What is a Tripartite Agreement?
A tripartite agreement, or a tri-party agreement, is a contract that legally binds three separate parties. These agreements can be particularly useful when an organization expands its workforce on a global level. This can be done through subsidiaries or EOR services, where the three parties involved would be the employer, the employee, and the EOR service/subsidiary.
How does a Tri-Party Agreement work?
A tri-party agreement consists of the rights and obligations from the perspective of each party involved. It drafts the responsibilities of each party throughout the different phases of the business/transaction. The most important aspect of a tri-party agreement is the part where the legal consequences of a non-compliant activity are defined. Here, if one party becomes a defaulter of the agreement, the contract secures the rights and investments of the other two parties.
A tripartite agreement is one of the best ways to safeguard the interests of all three parties involved in a business transaction. However, you must identify when this sort of agreement is required.
When should you go for a Tripartite Agreement?
If we put it in simple words, a tripartite agreement is needed when there are three parties grouped in a situation where each one of them has interests and liabilities. Here are a few examples where a tri-party agreement may be required.
- Intra-group transfers: In an intra-group transfer, an employee working in a multinational company transfers to a subsidiary of the parent company in another country. In this case, the foreign subsidiary is technically a new employer, and the paperwork for this transfer may be a complicated and elongated process. In this case, the employee, the parent company, and the subsidiary can enter into a tri-party agreement to ensure a smooth transfer process while keeping in mind all labor laws and staying compliant with them.
- Employee onboarding using an EOR service: Another good example of a tripartite agreement is the agreement between an organization, an employee, and the EOR service. When an organization adapts to global hiring, an EOR service is one of the best approaches since it eliminates the need to struggle with compliance issues and local labor laws. In this case, the organization will partner with an EOR service to hire employees across multiple countries and enter into a strong tri-party agreement between itself, the EOR service, and the employees.
Once you have decided that a tripartite agreement is the way to go, you must understand the contents of the agreement.
What should you look for in a Tri-party Agreement?
The detailed contents of a tripartite agreement heavily depend on the business/transaction you are dealing with. In terms of employment, the contract must include details like length of service(if any), clauses and grounds for termination, an indemnification clause, etc. However, below are the general items that must be included in a tri-party agreement.
- Name of the parties involved
- Objectives of the agreement
- Perspectives of all three parties
- Obligations and responsibilities of every party
- Consequences of non-compliance
Once you have understood what your tripartite agreement should include, you should familiarize yourself with how it should look.
Here’s what a Tri-party Agreement should look like
Below are some samples/templates of real-life triparty agreements that should give you a fair idea of what these contracts should look like. Please note that a licensed lawyer should draft the actual contract under the right guidance.
- Collaboration: Here’s a sample contract of the collaboration between the UN High Commission for Refugees, collaborating NGOs, and the host government.
- Security interests in EPC contracts: Here’s PWC’s template of a tripartite agreement for Australia.
- Conflict resolution: Here’s a sample of a tri-party agreement between three pharmaceutical manufacturers operating in the same area.
Advantages of a strong Tri-party Agreement
Some of the advantages that a tri-party agreement brings to the table are
- Transparency: A contract clearly states the responsibilities and obligations of all three parties involved in the agreement. It systematically decodes the interests and liabilities of each party.
- Eliminates fraudulent practices: Once the three parties enter into an agreement, each party becomes responsible for the other two. Hence, any fraudulent activities or non-compliant actions will hold legal consequences. These consequences will only hold true for the fraudulent party as the other two parties will be protected via the agreement.
- Increases ease of doing business: Once the parties enter into a strong, detailed contract, it creates a safety net for all three parties and ensures that all transactions are well monitored.
Why is not having a Tripartite Agreement risky?
There are many situations where a tri-party agreement may not be absolutely required, but it is always good to have one in place to avoid a few risks. Some of the risk points that can come up by not having a tripartite agreement are
- Confusion over the role of each party: Without an agreement, the roles of each party in the business transactions. This may lead to further misalignment in the output that was originally expected from the three-party collaboration.
- Little to no security: Without a contract in place, if one of the members of a three-party collaboration engages in some fraudulent activity, the other two parties will also have to bear the consequences.
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