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.

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