They may have some other way out of it, you need to have an attorney review it, but shall and will mean the same thing, they are both mandatory, not discretionary.
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You really need to review the rest of the agreement to see if there are other reasons. Have you discussed it with them ? For us lawyers, "shall" and "will" mean exactly the same.
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Bad excuse on their part. Tell them they need to come up with a better answer. "Shall" is a word of command denoting a mandatory meaning. They wrote the contract.
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There is no genuine argument that can be made as to the meaning of the term "shall." If the contract has the terms you indicate, the employer's position appears to be incorrect. However, contract interpretation requires consideration of all terms which must be read together to give full meaning to the entire agreement. I would suggest you have the entire agreement reviewed by an attorney.