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Breach of Contract: A Guide to Why It Should Be Avoided

April 19, 2022

Breach of Contract: A Guide to Why It Should Be Avoided 1000 667 Shegerian Law

People tend to look for a job that aligns with their values or piques their interests. Before getting hired, they go through numerous processes, such as interviews and examinations. They move on to the employment contract signing when all is said and done.

Employment contracts are essential as they lay down the employers’ and employees’ responsibilities during the employment period. These contracts are a sign of trust that both parties will fulfill the written obligations and duties.

However, unexpected situations may cause non-compliance. You may face breach of contract charges, and numerous legal consequences may arise. It’s in your best interest to read and understand everything included in your contract to avoid any legal issues during your tenure.

Many people encounter costs and losses from a breach of contract dispute. It’s important to know what a breach of contract is and why you should avoid it at all costs.

 

What is a Breach of Contract?

Contracts lay down the terms and obligations that concerned parties must fulfill, whether written, oral, or implied. However, a breach of contract occurs when one of the signatories has violated or cannot complete the agreements stated in the contract. 

Not performing the obligations on a specified period, not meeting the set performance standards, or not rendering the agreed-upon services at all fall under breach of contract.

A breach of contract can be settled internally by discussing with the concerned parties like your HR or managers or filing a formal grievance. However, these can also be resolved through legal means, like consulting with breach of contract lawyers if they cannot be solved internally. A contract can be binding and bear weight if taken to court. 

 

4 Ways a Contract Can Be Breached

Since contracts can have different terms and conditions, there are also various ways they can be breached. The type of violation helps determine the kind of remedies to be enforced.

  • Minor breach

A minor contract breach happens when you cannot perform a minor aspect of the contract, such as rendering the services and products but not on the agreed-upon date. However, this follows that the contract is still intact, and the non-breaching party is still obligated to perform their duties. This type of breach can arise from technical errors in the agreement, such as typos, wrong date inputs, and the like. 

For example, you were asked to turn in the report at the end of the week but could not do so because of the amount of work you had and instead gave it the following week. This can be a breach since your employment contract states that you must comply with the deadlines given to you. You violated only one aspect of the agreement but still performed the task.

  • Material breach

A material breach of contract occurs when one or more parties receive something significantly different than what’s agreed. This can be an actionable breach where you can settle the matter through litigation. 

In this type of breach, the damages or effects are so substantial that they essentially render the contract null and void. It means that all parties cannot carry out the agreed-upon terms. If you are the non-breaching party, you are not required to perform your duties in the agreement and have the right to ask for remedies from the breaching party.

Instances like failure to pay employees for services rendered are considered a material breach. In this case, your employer must provide you with the proper compensation and other mandated remedies.

  • Anticipatory breach

An anticipatory breach of contract comes about when the breaching party informs the non-breaching party that they cannot perform their obligations beforehand but after they have already entered the agreement. They announce that they will not carry out their side of the bargain before the specified period.

To illustrate, you hired a contractor for your house remodeling. Both of you had already signed a contract stating each other’s responsibilities, period of construction, and other specifics. However, before the start of the duties, the contractor informed you that they could not provide the service. This can be grounds for an anticipatory breach of contract. 

  • Actual breach

On the contrary, actual breaches of contracts occur when a signed party refuses to fulfill their part of the agreement on the specified due date. This also happens when there is complete nonperformance of obligations from the breaching party.

One example is when your employer doesn’t let you use the work break you were promised and entitled to as per the employment contract. This is an actual breach as your employer fails to comply with the set agreement at the time when the contract must be performed.

Another example would be a violation of a non-compete clause or a clause in the contract that prevents you from working for a direct competitor for a certain period. If you start working for a competitor while the non-compete is still in effect, this constitutes an actual breach.

 

What Happens After a Breach?

  • Employer breach

When employers violate a contract, they usually compensate the non-breaching parties. Cases such as wrongful termination will result in the employer providing financial reparations equivalent to what the employees would have received if the contract had not been breached. On top of that, the employers may have to pay out the contract’s full price.

However, emotional distress and the like are not compensated for, provided that the nature of the breach was not harassment or discrimination experienced in the workplace.

  • Employee breach

Meanwhile, employees may be put in a disciplinary process, leading to dismissal, if they breach their employment contract. There are even instances where employers ask for financial reparations, such as when employees violate the non-disclosure agreement, resulting in lost profits for the company.

Aside from that, breaching employees may have to pay the costs of replacing them and finishing their contract as initially agreed.

 

How to Fix a Breach of Contract

Damages

Damages are a type of remedy or fixes that compensate the non-breaching party with monetary rewards. 

1. Compensatory damages

Compensatory damages are rewarded to the non-breaching parties to essentially make them “whole.” This means that they are placed in what would have been their position if there was no contract breach. This type of damages is further classified into two: expectation and consequential damages.

Expectation damages are given to the non-breaching parties to cover what they may have received if the contract had been upheld. Meanwhile, non-breaching parties receive consequential damages for reimbursements of indirect consequences like lost profits due to the breaching party’s non-compliance with the agreement.

2. Punitive damages 

At its core, punitive damages are carried out to punish the wrongdoer for fraudulent and malicious acts. Financial reparations are above more than what would compensate the non-breaching party. This serves to deter others from doing the same violation. However, this type of damages is rarely provided in breaches concerning business contracts.

3. Nominal damages

Non-breaching parties are awarded this when there is no proven actual monetary loss because of the breach of contract. These are usually token damages or a small amount of damages to show that the court ruling sides with the non-breaching party.

4. Liquidated damages

In cases where damages are too difficult to quantify, liquidated damages are already included in the contract. This usually states how much the breaching party must pay in the event of non-compliance with the agreement. 

For instance, you fail to show up for work on the agreed upon start date or chose to terminate your contract before your bond period is over. This breach of contract entitles your employer to damages that compensate them for the loss suffered by your early termination.

However, the court will not award liquidated damages if the amount is enough to be covered by punitive damages. Liquidated damages must be a reasonable estimate of the actual damage from a breach.

Specific performance 

A specific performance is a specialized remedy that is a court-mandated performance of duty for the breaching party under the contract. This happens when the subject of the agreement is so rare and unique that monetary compensation cannot cover it. Aside from this, there may be instances where damages resulting from a breach are difficult to determine. 

To give an example, you plan to buy a house from your friend. Both of you enter a contract stating that they are willing to sell the house, provided you have already paid for it. However, they decide not to sell even though you are already paid. In this case, the courts will mandate your friend to sell the house to you as a specific performance remedy for breaching the contract.

Cancellation and restitution

The cancellation fix or remedy relieves all parties of their obligations as the contract becomes null and void. Restitution refers to putting the non-breaching party back in their prior position before the breach.

This type of remedy stems from the unjust enrichment theory, where a breaching party benefits from the contract before breaching it. For this, the breaching party’s benefits are given to the non-breaching party by the court.

Consequently, the non-breaching party has the option to cancel the contract and sue for restitution if the breaching party has benefited from them.

 

Prevention is Better than Cure

Serious legal consequences may arise from a breach of contract. For employers, you may have to pay a considerable sum of money depending on the type of violation, resulting in a loss for your company. Meanwhile, employees can get discharged from their position and may have other consequences to their work life. 

Carefully studying your employment contract is vital before signing an agreement. This guides you in deciding whether to push through with it or not and will help protect your rights if you go through with it. If you need legal assistance for contract disputes and other workplace issues, you can reach out to our experts at Shegerian & Associates.

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