreements tend to become more complicated when intra-group transfers of employment contracts occur. Typically, tripartite agreements formalize these employment transfers between the original employer, the new employer, and the employee.
Once the tripartite agreement is drafted, all parties involved formally agree that A) the original employment contract is transferred to the new employer, and B) the contractual relationship with that first employer is terminated without compensation or a specific procedure.
In other words, if an employee leaves Company A to work for Company B, that employee acknowledges that Company B will remain true to the terms in their original contract and will have no formal relationship with Company A in any way moving forward.
In the case of an intra-group transfer, the new employer must maintain the employee’s length of service. For example, even if the employee just started working with Company B, they would carry over their length of service or seniority from Company A. They are not technically starting a new job in the strictest sense of the term.
It's important to note that an employer must guarantee that any dismissal or disciplinary action is fair and reasonable, given the circumstances. On the larger topic of international mobility, tripartite agreements do not exclude the interest or necessity of creating an additional contractual document with a new foreign employer that goes into greater detail on certain terms and conditions.
In fact, establishing additional contractual agreements may be required to maintain compliance with market-specific employment laws.
Expand With an Experienced Partner—No Matter How Far You're Going
If you are interested in expanding your global workforce, you must follow the correct legal structures and establish locally compliant employment contracts. Failure to do so will lead to fines and other consequences.
Avoid legal obstacles by partnering with a dedicated global expert like Velocity Global, who ensures compliance with every international employment law.
Velocity Global’s Employer of Record (EOR) solution allows companies to engage global talent without setting up a local entity or risking violating local employment laws. Our EOR solution simplifies everything from onboarding and compliance to payroll and benefits so you can focus on the growth and success of your business.
Reach out today to learn how to grow your global workforce stress-free with Velocity Global.
