Application: Non-Verifiable Information in Principal-Agent Problems

A coffee shop owner hires a barista under a contract that specifies the barista must work 8-hour shifts, wear a uniform, and maintain a 'positive and welcoming attitude' towards all customers. After one month, the owner wants to terminate the contract, claiming the barista failed to maintain a positive attitude. Based on the principles of contract enforcement, which part of the agreement would be most difficult for the owner to legally enforce in a dispute?

Contract Enforceability Analysis

A contract clause requiring an employee to 'demonstrate a strong work ethic' is considered legally robust and easily enforceable because a manager can provide testimony about their direct observations of the employee's effort.

Contract Term Enforceability

Match each contractual clause with the description that best explains its likely legal enforceability.

Evaluating Contract Disputes

For a contract to be successfully enforced by a third party, such as a court, the performance metrics it is based on must be objectively provable. Information that relies solely on subjective judgment, like a supervisor's opinion of an employee's 'enthusiasm,' is considered ____________ and cannot be used as the basis for a legal ruling.

A sales contract stipulates that a bonus is paid based on several performance metrics. In the event of a dispute that requires third-party arbitration, these metrics will be reviewed for their provability. Arrange the following metrics from MOST verifiable (easiest to prove objectively) to LEAST verifiable (hardest to prove objectively).

A manager personally witnesses an employee being discourteous to a customer. Because the manager's observation is a firsthand account of the event, this information is considered verifiable and can be used to legally enforce a contract clause requiring 'professional customer interaction'.

Dispute Over a Creative Contract