What happens when the writer of a contract breaks their own agreement, or when a party to the agreement doesn’t abide by it?
Breach of Contract
A breach occurs when a party to an agreement fails to perform any term of a contract, written or oral, without a legitimate legal excuse.
For example, if a salon owner required an employee to sign a non-compete agreement restricting that employee from working for competing businesses within a one-mile radius for two years after separation from the salon and the employee accepted a position at a salon a half mile away within two weeks of their resignation–that employee would be breaching their agreement with their previous employer and the employer would likely pursue that employee for that breach.
Proving a Breach of Contract
This is where it gets tricky. Any time you attempt to take legal action against someone, you will eventually need to provide proof that a.) a valid contract existed in the first place, and b.) the alleged violator actually violated it.
If your contract is vague, improperly written, or unwritten, it may be difficult or impossible to enforce.
I highly advise that your contracts be written by an attorney, clearly worded, and extremely specific. The legal language in an employment contract is critical to ensuring it is lawful and binding. Otherwise, all bets are off. Oral agreements are for amateurs. Get serious about your business and get everything in writing.
Affirmative Defenses do not contest the primary claims or facts (the person admits they breached the contract), but asserts mitigating facts or circumstances that invalidate the breach. Basically, “Yeah, I breached the contract, but it doesn’t matter because…”
For example, let’s pretend you’re a seventeen-year-old assistant manager at a salon. You sign a non-compete agreement and violate it a few months later when you resign from your position to take another job at a competing salon. This agreement is reasonable and would be enforceable, but it’s not legally binding because you’re a minor and therefore don’t have the capacity to enter into a contractual agreement. The agreement can’t stand, even though you did violate it.
Let’s fast forward a year and pretend you’re eighteen-years-old and you breach the same agreement. This time, you’re old enough to be held to the agreement, but unfortunately, this salon owner wrote the contract herself. It includes a bunch of unfair conditions and clauses (for example, a requirement that you pay her $10,000 upon termination or resignation). Your attorney makes the claim that the contract is unconscionable, may actually constitute indentured servitude, and it is therefore likely illegal unenforceable. You violated the agreement, but it doesn’t stand.
Estoppels protect one party from being harmed by another party’s voluntary conduct. Overall, estoppels are pretty complex, but as they pertain to contracts, generally an estoppel will keep one party from suing the other from a breach, allowing either party to violate the agreement without fear of penalty or retaliation from the other.
Contracts made under Duress may not stand, and neither will those where one party has Undue Influence over another. Duress constitutes an unlawful pressure exerted upon someone to coerce them to sign an agreement they otherwise wouldn’t sign. A person may have undue influence over someone when they have a special trust with them that they exploit (this trust distinguishes duress from undue influence).
An example: A salon owner intentional misclassifies an employee, doesn’t compensate them appropriately, and unlawfully deducts wages from the employee’s paycheck, putting them into a dire financial situation. The employee quits and is now defaulting on their bills and rent and is facing a potential eviction. The employee demand that the ex-employer provide their last paycheck. The ex-employer makes the release of that final paycheck conditional upon the employee signing an agreement waiving their right to sue that ex-employer for misclassification and wage theft. Should the employee sign that agreement out of desperation, they may be able to claim they signed under duress. (Although, whether or not that agreement would be enforceable at all is highly debatable based on the content and circumstance alone.)
Fraudulent Inducement occurs when someone persuades another to make a decision based on trickery or deceit. If you enter into a contract, relying on a false statement, that contract may be voidable.
Real life example: A consulting client of mine agreed to purchase a salon after the previous owner claimed there were no pending legal actions against the business and that she had been operating in compliance with all applicable state and federal employment laws. This turned out not to be the case. In this instance, the buyer was able to breach the sale contract because her decision to sign it was based on an outright lie.
These are just a few of the many defenses someone could use to justify a breach of contract, however, the laws vary from state to state and from case to case, so before you make the decision to voluntarily breach an agreement, you need to consult with an attorney.
When a contract is breached, one or both parties may seek payment of damages from the other. Damages come in many different forms.
Compensatory damages are usually implemented when a person loses income due to another person’s failure to uphold their end of the contract.
For example, let’s say a salon owner entered into a contractual agreement with a major distributor to ship a huge product order to their salon for a massive Black Friday sale that they spent enormous sums of money promoting. The contract specifically stated that the order needed to be delivered by Wednesday, at the absolute latest. However, over the holiday weekend, the distributor dropped the ball and didn’t ship the order until the morning of Black Friday. The salon owner has lost their advertising investment, the faith of the customers who expected to be able to purchase those products on Black Friday, and the profit from the sales they would have made if the products had been delivered in accordance with the terms of the contract. They could, theoretically, pursue the distributor for compensatory damages.
Employers often seek compensatory damages for loss of profits due to breaches of non-compete agreements or non-solicitation agreements. However, they will be required to prove the breach occurred and that the breach caused actual monetary loss.
Punitive damages are monetary punishments. They’re rarely awarded in business contract settings, so please stop asking me about them in your comments and emails. (I get it, you’re pissed. You want to hit your ex-employee or ex-employer right in the wallet. I feel for you, but seriously, stop being childish. Go pay an attorney and waste their time with your spiteful bullshit.)
Nominal damages are minimal monetary damages that reflect a legal recognition that a person’s rights have been violated through a breach of contract, but can’t prove that the wronged party has suffered an actual loss. Nominal damages may include court costs and attorney’s fees, but typically they are small, symbolic sums.
Let’s use the same example with the ball-dropping distributor. This time, instead of specifying in the contract when the product needs to be delivered and why it’s critical that it be delivered on time, the owner simply states they expect delivery by Tuesday evening and the distributor agrees to those terms. However, this time around, the shipment isn’t sent until Tuesday morning and doesn’t arrive until early Wednesday morning. This owner theoretically could bring the distributor to court for a technical breach of contract, but because the delay didn’t really affect her business or cause a loss of income, the most she can hope for are nominal damages (maybe $15 plus filing fees). Nominal damages are token damages.
Liquidated Damages are typically written into contracts to establish a predetermined sum that must be paid if a party to the agreement breaches it. According to the Legal Dictionary, damages can be liquidated in a contract only if:
- the injury is either “uncertain” or “difficult to quantify,”
- the amount is reasonable and considers the actual or anticipated harm caused by the breach, the difficulty of proving the loss, and the difficulty of finding another, adequate remedy,
- the damages are structured to function as damages, not as a penalty (punitive).
Should the liquidated damages not meet those criteria, the clause will be void.
For example, let’s pretend an aspiring salon owner enters into an agreement with a contractor who agrees to build a pedicure platform by the salon’s scheduled opening date. However, delays result in the platform not being constructed on time, forcing the owner to push back the grand opening. The contract holds the contracting firm liable for the actual losses the salon owner incurs each day the salon isn’t operational. These damages aren’t a penalty (punishment), they’re actual estimated losses the salon owner is suffering that she would otherwise not be had the contractor hit the deadlines outlined in the contract.
Avoiding a Breach
Never sign anything you don’t agree with, regardless of how unenforceable you believe it to be.
State laws vary widely and contract law is incredibly complex. How much research you’ve done is irrelevant. Whether or not you personally believe the agreement to be enforceable is also irrelevant. Never sign an agreement you don’t plan to abide. End of story.
If you sign something, hold up your end of the deal.
Never assume anything or violate any contract until you’ve spoken to an attorney. Proof trumps hearsay. Always.
Punishing a Breach
If you believe someone has violated the terms of an agreement, contact an attorney immediately. Remember, you will be required to prove the breach occurred and that can be both difficult and complicated.
No matter what, litigation is expensive.
When you speak with an attorney, you will have to decide whether it’s worth it to pursue the person who violated the contract. A responsible attorney will advise caution and will explain to you how incredibly costly litigation can become. They’ll suggest alternative ways to resolve the dispute and may advise you not to proceed at all. Unethical attorneys will urge you forward, won’t communicate the risks or expense, and will downplay your odds of losing. They’ll often utilize aggressive intimidation tactics with little (or no) legal merit, happily racking up billable hours.
Obviously, it’s best to find an attorney who looks out for your best interests; not one whose sole motivation is to squeeze you dry.