breach of employment contract litigation: contract...

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Presenting a live 90-minute webinar with interactive Q&A

Breach of Employment Contract Litigation:

Contract Interpretation, Materiality of

Breach, Defenses, Damages

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, NOVEMBER 21, 2017

Andrew (Andy) Boling, Partner, Baker & McKenzie, Chicago

Meredith Kaufman, Partner, Baker & McKenzie, New York

JoLynn M. Markison, Partner, Dorsey, Minneapolis

D. Randle Moody, II, Of Counsel, Jackson Lewis, Greenville, S.C.

R. Scott Oswald, Managing Principal, The Employment Law Group, Washington, D.C.

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Dorsey Labor & Employment

Breach of Employment Contract

Litigation: Claims and Remedies

JoLynn Markison [email protected] 612.492-6143

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Employee Breach of Contract Claims

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Most Common Allegations

Employee Claims:

• Wrongful Termination

– Term of years agreements

– Agreements allowing termination only “for cause”

• Failure to Pay Wages/Bonus/Commissions

• Failure to Pay Severance (usually dependent upon reason for termination)

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Company Strategy: Defending

Employee Claims

• Arbitration Clauses?

• Class Action Waivers?

• Defend?

• Settle?

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Employer Breach of Contract Claims

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Most Common Allegations In Breach of

Contract Claims

Employer Claims:

• Breach of Restrictive Covenants

– Non-competition

– Non-solicitation

• Customers

• Vendors

• Suppliers

• Employees

• Consultants

• Breach of Confidentiality/Failure to Return Employer Property

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Breach of Confidentiality/Failure to Return

Property: Why Companies Should Be Concerned

“Half of employees who left or lost their jobs in the last year kept confidential corporate data, and 40 percent plan to use it in their new jobs.”

What's Yours Is Mine: How Employees are Putting Your Intellectual Property at Risk, Symantec Survey (2013)

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Breach of Confidentiality/Failure to Return

Property: Why Companies Should Be Concerned

• Client intellectual property may walk out the door

– $45-300 billion in annual losses due to trade secret misappropriation

– Increase of theft by employees during recession

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Breach of Restrictive Covenants:

Why Have Them?

• Provide protection from competitors poaching employees and theft of information and relationships

• Put employees and the competition on notice

• Create right to bring claims against departing employees/consultants for breach of contract and against your competition for tortious interference with your contracts

• Immediate action/remedies when assets are threatened

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Preventing and Responding to

Employee Breaches

• Departing Employee Protocols

• Reminder of Obligations

• Cease and Desist

• Lawsuit

– TRO

– Preliminary Injunction

– Monetary Damages

– Attorneys’ Fees (for tortious interference or if provided by contract)

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Questions?

JoLynn Markison [email protected] 612.492-6143

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©2017 Jackson Lewis P.C.

Contracts: Are They

Worth the Paper They Are

Written On?

D. Randle Moody, II

Jackson Lewis P.C. | Greenville

[email protected]

864-232-7000

Employee Agreements

are Contracts

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Contract Law Applies to Employee Agreements

Elements—offer/acceptance/consideration

Offers can be express or implied

Acceptance can be through word or deeds

Consideration (something new for

something new)

Illusory contract if not supported by

consideration

Mutuality of obligation

Ambiguous contracts are not enforceable

(but can become enforceable through

undertaking)

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Non-Compete Agreements

Non-Solicitation Agreement

Non-Disclosure/Confidentiality Agreements

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Employment Contracts

Handbooks (some states have statutes)

Offer Letters

Statements

• Keep your nose clean.

• You have to work really hard to get fired here.

• We have a progressive discipline policy.

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Unilateral or Implied Contracts

Material Breach

v.

Immaterial Breach

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Defenses to Contract Claims

Failure of consideration (no mutual obligation)

Parole evidence

(reliance on evidence outside contract to prove

terms)

Mutual mistake

Frustration of purpose

(object of contract no longer viable)

Act of God (e.g., company wiped out by

hurricane)

Breach by other side (anticipatory repudiation)

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Actual damages

• Out of Pocket Losses

• Lost Profits

• Disgorgement of illegal gains

Interest on actual damages

Attorney’s fees – only if contract

grants it

No compensatory or punitive damages

Court costs

Contract Damages

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THANK YOU

With 800 attorneys practicing in major locations

throughout the U.S. and Puerto Rico, Jackson Lewis provides the resources to

address every aspect of the employer/employee

relationship.

jacksonlewis.com

Defenses to Contract Based Claims Meredith Kaufman Andrew Boling

November 21, 2017

© 2017 Baker & McKenzie Compliance Consulting LLC

Defenses to Contract Claims

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• At-Will Employment

• Void or Voidable

• Breach of Duty of Good Faith and Fair Dealing

• Failure to Mitigate Damages


At-Will Employment

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• “Employment-at-will” means the employee can be terminated for any reason; can be a good reason, a bad reason, or no reason.

• Often arises in cases of implied contract, or no contract.

• Handbooks and other employment policies

• Promises or representations


At-Will Employment as a Defense

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• Smalley v Dreyfus Corp., 10 N.Y.3d 55 (NY 2008)

• Plaintiffs claimed they relied on “no merger” promise in accepting and continuing employment, and were terminated after subsequent merger.

• Contracts clearly stated Plaintiffs were at-will employees.

• Fraudulent inducement claim reinstated by Appellate Division

• NY Court of Appeals:

• Viewed as a breach of contract case

• At-will employee cannot reasonably rely on employer’s promise not to terminate contract

• No independent injury to support a tort claim


Void Contracts vs. Voidable Contracts

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• A contract is “void” if unenforceable as a matter of law

• Has no legal or binding effect; null from the beginning

• Missing essential element of contract (e.g., no consideration)

• Illegal or contrary to public policy

• NCH Corp. v. Share Corp., 757 F.2d 1540 (5th Cir. 1985)

• Unreasonable covenants not to compete are void rather than merely voidable “because of the public policy against restraints of trade and the hardships resulting from interference with a person's means of livelihood.”


Voidable Contracts

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• A “voidable” contract can be cancelled by one or more parties for reasons such as:

• Complaining party may elect to be bound or not

• Schiavello v. Delmarva Sys. Corp., 61 F. Supp. 2d 110 (D. Del. 1999)

• After-acquired evidence of resume fraud is complete defense to breach of contract claim)

• Material issues of fact precluded summary judgment

Capacity Mistake

Duress Coercion

Fraud Unconsciona

ble


Voidable Contracts

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• Voidable contracts can be ratified, and ratification is also a defense!

• Nayak v. McNees Wallace & Nurick LLC, No. 1:15-CV-00933, 2016 U.S. Dist. LEXIS 125059 (M.D. Pa. Sep. 13, 2016)

• Individual sought to invalidate a release based on economic duress; not valid in PA

• Court also found that he ratified the release by retaining the consideration


Mitigation of Damages

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• What is the duty to mitigate?

• Any party claiming breach of contract has duty minimize the harm caused by the breach

• Same concept applies in most tort claims

• Similar obligations under most anti-discrimination statutes

• Usually plead as an affirmative defense and employer bears the burden of proof

• Defendant must show plaintiff’s failure to exercise reasonable diligence and there was a reasonable likelihood plaintiff might have found comparable work by exercising reasonable diligence


Mitigation of Damages—Continued

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• Critical issue—what is reasonable?

• Obligation to search for and accept comparable employment

• No obligation to accept just any job

• Reasonable in the context of the employee’s prior position and compensation, skills and training/educational history

• General objective is to keep plaintiff from remaining idle and doing nothing


Mitigation of Damages-Continued

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• Parker v Twentieth Century Fox 474 P.2d 689 (1970)—Case study for mitigation in context of contract breach

• What does the employer need to show?

• Praseuth v Rubbermaid, Inc. 406 F. 3d 549 (10th Cir. 2005)—Balancing what employee should have done vs. what employee did to mitigate

• Broadmax v City of New Haven, 415 F.3d. 265 (2d Cir. 2005)—Proving the defense when the plaintiff does nothing

Mattenson v Baxter Healthcare Corp., 438 F.3d 763 (7th Cir. 2006)-What are the boundaries of comparable employment?


Duty of Good Faith and Fair Dealing

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• Restatement (Second) of Contracts 205—”Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement”

• Defenses when the Plaintiff/Employee alleges breach of duty of good faith and fair dealing:

• Equal bargaining power

• Sophistication standard

• Represented by counsel in negotiation of agreement

• Absence of bad faith or ill motive—a party to the contract is not required to act altruistically


Duty of Good Faith and Fair Dealing-Cont.

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• Winshall v. Viacom Intern., Inc. 76 A.3d 808 at 816 (Del.2013)—Duty of good faith and fair dealing cannot be applied when plaintiff seeks contractual protections plaintiff failed to secure at the bargaining table.

• No obligation for defendant to surrender protections afforded by statute or under the express terms of the contract

• Standard will vary from state to state

• Delaware tends to take a dim view of this theory, as evidenced in Nemec v. Shader, 991 A.2d 1120 (Del. 2010)

• Plaintiff may have to chose between breach of contract or breach of duty of good faith and fair dealing—alternative pleading may not be available. Somers v. Somers, 613 A.2d 1211, 1214 (Pa.Super. Ct. 1992)


Thank You

36

Andrew Boling

Baker & McKenzie, Chicago

[email protected]

Meredith Kaufman

Baker & McKenzie, New York

[email protected]

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