The labor contract is a document that has for many years been used to show the rights and responsibilities between the bargaining parties. They are what results after negotiations between the management and the union which represents the rights and interests of the employees. Factors that are discussed during these negotiations include wages, the workplace conditions, how union dues are paid and the workers’ benefits. Basing on how the parties understand each other, the duration of the contract can range from days to years. The concession each party wants also plays a significant role in determining the length of the contract. For an agreement to be viable, it has to include the names of the two parties and the effective dates during which it is active (Aguirregabiria & Alonso‐Borrego, 2014). There is a management rights clause that is sometimes included in the contract which allows management to have exclusive rights to run business operations including matters such as executive, recruitment, financial issues, and the organizational culture. The duration of the contract indicates the agreed amount of time that the project will last. Labor unions are urged to respect the right of the employer to manage the business for the better of the organization.
Advantages of Longer Contracts
Many business companies are issuing more extended contracts to their clients in the past few years. This has provided them with several benefits. First helps the workers to be able to master and follow the business strategies and routines with much ease. During the period when workers are starting a new job in the company, the amount of profits goes down due to familiarization with the workplace. They may have issues such as work lateness. However, when the contracts are long, only motivation is required to keep them happy, and the company will be able to record long term benefits. Another advantage of these contracts is that they allow the workers to dedicate more account support (Bach & Serrano-Velarde, 2015). More extended contracts will enable them to be in contact with the facility more and hence become more knowledgeable about it. This way the worker can identify any default in the facility and correct it to improve the production process.
More extended contracts also bring a good return of investment on equipment. In many businesses, startup costs are always high. But after spending a lot on training the employee on how o use the equipment, more extended contracts allow the company to enjoy more value. They also enable stronger relationships to be built between the two parties. The more people stay together and interact, the more strong friendship bonds are formed between them. Under such a great relationship, the parties understand what is required of them depending on their agreements hence leading to a much higher commitment and dedication (Bach & Serrano-Velarde, 2015). More extended contracts also increase security and trust between the two parties. When the parties have obeyed the conditions of their agreement for some time, it becomes easier for them to trust each other and hence creating a better and conducive working environment. More extended contracts are essential in ensuring that business achieves high performances.
Disadvantages of Longer Contracts
Despite having a lot of merits and benefits to business companies, longer contracts also have their drawbacks. Fist, they discourage competition in the organization hence leading to poor results. When a client has a longer deal with the business, they no longer give the business matters top priority and may lead to late delivery and completion of essential projects in the organization. This is due to the lack of competition from other better clients. Longer contracts are also easier to breach as compared to shorter ones. The nature of long term contracts depends mostly on the ability to meet the Service Level Agreements (SLA) (Klijn & Koppenjan, 2016). If the services are not up to standard, clients may move away and breach the contracts. It is also tricky to upsell contracts that have a long duration. When the client has agreed on a deal for a specific amount of time, they expect the amount for that period to be paid fully. It is therefore tricky to upsell such clients who have already committed for a specified period.
Level of commitment in long labor contracts is shallow. Money always makes people work to earn it. However, when people receive payment before work, their level of commitment and seriousness towards work reduces. This affects the performance of the business significantly. It is difficult for employees to abide by such contracts when the company is experiencing a downtime. More extended agreements allow employees to work in a given organization for a more extended period. When such jobs are lost, it becomes difficult for them o secure a job elsewhere. Both employees and employers have to handle more extended contracts with very much care as it may result in both benefits and issues that might affect their relationship.
Protection of Employers’ Interests
A good labor contract is the one that can protect both parties in agreement. If one part violates the deals in the contract, the other party can move to court to take legal actions against to get compensated. More extended contracts protect the employer by ensuring employee commitment. The deals have the termination clauses through which the employee has to write to the employer requesting for contract termination. This assures the employers that no employee can decide to walk away from their jobs on their own. The terms in the contract are an assurance to the employer that the worker has the necessary knowledge and experience to undertake their duties and responsibilities as required (Klijn & Koppenjan, 2016). They are to work according to the expectations of the employers. Since the contract indicates the specific period the employee will be working in the organization, it gives the employer ample time to plan for the future of their companies. More extended contracts also show the exact amount of money that the employer has to pay to the employee. Therefore in case of contract breaches and the employee moves to court, it protects the employee from paying more.
Protection of the Employee
Just as they protect employers, contrast also protects employees. Many bosses like to deduct employee wages without giving them much-required explanations. Labor contracts protect employees from these additional salary deductions. Various companies on their own usually make changes to working terms of their customers such as changing their positions and the working environment without letting them participate in the decision-making process. Labor contracts are vital as it allows changes to be made only when both the two parties are present and in agreement. They also list the rights of an employee at the working place such as wages, holiday, and physical protection among many others (Easley & Ghosh, 2015). When these rights are violated, the employees can take legal actions against the employer. When the two parties disagree during their working relationship, the employer may fail to honor the contractual terms. With the contract, the employee can move to court and sue the employer. This ensures that they receive compensation for the job they have done.
In conclusion, the labor contract legally binds together two parties which have an interest in working together. It is an important document that every business needs to have as it protects both the employer and the employee. Various countries have different labor contracts due to variations in their legalities. However, these contracts have been accused of being bias and protecting the employee more than the employer. Any attempts by the employer to affect the working rights of an employee will have them face the law in courts. These contracts are always stored in written form due to clarity. Written agreements are used as evidence in courts in case of a disagreement. Verbal agreements are discouraged as they cannot be proved. Parties have also to note that the contracts do not always contain all the details required and hence they need to refer to the terms and conditions section before signing and agreeing. The agreement’s section still includes essential information such as remunerations, payments for the welfare, working hours, compensations, travel expenses among many others. During employee recruitment, employers usually explain the terms of the contract to the recruit which gives them the chance to ask for amendments.
Aguirregabiria, V., & Alonso‐Borrego, C. E. S. A. R. (2014). Labor contracts and flexibility: evidence from a labor market reform in Spain. Economic Inquiry, 52(2), 930-957.
Easley, D., & Ghosh, A. (2015). Behavioral mechanism design: Optimal crowdsourcing contracts and prospect theory. In Proceedings of the Sixteenth ACM Conference on Economics and Computation (pp. 679-696). ACM.
Bach, L., & Serrano-Velarde, N. (2015). CEO identity and labor contracts: Evidence from CEO transitions. Journal of Corporate Finance, 33, 227-242.
Klijn, E. H., & Koppenjan, J. (2016). The impact of contract characteristics on the performance of public-private partnerships (PPPs). Free Money & Management, 36(6), 455-462.