Updated June 30, 2020:

Damages for breach of employment contract are the legal reparations the other party is entitled to if either the employer or employee breaks this type of contract. An employment contract dictates the terms of employment for a company's employee and is legally binding. The employer offers financial compensation for the employee's labor and time. This is usually a written contract signed by both parties but can also be in the form of an oral contract or implied by statements, actions, or other documents such as an employee handbook.

Terms of an Employment Contract

The employer and employee must agree to the employment contract. However, the employer may not ask the employee to earn less than minimum wage or give up his or her right to collect unemployment if otherwise eligible. Otherwise, terms of this type of contract are flexible. Because employment contracts may include multiple conditions and clauses, it's a good idea to have them reviewed by an employment attorney.

Breach of Employment Contract

An employment contract is breached when either the employer or employee fails to fulfill the obligations it sets forth. If this occurs, the party who does not breach the contract can seek financial damages. Common occurrences that constitute a breach of contract include wrongful termination, violation of non-compete or non-solicitation agreements, and failure to remit severance pay or wages.

Breach of an implied or oral contract can be very difficult to prove. An employment contract does not always mean that the employer cannot fire the employee. In fact, most employees are hired "at will," which means they can quit or be let go at any time, with or without cause. An at-will employment contract may also specify your work location, hours, and compensation.

Employer Breach of Contract

Employees usually receive compensatory damages if the employer breaches a contract and it is proven in court. This means he or she receives financial reparations equal to what would have been received if the contract was not breached. Often, the employer is responsible for paying out the full price of the contract. Emotional distress and other types of damages are usually not awarded by the court for employer breach of contract.

Employee Breach of Contract

When an employee breaches an employment contract, the employer usually also receives compensatory damages calculated by determining the cost to replace the employee above what it would have cost for him or her to finish out the contract as originally agreed. If the employee can be replaced with another who will do the work for about the same price, the court will typically provide the employer with limited damages.

Unintentional breach of contract because of medical issues or other unforeseen circumstances may be subject to quantum meruit, or implied contract. This legal term indicates that one party cannot unfairly benefit from another party's performance if no contract exists.

Breach of Contract Damages

Common forms of damages for breach of contract are as follows:

  • Expectation damages are paid for what the employee would have received if the contract was not breached. For example, if the employer promised a $10,000 bonus and only paid $5,000, the employee would receive the other $5,000 as expectation damages. However, he or she is also responsible for mitigating damages by looking for another job. The amount the employee should have earned if a reasonable effort was made to find a new job is subtracted from this type of damages.
  • Liquidated damages include those stated in a contract provision. This provision indicates a specific amount of money that one party must pay the other party if the former breaches the contract. These damages are intended to compensate for losses that are hard to quantify. This type of provision is rare in an employment agreement.
  • Compensatory and punitive damages are awarded for emotional distress. They are typically limited to cases that involve harassment and/or discrimination.
  • Attorney fees may be awarded if your contract states that the employer will pay these fees if a breach of contract occurs. If this provision does not exist, you must pay your own attorney fees.

Damages may also be subject to certain legal limitations.

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