Defenses to Breach of Employment Contract

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 What is an Employment Contract?

Most employment is considered at-will. Even in an at-will employment situation, an employer cannot fire an employer for a discriminatory reason, in retaliation for whistle-blowing or other protected activity or for reasons that are contrary to some identified public policy.

In some situations, an employer and employee enter into an express employment contract the provisions of which then define the terms of the employment relationship. Some employment contracts limit the ability of the employer to fire the employee; the agreement might specify the reasons for which the employer and the employee can terminate the employment relationship and how that should be done. The contract might impose penalties on the employer if the employee is terminated early.

The contract might also specify whether the employee can terminate their employment and if so, what procedures should be followed, e.g. whether notice must be provided to the employer. An express employment contract might state that the employment is for a fixed term, e.g. a number of years, and if it does, then both parties are legally obligated to respect this contract provision.

Employment contracts can be oral, i.e. agreed verbally and never documented in writing. They can be implied as well. Even oral or implied employment contracts can be breached and this can give rise to the right to sue for damages for breach of the contract.

Contracts are mostly governed by state law and the law regarding contracts varies from state to state. So a person would want to consult the law in their state in order to fully understand the nature of employment contracts where they live.

What If the Employment Contract Is Breached?

If either the employer or employee does not perform as provided in the terms of an employment contract, it is considered a breach. For example, if the contract states that the employee must receive $105,000 as annual salary and the employer fails to pay that amount, it would be considered a breach. Also, if the employee agreed to stay for a period of two years with the company but then decides to leave sooner, this would be considered a breach of the contract.

Other examples of breach of contract that can arise in the employment situation include:

  • Inadequate performance: A party may fulfill the required performance, but not to a high enough standard. So, for example, the employee may provide the work performance required but not to the standards demanded in the contract;
  • Time Issues: A party may complete the required performance but not within the agreed timeframe;
  • Failure to Perform: The party, e.g. the employee, may fail completely to perform as required in the contract.

If one of the parties breaches the contract, the other party has a right to file a civil lawsuit seeking damages for the breach.

What Are Some Defenses to a Claim for Breach of an Employment Contract?

If there is a breach in the employment contract, and the party who did not breach the contract can file a civil complaint alleging breach of contract, the party named as the one who breached the contract has some defenses available to them. Whether any particular defense applies in any given situation depends on the particular facts of each case.

Often the parties to a contract specify the damages that have to be paid by one party to the other in the event the contract is breached. This is referred to as a “liquidated damages clause.” Unless there is some good reason not to enforce a liquidated damages clause, generally a court will enforce it. So, if the breaching party offers to pay damages in the amount specified in the contract, that should fulfill their obligation under the contract, and the lawsuit would no longer be necessary.

Mistakes can occur when the parties enter into the contract. Mistakes can be either mutual or unilateral. A mutual mistake means that both parties erred in the contract terms and an issue arises as to whether or not a contract was even formed. A court might not think it judicious to enforce a contract if the mistake drastically affects the subject matter of the contract.

A unilateral mistake is made only by one of the parties and generally it is not a reason to void a contract, unless the other party knew or had reason to know of the mistake. In these cases, a court probably would not enforce the contract. Similarly, in employment contracts, mistakes can be used as a defense in a breach of contract situation.

Another defense for employment contracts is duress. This defense protects a party from being forced to enter into a contract through blackmail, threats of physical harm and other illegal or unfair assertions of power. Courts will not enforce the contract if there is an indication that duress was used in its formation.

Undue influence is conduct that is less coercive than duress. But it involves one party exercising some type of influence or employing pressure of some kind to push a person to enter into a contract. For example, this can become an issue in fiduciary relationships, meaning a relationship among the family members, a trusted person or someone who is in the position to influence a person’s choices. Courts tend to take a closer look at these relationships to determine whether to enforce the contracts that result from them.

Additionally, unconscionability can be a defense to enforcement of an employment contract. This applies when one party was induced to enter into a contract that is grossly unfair. This can be seen in situations where one party has much greater bargaining power than the other and uses it to their advantage, so the resulting contract is unfair. Courts will not compound the injustice by enforcing this type of contract.

Yet another defense to a suit for breach of contract is misrepresentation. This usually occurs where one party errs in misrepresenting a material matter to the other party when the contract is formed and the other party reasonably relies on it in agreeing to be a party to the contract.

However, fraud is more reprehensible because a party intentionally misrepresents a material fact of importance to the contract. In an employment contract, a party might misrepresent their qualification to do the work they know the employer wants done. Fraud can also comprise an omission or concealment of a fact that induces the other party to agree to the contract. Courts do not enforce contracts that are the result of fraudulent misrepresentation on the part of one of the parties to them.

Furthermore, an employer can turn to another defense called impossibility or impracticality. Usually, in a situation in which this would apply, one party is unable to perform as provided in the contract due to an event that makes it impossible. Courts will determine if the defense applies case by case basis and if it is truly an impossibility for the party to perform their obligations under the contract.

If a contract is illegal, e.g. it calls for delivery of controlled substances outside of legally approved channels of distribution, or if either party lacks the capacity to enter into a contract, e.g. because they are under age, then, again, a court will not enforce the contract, and a lawsuit for breach of the contract cannot succeed.

Lastly, frustration of purpose can be a defense in a breach of contract case. Generally, this applies in situations where an unexpected event occurs or circumstances arise that frustrate the party’s purpose for entering into the contract. Again, a court can refuse to enforce a contract when it would no longer serve the purpose the parties had in entering into it.

Should I Hire a Lawyer for Help with Breach of Contract Issues?

Several defenses might be available to lawsuit for breach of an employment contract. Whether any of them would apply in a given situation depends on the facts and circumstances of each case. If you are struggling to understand them or apply them to your situation, it would be wise to seek out an experienced contract lawyer in your state.

The law regarding employment contracts varies from state to state, and it would be useful to obtain more guidance on this to assist with your situation. If you may have breached a contract, you need the help of an experienced employment lawyer. Or, if someone else has failed to perform as promised in a contract to which you are a party, and you have suffered damages as a result, you should consult an experienced employment lawyer to learn about your options and how to proceed.


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