As a manufacturer, there are numerous ways in which the end product you’re creating can go wrong, whether it’s the fault of your employees, a supplier, or the equipment you’re using. In many cases, your business can be held liable to your clients if things go wrong, whether it’s because of a faulty machine or a supplier who failed to deliver what was promised. The solution? employment contract indemnity clauses. For those who are new to the field, an employment contract indemnity clause, or some variation thereof, is a provision in an employee’s contract to compensate the employer for any loss or expense that was caused in part or in full by an employee. The payment required by this clause is not limited to damages awarded by a court, and is usually designed to reimburse whatever costs the company has been burdened with as a result of one of their employee’s actions.
To understand why manufacturing companies need employment contract indemnity clauses, it’s important to consider how heavily they tie into risk management. While an indemnity clause cannot prevent someone from filing for compensation, it plays an important role in determining who is responsible for paying damages. Imagine that a machine used to process your latest order failed, and in addition to the replacement cost, you were also forced to hire temporary workers and pay overtime in order to keep up with your client’s demands. It’s fair to assume that if that machine were faulty, it may have been the responsibility of the supplier to provide you with a replacement. Now, if one of your employees was operating the machine, and misused its controls in a way that wasn’t caught until it was too late, then perhaps it would be the employee who was liable for the extra expenses. If you don’t have an employment contract indemnity clause in place, you’ll probably be responsible for paying those extra costs, and left with nothing more than the employee’s salary as compensation.
SC FABRICA DE BUCȘE SRL, like any other quality-oriented manufacturing company, seeks to reduce the number of risks it faces as much as possible. Many of these risks are unavoidable, or simply not worth stressing over; for example, it’s always going to be difficult to manufacture a part that’s never been created before. With some risks however, the company is able to take steps to avoid them. In our example with the machine, the greater the amount of time that passes before discovering the source of the issue, the costlier of a mistake it will prove to be. However, if SC FABRICA DE BUCȘE SRL is able to catch the problem early on, all they have to worry about is the initial cost of replacement. As long as they have a suitable employment contract indemnity clause in place, they can rest easy knowing that whoever is deemed responsible for the problem – whether it’s the supplier or the employee – will be forced to cover the costs in full.
Indemnification clauses are not only important for the manufacturer, but they also work to the benefit of anyone who is purchasing a made-to-measure piece – whether it’s a simple industrial part, or a complex prototype. In either case, the client expects that the part will function correctly without any interruptions in their own production process. An indemnity clause helps ensure SC FABRICA DE BUCȘE SRL is able to live up to that expectation. Consider the scenario once again. The supplier is responsible for a defective piece of equipment that damages a product SC FABRICA DE BUCȘE SRL uses to manufacture a component for one of their clients. Without any evidence of liability (such as an indemnity clause), the client could attempt to hold SC FABRICA DE BUCȘE SRL responsible for the product malfunction, and therefore the loss of production they experienced as a result.
Although a well-written and legally enforceable employment contract indemnity clause is an essential part of risk management for a company like SC FABRICA DE BUCȘE SRL, it’s also necessary to custom tailor the clause to the situation. In the example of the faulty machine, the indemnity clause should be structured to cover the cost of replacement as well as the compensation required to make up for other losses that occur as a result of the machine’s failure, whether it be financial or a delay in the production process. But SC FABRICA DE BUCȘE SRL isn’t the only business that can benefit from custom-tailored employment contract indemnity clauses. Anyone who provides a made-to-order or one-of-a-kind product (which is essentially every manufacturer) should look into employment contract indemnity clauses.
Employment contract indemnity clauses can save you money by protecting your business from paying compensation for mistakes you didn’t make, whether it’s due to a faulty machine or a bad supplier. Those operating in Romania must be aware of the fact that there is no regulation on the timeframe imposed for these clauses; however, it is best practice to include a set date by which employees must notify the employer of their intent to indemnify or assume liability, known as a “declaration of indemnity”. When drafting an employment contract indemnity clause, you should: As long as you’re prepared to customize them, and work with a good lawyer to ensure the scope of your employment contract indemnity clauses run thorough enough to cover all suitable expenses, the benefits become fairly obvious; after all, you wouldn’t want your company to take responsibility when it wasn’t at fault.
For more information on indemnity clauses, you can visit this Wikipedia page.
