Breach of Employment Contract Litigation: Contract Interpretation, Materiality of Breach, Defenses, Damages

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1 Presenting a live 90-minute webinar with interactive Q&A Breach of Employment Contract Litigation: Contract Interpretation, Materiality of Breach, Defenses, Damages TUESDAY, NOVEMBER 21, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: 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. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

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3 Continuing Education Credits FOR LIVE EVENT ONLY In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you that you will receive immediately following the program. For additional information about continuing education, call us at ext. 35.

4 Dorsey Labor & Employment Breach of Employment Contract Litigation: Claims and Remedies JoLynn Markison

5 Employee Breach of Contract Claims 5

6 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) 6

7 Company Strategy: Defending Employee Claims Arbitration Clauses? Class Action Waivers? Defend? Settle? 7

8 Employer Breach of Contract Claims 8

9 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 9

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

10 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) 10

11 Breach of Confidentiality/Failure to Return Property: Why Companies Should Be Concerned Client intellectual property may walk out the door $ billion in annual losses due to trade secret misappropriation Increase of theft by employees during recession 11

12 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 12

13 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) 13

14 Questions? JoLynn Markison

15 Contracts: Are They Worth the Paper They Are Written On? D. Randle Moody, II Jackson Lewis P.C. Greenville Jackson Lewis P.C.

16 Employee Agreements are Contracts 16

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

17 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) 17

18 Employment Contracts Non-Compete Agreements Non-Solicitation Agreement Non-Disclosure/Confidentiality Agreements 18

19 Unilateral or Implied 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. 19

20 Material Breach v. Immaterial Breach 20

Defenses to Contract Claims Failure of consideration (no mutual obligation) Parole evidence (reliance on evidence outside contract to prove terms) Mutual mistake

21 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) 21

22 Contract Damages 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 22

23 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 23

24 Defenses to Contract Based Claims Meredith Kaufman Andrew Boling November 21, 2017

25 Defenses to Contract Claims At-Will Employment Void or Voidable Breach of Duty of Good Faith and Fair Dealing Failure to Mitigate Damages 2017 Baker & McKenzie Compliance Consulting LLC 25

26 At-Will Employment 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 2017 Baker & McKenzie Compliance Consulting LLC 26

27 At-Will Employment as a Defense 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 2017 Baker & McKenzie Compliance Consulting LLC 27

28 Void Contracts vs. Voidable Contracts 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 Baker & McKenzie Compliance Consulting LLC 28

29 Voidable Contracts A voidable contract can be cancelled by one or more parties for reasons such as: Capacity Duress Fraud Mistake Coercion Unconsciona ble 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 2017 Baker & McKenzie Compliance Consulting LLC 29

30 Voidable Contracts 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 (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 2017 Baker & McKenzie Compliance Consulting LLC 30

31 Mitigation of Damages 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 2017 Baker & McKenzie Compliance Consulting LLC 31

32 Mitigation of Damages Continued 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 2017 Baker & McKenzie Compliance Consulting LLC 32

33 Mitigation of Damages-Continued 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 (10 th 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 (7 th Cir. 2006)- What are the boundaries of comparable employment? 2017 Baker & McKenzie Compliance Consulting LLC 33

34 Duty of Good Faith and Fair Dealing 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 2017 Baker & McKenzie Compliance Consulting LLC 34

35 Duty of Good Faith and Fair Dealing-Cont. 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) 2017 Baker & McKenzie Compliance Consulting LLC 35

36 Thank You Andrew Boling Baker & McKenzie, Chicago Meredith Kaufman Baker & McKenzie, New York 2017 Baker & McKenzie Compliance Consulting LLC 36

Drafting Trademark Settlement Agreements to Resolve IP Disputes

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