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employment contractsee CONTRACT OF EMPLOYMENT.
employment contracta CONTRACT between an EMPLOYEE and the company for which he or she works, specifying the terms and conditions governing his or her employment. Employment contracts of directors and senior executives are called service contracts, and these often contain provision for generous severance payments in the event of early dismissal.
The employment or labour contract between an employee and the firm that employs him or her generally specifies that the employee undertakes specific tasks for the firm in return for a WAGE. While the wage paid to an employee is a clearly definable part of the labour contract, the level of skill exercised by an employee and the amount of effort he or she exerts in working is more difficult to specify and measure. Consequently, labour contracts are subject to possible contract problems, such as ADVERSE SELECTION and MORAL HAZARD, and may involve significant AGENCY COSTS.
See LABOUR MARKET.