Signing an employment contract is not unusual, particularly for executives and employees at large companies. These contracts can include a wealth of complex clauses and provisions, and it is crucial that they be two things in particular: enforceable and understood by the party signing them.
As such, whether you are an employer or an employee, it can be wise to understand certain clauses that may appear in an employment contract. For example, do you know what a clawback is?
Clawback provisions
As discussed in a recent Business Insider article, a clawback provision is a clause that allows an employer to take back incentive-based payments, like bonuses, from an employee in certain situations including:
- As a means to combat fraud
- When misconduct requires companies to refile financial reports
- After discovering accounting errors
- To restore trust after corporate wrongdoing
- To recover lost profits
Who might see these in a contract
Many employees will not have a clawback clause in their employment contracts. However, they are becoming increasingly popular, especially among executives and employees at Fortune 100 companies. If a position allows someone to collect a bonus or other types of incentive-based compensation, he or she may have this clause in an employment contract.
Assessing the need for these and similar clauses
Whether you are an employer or an employee, it is crucial to understand clawback clauses and other financial provisions that may appear in an employment contract. Employers must consider carefully whether they need certain clauses and understand how to enforce them; employees must understand what they are agreeing to and whether they may benefit from negotiating certain contractual elements.
As such, a thorough examination of these contracts and legal guidance from an attorney can be crucial to ensure you understand what is in any contract you might sign. Without this support, you could wind up suffering costly consequences that affect your company or job.
