An employment contract may state the amount of liquidated damages to be paid if the contract is breached. Upon a party's breach, the other party will recover this amount of damages whether actual damages are more or less than the liquidated amount.
If the agreed-upon liquidated damage amount is unreasonable, the Court will hold the liquidated damage clause to be void as a penalty. If the Court declares the clause to be void, the employee would have to prove the actual damages.
A liquidated damage clause in an employment contract addressing breach by an employer is a crucial component designed to protect employees in Hawaii. This contractual provision sets forth the predetermined amount of compensation an employee will receive in the event of a breach by the employer. The purpose is to provide a fair and reasonable estimate of the damages an employee might suffer due to the employer's breach, thereby avoiding the need for lengthy litigation and uncertain damages awards. In Hawaii, there are different types of liquidated damage clauses that employers may incorporate into employment contracts when addressing employer breaches. The following are the main types: 1. Fixed Amount Liquidated Damages Clause: This clause stipulates a specific dollar amount that the employer will pay the employee in case of a breach. The agreed-upon sum should represent a reasonable estimate of the damages the employee would incur if the employer fails to fulfill its contractual obligations. Employers often use this type of clause when the potential damages are relatively easily calculable, such as for unpaid wages or wrongful termination. 2. Percentage of Contract Value Liquidated Damages Clause: In some situations, it may be challenging to determine an exact dollar amount for potential damages related to a breach. In such cases, the employment contract may include a clause that establishes damages as a percentage of the total value of the contract. This approach ensures that the damages align with the overall value of the agreement while providing some flexibility when quantifying specific losses. 3. Mitigation Requirement Liquidated Damages Clause: This type of clause places an obligation on the employee to mitigate their damages and minimize any losses resulting from the employer's breach. It usually includes requirements for the employee to actively seek alternative employment or engage in reasonable efforts to mitigate the financial impact. Failure to adhere to such requirements might result in a reduction of the damages awarded. 4. Maximum Limit Liquidated Damages Clause: To protect employers from excessively burdensome damage claims, an employment contract may contain a liquidated damages' clause that sets a maximum limit on the amount of damages an employee can claim for a particular breach. However, it is important to note that in Hawaii, courts are inclined to review such clauses carefully, ensuring they do not unduly restrict an employee's rights or provide inadequate compensation. Hawaii's liquidated damage clauses in employment contracts addressing breaches by employers offer necessary protections for employees. Employers should carefully consider the specific circumstances of their industry, the nature of their breach, and the potential damages at stake when drafting these clauses to ensure fairness, reasonableness, and compliance with Hawaii labor laws.
