A tripartite agreement is a legal agreement or contract between three individuals or parties. These agreements can be a useful tool when setting up a tripartite employment relationship to grow your international workforce.
In this article, we explain everything you need to know about tri-party agreements, including:
Please note, this article provides general information. You must seek professional advice to determine whether a tripartite agreement is the right choice for you.
What is a tripartite agreement?
Consider a regular contract or agreement: One person agrees with someone else, to do something in return for an item of value (called ‘consideration’, in contract law). One of the most common forms of agreement is an employment agreement or contract. But sometimes, you may need to arrange an agreement between three different people or ‘parties’. This is where a tripartite – literally ‘tri party’ – agreement, can prove useful.
An example of a tripartite agreement is ‘novation’. In novation, rights and obligations under the original contract are transferred from the original party, to a new third party. All parties must consent to novation.
When should you consider a tripartite agreement?
Listed below are two common cases where tripartite agreements have proven useful:
To read more about how tripartite agreements can be implemented as part of a global human resources strategy see What Are the Best Tools for International Human Resource Management?
What are the risks of not having a tripartite agreement?
It is possible to carry out an intra-group transfer, or to outsource, without a tripartite agreement. There can be some risks involved in this option, however. Two examples of how this could go wrong include:
What should you include in a workforce tripartite agreement?
Usually, in a workforce tripartite agreement, all parties agree that the original employment relationship (with company x) will be switched to a new employer (company y). At the same time, the original employment contract is terminated, without severance or other benefits that usually accrue on termination.
When framing a tripartite agreement, important matters to consider include:
When operating across international borders, a tripartite agreement should also identify which laws are to govern the contract. An English case, Chunilal v Merrill Lynch  EWHC 1467 (Comm), concerned the intra-group transfer of a Merrill Lynch employee. The employee alleged that, under English law, an implied term of his contract had been breached through a ‘perverse’ reduction of his bonus payment. As the tripartite agreement did not specify which country’s laws applied (not to mention the fact that the employee agreed to the contract in New York, and actually worked and lived in Hong Kong), his case failed.
If you are thinking about expanding your global workforce, you must ensure that you pick the right legal and compliance structures to suit your business. In some cases, it may make sense to incorporate a company in a foreign country. In other cases, it makes sense to hire a Professional Employer Organization (PEO). When outsourcing, seconding or, transferring employees overseas, it is worth considering whether a tripartite agreement needs to be part of your business solution.