Employee signing contract

What Happens When an Employment Contract is Breached?

David H. Schwartz May 14, 2021

Most employment in California is “at-will,” meaning either employee or employer can end the relationship at any time, for any reason, or for no reason at all, so long as it’s not an illegal act like discrimination.

When an employment agreement exists between employer and employee, then the rules of the game change. Either one can be held liable for breaching the terms of the contract, the employee by not living up to responsibilities, and the employer by not adhering to terms of pay, benefits, or stipulated cause for termination.

If you’re an employer or employee in or around the San Francisco Bay Area involved in an employment contract dispute, rely on the 45 years of experience in business litigation at the Law Offices of David H. Schwartz, INC. Attorney David Schwartz will fight vigorously for your rights and strive for the optimal outcome, whether you’re employee or employer.

What Makes Up an Employment Contract?

Like any other contract, an employment contract can be written, oral, or implied by behavior and circumstances. From a legal standpoint, a written contract is the easiest to prove in court. An oral contract can be subject to the contradictory testimony of the opposing parties, who may assert that there was no contract, or if there was, it was not as the other party claims. An implied contract is even harder, especially if the term of employment is short and no established patterns can be shown.

The California Labor Code spells out the circumstances under which an employer or employee may terminate a contract. Section 2924 specifies for employers: “An employment for a specified term may be terminated at any time by the employer in case of any willful breach of duty by the employee in the course of his employment, or in case of the habitual neglect of his duty or continued incapacity to perform it.”

Employees’ rights are covered in Section 2925: “An employment for a specified term may be terminated by the employee at any time in case of any willful or permanent breach of the obligations of his employer to him as an employee.” Employer obligations generally refer to pay, benefits, and other conditions of employment.

What Constitutes a Breach?

From the above citations, it is fairly clear what might be considered a breach. If an employer, for instance, hires John on a five-year contract to run his manufacturing operation, but three years in decides to put his son in the position and terminates John without showing “willful breach” or “habitual neglect” of duty, then that would be a breach.

From the other side of the spectrum, if John gets a better job offer three years in and resigns from his position to make more money, he would be in breach unless he could show that his employer breached the obligations he had to John as an employee.

Legal Remedies to Employment Contract Breaches

If either of the two examples above went to court, or to arbitration, the result would usually be compensation for losses to either party. For instance, if John is terminated without cause, the employer would be liable for two years of wages and benefits. On the flip side, if John leaves two years before the contract is up, he would be liable for compensating the employer for the costs of hiring a replacement and for other losses incurred.

An employee terminated in breach of a contract, however, cannot just sit at home and expect the checks to roll in. Under the concept of “mitigation of damages,” the ex-employee must seek comparable employment elsewhere. If John, for instance, finds employment across town but for $2,000 a month less, his former employer would then be responsible for covering that $2,000 deficit for the remaining time on the contract.

Employers should take note, however: Employment contracts in California that aim to restrict the ability of former employees to work for competing companies will run into the state’s Business and Professions Code Section 16600, which voids any contract that limits an employee’s ability to work in his or her chosen profession. Courts have upheld employee rights in this regard except in cases where trade secrets are at issue but have often excluded customer lists as being trade secrets.

How the Law Offices of
David H. Schwartz, INC. Can Help

In its four decades-plus of helping resolve contract disputes, the Law Offices of David H. Schwartz, INC., has consistently worked to achieve the optimal outcome in the most timely and economical manner. While many disputes can be settled out of court through negotiation or mediation, if a dispute needs to go to trial, the firm will vigorously represent you and your best interests.

If you’re an employee or employer involved in an employment contract dispute in or around the San Francisco Bay Area, including San Jose, Santa Clara, San Mateo, Oakland, and Alameda County, contact the Law Offices of David H. Schwartz, INC. for help today.