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What Happens When an Employment Contract Is Breached?

On Behalf of | Aug 21, 2023 | Firm News

Employment in California is generally considered to be at-will. This means that the employer can terminate an employee at any time for any reason or no reason. Likewise, the employee can quit at any time for any reason (or no reason at all). However, provisions agreed upon in an employment contract must be adhered to by both the employer and the employee.

When one party to an employment contract fails to live up to their part of the agreement, then there can be legal action over a breach of the contract.

Say Employer A offers a two-year contract to Employee B promising 24 months of employment provided there is no “gross misconduct,” but then fires the employee 12 months in. The employer could be liable for the remaining 12 months of pay and benefits unless they can show gross misconduct.

While most contracts will likely be in writing, it’s also possible for a contract to be oral, or even implied from the actions of both parties. If you own or operate a business anywhere throughout the Coachella Valley, including Palm Desert, California, as well as communities in and around Imperial, Los Angeles, Orange, Riverside, San Bernardino, and San Diego counties, and you are being sued for breach of an employment contract, you can rely on the Law Offices of Jerry J. Goldstein.

Our attorney has decades of experience in helping clients with all issues related to employment law. Reach out now for a free initial consultation.

What Is an Employment Contract?

As noted briefly above, an employment contract, though often comprising a written document, can also be oral or even implied. The State of California Employment Development Department (EDD) States on its website:

“An employment contract is an enforceable agreement between two parties that contains whatever terms and conditions of employment the parties agree upon and, when accepted, becomes controlling upon the employment relationship. The contract may be oral or written, express or implied….”

The EDD further states that an “implied employment contract comes into being when the parties do not explicitly agree to terms, but their words or conduct reasonably imply they agree to certain terms.”

A famous case involving an implied contract was a lawsuit against See’s Candies by a terminated vice president who had no written contract. The VP had been told by the president and general manager that “If you are loyal to (See’s) and do a good job, your future is secure.” As an employer, you have to make sure you don’t make such promises, or they can come back as a breach of contract/wrongful termination lawsuit.

What Is a Breach of Contract?

If a contract states that employment will be for a certain period, say 36 months, and/or that the employee can only be terminated for “just cause,” but the employer fires an employee halfway into the contract so that he can hire his nephew, there could be grounds for a lawsuit. Likewise, if a contract promises a yearly bonus of $10,000, but the employer skips the bonus or reduces it in half, there could also be cause for legal action.

Benefits promised but then not delivered such as vacation time, sick days, health and dental coverage, or not delivered as promised, could also be a cause for legal action. Both parties generally must observe what is called the covenant of good faith and fair dealing. As a result, an employee who wants to establish a breach by the employer must show that the employer acted without good faith in depriving the employee of some benefit that was promised.

Depending on the breach, it’s advisable to begin with negotiations and then move on to alternative dispute resolution (ADR) processes such as mediation or arbitration. In a termination, of course, this likely might not be possible

Damages Available

Damages is basically a legal term for money that can be gained through a lawsuit. In an employment breach of contract, the employee might sue for lost wages. Say the employee had a two-year contract paying $50,000 a year, but was let go after 12 months with no buyout. There’s still $50,000 on the contract, but the terminated employee can’t just sit at home, file a lawsuit and wait for the money to roll in.

The terminated employee has a duty to mitigate, which means he or she must seek comparable employment. Say this employee does find a comparable job after three months of unemployment, but it pays only $40,000 a year. The employer could be on the hook for three months of full salary and then nine months of partial salary.

One month at $50,000 a year is roughly $4,167, so three months would be $12,500. For the remaining nine months, the obligation would be for the difference between $4,167 a month and $3,333 ($40,000 a year), or $834 times 9, which is roughly $7,596.

Understand and Protect Your Rights

As you can see from our brief discussion, a contract does not have to be in writing. It can ensue from promises made orally or even through implied actions. If you find yourself in a contract dispute with an employee, or you’re facing a lawsuit anywhere in Southern California, contact us at the Law Offices of Jerry J. Goldstein.  Although our practice does not focus on employment litigation matters, we will be more than happy to refer you to attorneys whose practice focuses solely on employer legal defense and litigation.

Please note that in providing services outside of our immediate area, we generally don’t bill for travel time from our offices to meet at the business location or home of our clients.