Breach of contract is a legal term that describes when a binding agreement is not honored by one or more party. A breach of contract involving an employment agreement has the potential to significantly impact a business’ wellbeing and profitability.
Employment agreements generally include non-compete clauses, confidentiality agreements, and severance terms, and failure of one or both parties to abide by what they’ve agreed to can pose legal challenges. Let’s look at the most common types of employment agreement breaches and concerns:
- Non-compete clauses – These breaches generally involve an employee leaving to work for another employer. The enforceability of these clauses will depend on whether their original language is considered to have been reasonable by the court, with reasonableness interpreted by the limitations placed on duration, scope of work, and geographic scope. If the duration is considered too long or the geographic or occupational restrictions are too broad, it is unlikely that a judge or jury will deem the contract enforceable.
- Confidentiality agreement – Confidentiality agreements are generally honored as long as the terms of the agreement are specific and reasonable. If written too broadly, the courts will deem them unenforceable. Courts are also intent on determining whether a confidentiality agreement pertains to non-disclosure of sensitive information or non-use of information. If writing a confidentiality agreement, make sure that its terms address intellectual property so that employees who are privy to trade secrets, proprietary information, or research and development are specifically restricted from sharing or using it.
- Severance Terms – Employees will frequently object to punitive severance terms being enforced, arguing that they were coerced into signing them or did not understand what they were agreeing to. Courts frequently strike down waivers of rights if they violate public policy or statutory rights.
- Non-Disparagement Clauses – Some employment agreements restrict employees from making negative comments about their employer. These clauses are frequently overly broad and unenforceable, as they infringe on free speech rights.
- Wrongful Termination claims – Employees may sue employers for terminating them for discriminatory reasons or in bad faith.
- Whistleblower protections – Employees are legally protected from adverse employment actions if they have reported their employer’s illegal activities. Confidentiality agreements and severance agreements do not waive these protections.
In the face of a breach of an employment contract, the potential remedies include monetary damages, injunctive relief, and modification of the original contract to make it more reasonable and enforceable rather than breaching the entire contract.
The best way to avoid breach of contract in employment agreements is to ensure that the terms of the contract are reasonable, enforceable, and fully understood by all parties. For assistance in crafting an enforceable employment agreement, contact us today.
