A contract is a legally binding agreement between two parties, usually taking the form of a document. So, in employment law, an employment contract is an agreement between an employee and their employer. The employee offers their time and skills, and in exchange, the employer provides them with payment and other benefits such as healthcare. An employment contract also makes clear the rights and responsibilities of both parties.

Some things you might find in an employment contract include:

  • An itemized description of salary or wages, commission, and the frequency with which the employee is to be paid;
  • The terms and conditions of benefits such as health insurance coverage, 401k details, and vacation time;
  • A clear schedule if the employee is expected to work specific hours and days;
  • Procedures for employee grievances; or
  • A list of general duties, so the employee is aware of what is and is not expected of them.
A written contract that has been signed by both the employer and the employee is the most common form of an employment contract.

How are Damages Calculated When an Employment Contract is Breached?

It is important to note that both an employer and an employee can breach an employment contract. If either party involved breaks the terms of the signed employment contract, they are in breach of said contract.

An example of an employer breaching the contract is if they fail to pay the employee the agreed upon amount for the time spent working. An employee may breach the contract if they do not work the agreed upon hours.

If you feel your employment contract has been breached, sorting it out directly is the best first step. Should legal action arise, the type of damages available for a breach of contract is generally compensatory damages. Usually, the breaching party must pay the injured party what was promised elsewhere in the contract.

For example, if an employee was wrongfully terminated, they may be entitled to compensation in the form of lost wages from the employer. Because of what was stated in the employment contract, the employee expected to receive a certain amount of money prior to termination; therefore, they may sue the employer for those expected damages.

If the employee was the one who breached the employment contract, the employer may also be entitled to compensatory damages. If the contract stated that an employee must give thirty days notice before vacating their position, but the employee only gave a two week notice, the employer may sue for those damages.

Typically, these sorts of damages are calculated by the cost of finding an employee’s replacement. Should the replacement be hired quickly and for the same salary or pay arrangement, the damages should be minimal.

Generally, you will only receive damages if real financial loss can be proved. There is not compensation for distress caused by the breach, or for any injured feelings as a result of the employment contract breach.

While breaching an employment contract is a serious matter and should be dealt with accordingly, legal action should generally be the last resort. Handling the conflict amongst yourselves, and mediation through a labor relations agency may resolve the issue without bringing each other to court.

Are there Limits to My Recovery for Breach of Employment Contract?

Yes. As mentioned above, there are no awards for “emotional distress” when an employment contract has been breached. There can only be awards for real proven financial loss.

Additionally, there are a few instances in which damages received can be reduced, or a case based on breach of employment contract dismissed:

  • At-Will Employment: When an employee is hired at-will, either them or their employer are allowed to terminate the arrangement, at any time, for any reason, so long as the reason is not illegal. Any reason, including no reason, is an acceptable basis for termination.
    • All states are at-will, but some have exemptions such as good faith exception, and public policy exception. As long as the employee was not unlawfully dismissed, they will not receive damages for breach of employment contract;
  • Foreseeable Damages: These are damages that both parties were aware of when the contract was made. This can include reasonable attorney’s fees. Foreseeable contract damages should be considered as arising naturally from the breach, or as the probable result of a contract breach as both parties have contemplated. An example of foreseeable damage is the need to hire a new employee when the existing employee vacates their position, and that the employee will need to find a new job;
  • Certainty: Verifiable damages must be provable and clear. This has been repeated multiple times because damages awarded are very dependent on this fact. Additionally, employment contracts can be modified. Thus, it is important to review the contract regularly and see if damages are even possible. This is where it comes in handy to try to resolve the case on your own, before seeking legal action; or
  • Duty to Mitigate: The injured party has a duty to mitigate or lessen the effects and losses resulting from the injury. Therefore, if an employee has been wrongfully terminated, it is that employee’s responsibility  responsibility to lessen damages by finding a new job.

Do I Need an Attorney if My Employment Contract was Breached?

If your employment contract has been breached, and no resolution can be made after working with the offending party or by attending mediation sessions, you should consult with a knowledgeable and qualified employment attorney.

A licensed and experienced employment attorney can help you better understand the terms of the breached contract, as well as give you a clear outline of what to expect from your case.