Can an Employer Sue an Employee for Breach of Contract?
The short answer is Yes.
To sue for breach of contract, the employer must show:
1. That there was a contract between the employer and the employee
2. That the employee breached the contract.
To see whether there was a contract, you must first see whether the elements of a contract are present.
Elements of a contract
The elements of a contract are as follows:
Offer and Acceptance
An offer is a promise to enter a contract. Once the offer is accepted, you have offer and acceptance, the first two elements of a contract.
Consideration is a difficult concept to explain. In general, there must be a bargain, and a detriment to the person to whom the promise is made.
One well-known textbook describes consideration as follows:
“Jeff promises to sell his used television to Kristen for $100 in exchange for Kristen’s promise to pay $100. Both elements of consideration are found in this example. First, Jeff’s promise was bargained for. Jeff’s promise induced a detriment in the promisee, Kristen. Kristen’s detriment induced Jeff to make the promise. Second, both parties suffered detriments. The detriment to Jeff was the transfer of ownership of the television, and the detriment to Kristen was the payment of $100 to Jeff”
From Bar Review: Multistate, Copyright © 2007 by BarBri.
Most contracts do not need to be in writing. However, a law called the “Statute of Frauds” requires a contract to be in writing if:
· The terms of the contract say that the contract is not to be performed within one year
· It’s a contract to answer for the debt of another
· The contract is made on consideration of marriage
· It’s an agreement for a lease of real property for a period longer than one year, or
· It’s an agreement to sell real property, or an interest in real property.
The Oklahoma Statute of Frauds is available here.
However, even if the law does not require the contract to be in writing, the existence of a writing may be necessary (or at least greatly helpful) in proving evidence of a contract in a court of law.
Almost all employment situations, by their very nature, have an offer, acceptance, and consideration. Some types of employment contracts would be subject to the Statute of Frauds – particularly since many employment contracts specify that the contract is not to be performed within a year.
So, in general, that means that if an employment contract is not subject to the Statute of Frauds, or if the employment contract is subject to the Statute of Frauds and is in writing, then the employer may sue the employee if the employee breaches the contract. Of course, the reverse is also true – the employee may sue the employer.
Even if an employer and employee have an agreement and don’t call it a contract, a court may still find that there is a contract, if there is an offer, acceptance, and consideration. And, even if a contract is in writing, the written document doesn’t have to have the word “contract” written on it. As long as the document contains an agreement that is legally sufficient to form a contract, a court may find that it is a contract. Even several written documents can constitute a contract if they can show an offer, acceptance, and consideration. For example, an employer may write a letter to an employee, the employee can respond with a written letter, and the two letters may form a contract.
What happens in a breach of contract suit?
In a breach of contract suit, the court will decide:
· Whether there is a contract,
· Whether one (or both) parties have breached the contract, and
· If there is a breach, what should the remedy be?
In any lawsuit, the plaintiff (the person filing the suit) has the burden of proof. Because a contract case is a civil (that is, non-criminal) case, the plaintiff must prove his point by a “preponderance of the evidence.” That is, the plaintiff must prove that there is a 51% chance that he is correct. (This is different from a criminal case, where the prosecution must prove guilt “beyond a reasonable doubt.” For more information on the difference between a civil and criminal case, and the burden of proof, read my earlier post here.)
Defenses to contract formation
In a breach of contract suit, even if the plaintiff can show that a contract exists, the defendant may have certain defenses. Some common defenses to contract formation are:
· One of the parties is under eighteen
· The contract is contrary to public policy
· The contract is illegal
· Mental incapacity
Has the contract been discharged?
Even if a contract is valid and there are no defenses to formation, a judge may still find that certain events have discharged the parties’ obligations in the contract. Circumstances that can discharge a contract include:
· The contract has become illegal. For example, if parties agree to operate a casino, and gambling subsequently becomes illegal, the illegality discharges the contract.
· The contract has become impossible or impracticable to perform.
· The contract’s purposes have become frustrated. A famous example of frustration of purpose were the English “coronation cases” in the early twentieth century. Many people had rented hotel rooms to watch King Edward VII’s coronation in 1901. When Edward became ill and the coronation had to be postponed, many customers asked for their money back. In several cases, the court held that because the delayed coronation had frustrated the purpose of the contract (to see the coronation), the contracts were void. Although these cases are English, U.S. courts often follow the rule in these decisions, because English common law is part of American law.
If the court finds a breach of contract: What are the remedies?
One of the most common remedies for breach of contract is damages. That is, the court will order the breaching party to pay damages to the plaintiff. The method of computing the damages varies across jurisdictions, and also depends on the specific facts of each case. In employment contracts, if the employer breached the contract, courts often require the employer to pay the full contract price. If the employee breached the contract, the court will often order the employee to pay the costs of replacing the employee. That is, the court will see how much it costs to get a new employee, and subtract what it would have cost the employer if the first employee had not breached the contract. The employee may still have a right to any money earned from the work he has done.
A court will almost never order an employee to perform work. The Thirteenth Amendment to the Constitution prohibits “slavery, … or involuntary servitude.” The U.S. Supreme Court has held that ordering people to work constitutes involuntary servitude, and is too similar to slavery.
However, if the employee had an exclusive contract with the employer, a court may order an employee to refrain from doing the same work for anyone else. A well-known case here is Lumley v. Wagner, in which Johanna Wagner (Richard Wagner’s niece) had contracted to sing for Her Majesty’s Theatre. A rival theater, Covent Garden Theatre, offered Ms. Wagner more money to sing for Covent Garden. The court prohibited Ms. Wagner from singing at Covent Garden, since she had an exclusive contract to sing for Her Majesty’s Theatre. Again, because English common law is part of American law, U.S. courts often follow this reasoning.
Other types of remedies for employment contracts include:
· Canceling the contract
· Allowing the injured party to recover goods identified in the contract. If the goods are unique (for example, land, or rare artwork) the court may order “specific performance” and order the breaching party to deliver the specific goods to the injured party.
For further information on breach of contract cases, read my earlier blog post here.
Need help with an employment contract? Call the Persaud Law Office.
Contract law is an important part of employment law. The Persaud Law Office has helped many people with contractual issues. If you have run into a legal difficulty with an employment contract, the Persaud Law Office may be able to help you. Contact us today.
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