A contract purchase involves buying an existing contract from the current owner, often seen in employment contracts. It can benefit both parties, allowing employees to pursue other opportunities and employers to recover their investment.
A contract purchase is a transaction that involves purchasing an existing contract from the current owner. This type of activity is found in various settings, with employment contracts being among the most common examples. Depending on the circumstances, the contract purchase may be initiated by an employee who no longer wishes to work with the employer, or by a prospective employer who wishes to secure the employee’s services despite the fact that he or she is under contract with a different company. .
One of the most common examples of employee contract buying involves people who work for employment agencies. In many cases, qualified employees are dispatched to agency clients to manage short-term needs in the workplace. If those clients find the temporary assignee to be a good fit for the business, there is a chance that a permanent job offer will be extended. As part of the agreement, the client will purchase the temp agency employee’s contract, usually for a set amount. Once the payment is made, the employee no longer has a contractual obligation to the temp agency and is free to work for the new employer under the terms of the new employment contract.
Sometimes the purchase of the contract has to do with the desire of an employee to break the relationship with a certain employer. In years past, it was not uncommon for artists who wanted to seek other opportunities to buy out their contracts with the movie studio or other entertainment company that currently had the artists under contract. Typically, this would involve the employee paying a fixed sum for each year remaining on the contract. Upon remitting the agreed amount, the contract was deemed null and void, and the artist would be free to pursue opportunities with other entertainment companies.
While the exact process for purchasing an employee contract will vary, depending on the provisions of the contract and the details surrounding the purchase, the general anticipation is that all parties involved will benefit in some way from the transaction. Employees are often free to pursue other opportunities, while employers are deemed to have recovered their investment in those employees. Even in situations involving a hostile merger or takeover of a business, new owners may feel that participating in the purchase of an employee contract will be less costly in the long run, allowing the business to increase its chances of success.
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