Contract out: Definition, Example and Related Terms
What does it mean to Contract out ?
In a contractual context, contracting out allows parties to tailor their agreements to better suit their specific needs and circumstances. For instance, a business contract might include a clause allowing parties to contract out of particular requirements, such as disclosure obligations or certain warranties.
Another common example is found in employment contracts, where employees might be offered the option to contract out of certain benefits or provisions under employment law in exchange for other compensations.
It's important to understand that the ability to contract out is often governed by law, and some obligations cannot be excluded by agreement between the parties. Legal advice should be sought to ensure that contracting out is both permissible and in the best interests of the party seeking to exclude themselves from certain provisions.
Example(s)
Scenario Description A company enters into a service agreement with a supplier which includes a standard non-disclosure agreement (NDA). The NDA has a clause allowing the parties to contract out of certain disclosure requirements if they both agree to those exceptions. This can enable more flexibility in their collaboration. An employment contract offers employees the choice to contract out of the company’s standard health benefit plan in exchange for higher wages. This means that employees can choose not to participate in the health benefit plan provided by the employer, and instead receive additional compensation in their salary.