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Many employers fear wrongful dismissal actions. They don't like the uncertainties inherent in the law and they certainly don't like the legal fees and aggravation generated by lawsuits or even the threat of a lawsuit.
To avoid these problems some employers ask prospective employees to sign employment contracts. Alternatively, they extend an offer of employment on specific terms. The acceptance of the terms creates an employment contract.
Typically the contract will set out a formula for calculating the notice or pay in lieu required to be paid in the event of a termination of employment. The formula will limit the employer's liability in the event of a wrongful dismissal action.
Prospective employees should seek legal advice before signing any employment contract or offer that contains a termination clause.