The purpose of an employment contract is to define the obligations of both the employer and the employee. In doing this, the contract creates expectation and reliance. The employer might expect the employee to complete the project she has been hired to do. The employee might rely on the income she is to receive from the work. Accordingly, if either party breaches the employment contract, the other party is entitled to sue for any loss suffered as a result.
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Expectation damages are awarded to compensate for the loss of the profit the nonbreaching party would have received if the contract was completed. If the employee breaches the contract, the employer could receive damages for the value of the uncompleted work and the costs of finding a replacement. If the employer breaches the contract, the employee could receive damages for salary she would have earned on the job.
An employment contract may include provisions for liquidated damages. These are specified sums each party agrees to pay if the contract is breached. Attorney fees and cost are damages that are recoverable only if included in the original contract.
Nominal damages are a minimal amount provided to the nonbreaching party if that party won the case but did not suffer any loss because of the breach. These are typically awarded in cases where the party was not harmed by the breach but wanted to sue based on principle.
Specific performance is a remedy in which a court orders the breaching party to perform the contract. It is typically awarded where no other alternative would compensate the breach. This remedy is rarely awarded in employment contract cases because courts are reluctant to force parties to continue employment.
There are some instances where damages are not available or limited:
In order to be recoverable, damages must be foreseeable to the breaching party. For example, a breaching employer could foresee that the loss of the job would result in the loss of income for the employee. The employer would be liable for this income. However, he could not foresee the employee having to relocate across the country to find another job and so would not be liable for any costs related to the relocation.
Additionally, the damages sought must be certain. The court must be assured that actual damage occurred. For example, an employee claiming emotional distress as a result of losing the job would have to have clear evidence of this distress. The nonbreaching party also has a duty to mitigate any loss by attempting to minimise any damage. For example, a fired employee has a duty to look for another job.
The termination of at-will employment is a situation where damages are not recoverable. Both the employer and employee are allowed to end the employment without liability.
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