Key Takeaways:

  • A breach of employment contract occurs when either an employer or employee fails to meet the obligations outlined in their employment agreement.
  • Types of employment contracts include written, oral, and implied contracts, each with unique enforceability challenges.
  • Common employer breaches include wrongful termination, unpaid wages, and violations of non-compete agreements.
  • Common employee breaches involve early resignation, violation of confidentiality clauses, and failure to meet performance expectations.
  • Legal remedies include expectation damages, liquidated damages, compensatory damages, and punitive damages in cases involving discrimination or harassment.
  • Mitigation of damages is required, meaning the affected party must take reasonable steps to reduce their losses.
  • Legal options include informal negotiations, mediation, arbitration, or litigation.
  • Consulting an employment lawyer can help determine the best course of action when dealing with a breach of contract.

Damages for the breach of an 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 advisable to have them reviewed by an employment attorney.

Types of Employment Contracts

Employment contracts come in various forms, each with distinct legal implications:

  • Written Contracts – A formally documented agreement signed by both employer and employee, detailing job responsibilities, salary, benefits, and termination terms.
  • Oral Contracts – Verbal agreements, though enforceable in some cases, can be difficult to prove in court.
  • Implied Contracts – These arise from the employer's actions, company policies, or industry norms, often outlined in an employee handbook.
  • Fixed-Term Contracts – Agreements specifying a set employment duration, often used for project-based work or temporary roles.
  • At-Will Employment – Most U.S. employees work on an at-will basis, meaning either party can terminate employment at any time, except in cases of wrongful termination.

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 non-breaching party 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.

Common Causes of Breach of Employment Contract

A breach of employment contract can occur due to various reasons, including:

  • Wrongful Termination – Firing an employee in violation of contract terms.
  • Unpaid Wages or Benefits – Failing to compensate an employee as agreed.
  • Breach of Confidentiality – Disclosing sensitive company information.
  • Violation of Non-Compete Clauses – Engaging in competitive work against contractual restrictions.
  • Failure to Provide Agreed Resources – Not supplying promised tools, support, or work conditions.
  • Employee Resignation Without Notice – Leaving before the contract’s end without proper notice, causing financial or operational harm to the employer.

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.

Legal Remedies for Employer Breach of Contract

Employees impacted by an employer’s breach of contract can pursue legal action through:

  1. Financial Compensation: Courts may award damages equal to lost wages, unpaid benefits, or bonuses.
  2. Specific Performance: A court order requiring the employer to fulfill contractual obligations.
  3. Rescission of Contract: If the breach is severe, the contract may be voided, allowing the employee to seek alternative employment without restrictions.
  4. Liquidated Damages: If specified in the contract, pre-determined compensation may be enforceable in court.

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.

An unintentional breach of contract due to 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.

Employer’s Legal Recourse Against Employees

If an employee breaches a contract, employers may seek:

  • Financial Damages: Compensation for lost productivity, recruitment costs, or training expenses.
  • Injunctions: A legal order preventing the employee from working for a competitor if they violated a non-compete clause.
  • Reimbursement of Training Costs: If an employee leaves before fulfilling a contractual work period, they may be required to repay training expenses.

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 difficult to quantify. This type of provision is rare in employment agreements.
  • 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.

How to Resolve a Breach of Employment Contract

Resolving contract disputes can involve various legal approaches:

  1. Negotiation – Employers and employees can discuss and reach a settlement without legal proceedings.
  2. Mediation – A neutral third party facilitates discussions to help both sides find a resolution.
  3. Arbitration – A legally binding process where an arbitrator reviews the case and issues a decision.
  4. Litigation – If other methods fail, filing a lawsuit may be necessary to recover damages.

Seeking legal counsel can help determine the most effective resolution strategy.

Frequently Asked Questions

  1. What are the most common breaches of an employment contract?
    The most common breaches include wrongful termination, unpaid wages, violation of non-compete clauses, and employees quitting without proper notice.
  2. Can an employer sue an employee for breach of contract?
    Yes, if the employee violates terms such as confidentiality agreements, non-compete clauses, or early resignation causing financial harm.
  3. How can an employee prove a breach of employment contract?
    Employees should gather documentation such as pay stubs, written agreements, emails, and witness testimonies to support their case.
  4. What legal actions can be taken against an employer for a breach?
    Employees can seek financial damages, contract enforcement, or legal remedies such as mediation, arbitration, or litigation.
  5. Can an employment contract be breached unintentionally?
    Yes, breaches can occur due to unforeseen circumstances like medical emergencies, but courts may consider good-faith efforts to fulfill obligations.

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