Personnel Series – Liquidated Damages

This blog post is the ninth in our series of posts on Spring Personnel Decisions. It will cover the ins and outs of imposing liquidated damages on contracted personnel that seek an early release from their contract.

A contract for employment, like any other contract, operates as a legally binding promise on the part of the individuals or entities involved. That is, one party promises to do something under a certain set of conditions, and in exchange the other party promises to do something else under another set of conditions. In the context of teachers or administrators, it is the employee promising to work for the district for a set period of time and comply with the district’s rules, and the district promising to pay the employee a set sum. Once signed by both the employee and the district, these promises can only be broken in certain instances.

One of those instances is when both the employee and the district mutually agree to terminate the contract. Despite what some employees seem to think, they cannot simply walk away from their contract. Instead, they must request that the district release them from their contract. If the district agrees, then the legal term for what occurs is a “mutual termination” of the contract. The district, however, is not required to grant the employee’s request. It can say no, and then force the employee to choose between either finishing their work under the contract or abandoning/breaching the contract. If the employee chooses to abandon the contract, the district’s only remedy is to seek revocation of the employee’s teaching certificate. More and more though, we are seeing districts add a new remedy to help discourage both abandonment of a contract and requests for early release.

This remedy comes in the form of liquidated damages, which in the legal world means a previously agreed upon sum that will be paid as damages for breaching a contract because the actual damages are too difficult to calculate. What districts are doing then is requiring any employee under contract that seeks to be released from the contract before the end of its term to pay a set sum before the district will agree to mutually terminate the contract. Notably though, there is no statutory authority under Missouri law that specifically authorizes districts to utilize this type of remedy. That’s not to say that it’s legally prohibited. Districts can do this; but the lack of statutory guidance can cause districts to land in hot water (legally speaking) when trying to force an employee to pay liquidated damages. To help avoid this, we recommend that certain steps be taken.

Step 1 – Include the Liquidated Damages Requirement in Board Policy

The first step to help ensure that your district is preserving its right to impose liquidated damages is to specifically include it in Board Policy. The best place to do this would be in your Board Policy covering resignations. The language itself should: make it clear that the Board is preserving its right to refuse a request to break a contract; state what reasons the Board considers sufficient to release an employee from their contract; identify what the damages represent (i.e., the costs of finding a suitable replacement, training expenses and other disruptions); and, state what the damages amount will be. The actual damage amount can be a flat rate, can gradually increase relative to the date the resignation is received, or can be a percentage of the employee’s remaining compensation if he or she had completed the contract. The Board has a lot of discretion in choosing what the damages will be, but including this language in Board Policy will ensure that all contracted employees are given notice of it. Additionally, if the next step isn’t followed, then it provides a backup of sorts as long as the employee’s contract requires him or her to comply with all Board Policies.

 Step 2 – Include the Liquidated Damages Requirement in the Contract

The next step, and probably the most obvious one, is to include the liquidated damages requirement in all employee contracts. The language used should mirror what is put in your district’s Board Policy, so as to prevent a situation where the Policy is different than what is contained in the contract. We see this happen quite frequently, especially when it comes to the actual amounts, and it can create an issue in trying to impose the higher amount of liquidated damages or impose liquidated damages at all. By including the language in the contract though, the employee will not be able to argue that he or she had no notice of the liquidated damages requirement, since it was specifically included in the contract. While only including the language in the Policy itself will likely be sufficient, adding it to the contract will more effectively allow your district to impose the liquidated damages, and having the requirement in both Policy and the contract is the recommended approach.

Step 3 – Apply the Liquidated Damages Requirement Consistently

The final step to ensuring that your district is preserving its right to impose liquidated damages is to apply the requirement consistently. This can be done first by including the requirement in all employee contracts, rather than in just a select few. It is important to note though that for those teachers that are already tenured and under a permanent contract, the District will not be able to impose the liquidated damages requirement on them. Permanent contracts can only be modified in two ways, and adding liquidated damages to the contract is not one of them. For everyone else though (i.e., probationary teachers and first-year permanent teachers), the requirement can be included.

The second way to consistently apply the requirement is to not waive the liquidated damages for some employees while imposing it on others. We recognize that there are times when the district would rather waive liquidated damages – like if an employee is moving away to care for a sick relative. Unfortunately though, if a district waives liquidated damages for that employee, but imposes it on another, then the district is potentially exposing itself to a claim of illegal discrimination. To avoid this situation, the requirement should be applied to all employees seeking to break a contract with the district. However, your district can include in the Board Policy and contract language a list of situations where the district will waive liquidated damages, and thereby give the district more discretion in choosing when to impose liquidated damages.

There you have it; 3 easy steps to giving your district an additional remedy when an employee breaks a contract – include a liquidated damages requirement in Board Policy, include the same liquidated damages requirement in the contract, and apply the requirement consistently.

If you have any questions regarding liquidated damages, or any other personnel matter, please feel free to contact any of our team members at EdCounsel.