What is a tripartite contract?

A tripartite contract is a three-way agreement made between three parties, outlining the terms, conditions, rights, and obligations that each owes to the other.

Tripartite agreements are commonly used in certain business arrangements when multiple stakeholders hold interdependent roles and responsibilities that need a clear definition. Some examples include:

• Joint ventures: Contracts between two businesses working together on a project or new entity and the new joint entity itself.
• Partnership agreements: Contracts between partners in a business partnership, defining ownership stakes, profit/loss distributions, roles, and responsibilities.
• R&D commercialisation agreements: Contracts made between a research institution, a private company and an inventor/researcher to commercialise and profit from an invention.
• Global employment: Contracts defining a three-way working relationship between an employer, an international employee, and a third-party staff leasing entity handling compliance.

In the context of global team expansion, tripartite contracts offer an efficient way to onboard overseas employees through an Employer of Record (EOR) while maintaining direct employer-employee relationships. Here is how they work:

• The company maintains a direct relationship with the employee, allocating them work tasks and managing their performance.
• As the one responsible for legal employment, the EOR takes care of the operational side of things, such as payroll, taxes, benefits, etc., ensuring the employee and the client are compliant with all legal regulations when it comes to employment.
• The third party to the agreement, the employee, fulfils all of their obligations as a worker for the company.

By involving all three parties – company, EOR, and employee – in one contract, this helps set transparent expectations for all sides through formally defined rights and obligations each party owes the other two stakeholders.

There are several advantages to tripartite EOR employment contracts, including:

• Clear role definition: With all parties present in one document, responsibilities are delineated unambiguously across the employer, foreign worker, and EOR partner. No confusion over who handles what.
• Alignment across stakeholders: One set of agreed terms prevents conflicts or inconsistencies that can emerge across separate two-way contracts between multiple parties. All parties are bound to the same expectations and commitments.
• Stronger employee affiliation: Involving the international employee directly in a single contract creates a greater sense of belonging between them and the employer.
• Compliance confidence: The EOR guarantees proper legal compliance across all jurisdictions based on exhaustive local knowledge and in-country infrastructure.
• Easier contract management: Renegotiations, terminations, or changes impact all parties simultaneously through one integrated agreement rather than revising multiple separate documents.
• Dispute resolution: If conflicts arise on employment terms, having a tripartite contract offers more clarity on where responsibilities lie and which entities may be accountable.

For these reasons and more, a tripartite contract structure should always be pursued when working with a global EOR partner if it is feasible.

In some countries, restrictions around staff leasing arrangements mean that an integrated tripartite contract between companies, EORs, and overseas employees is not possible. In these cases, regulatory requirements may require that:

• EORs directly employ and pay international team members as full legal employers rather than operating as an intermediary.
• Some local laws necessitate preventing data sharing with third-party partners like EORs.
• Strict liability laws apply uniquely to local legal employers. This means that the EOR must assume the role of the sole employer in order to unlock access to new talent pools compliantly.

When tripartite agreements are not feasible due to local regulations, EORs opt for an alternative contract structure that allows staff leasing arrangements to remain compliant. Generally speaking, this means two separate (two-way contracts) will be drafted and signed.

This is a contract between the company and the EOR provider outlining the employment services and support being provided. Typically covered areas include:

• Hiring and onboarding processes
• Payroll administration
• HR administration
• Benefits administration
• Tax filings and compliance
• Managing time off and sick days

Essentially, this agreement outlines the operational aspects the EOR handles related to employing, paying, and managing any overseas team members.

A separate employment agreement is also created between the EOR and the international employee. This contract outlines all the requisite information, including:

• Compensation and payment details
• Standard working hours and holiday allowance
• Workplace policies around misconduct, discrimination, safety protocols, etc
• Grounds for termination

Together, these two agreements allow overseas hiring to remain compliant while clearly delineating the EOR’s support role from the client company’s responsibilities in managing the employee.