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 Massachusetts Liquidated Damage Clause in an employment contract addressing breach by the employer is a contractual provision that specifies the predetermined amount of compensation an employee is entitled to receive in case of an employer's violation of the contract terms. This clause serves as a form of protection for employees in case of a breach of contract, ensuring that they are adequately compensated for any harm caused. One type of Massachusetts Liquidated Damage Clause is the Fixed Amount Clause. This clause states a specific dollar amount that the employer must pay the employee in the event of a breach. For example, it may specify that if the employer terminates the employee without cause, the employee is entitled to a fixed sum such as three months' salary. Another type is the Penalties Clause. In this scenario, the liquidated damages are calculated as a penalty, aiming to deter the employer from breaching the contract rather than compensating the employee for any actual loss. However, Massachusetts courts generally disfavor penalties clauses and are more likely to enforce a liquidated damages provision if it represents a reasonable estimate of the potential harm incurred. It is important for employers to carefully draft and negotiate liquidated damage clauses, as Massachusetts law scrutinizes their validity. Massachusetts courts employ a two-step analysis to determine if a liquidated damage clause is enforceable. Firstly, the court assesses whether the damages resulting from a possible breach were uncertain or difficult to ascertain at the time of contract formation. Secondly, the court evaluates if the amount stated in the clause was a reasonable forecast of the harm that could arise from the breach. In summary, a Massachusetts Liquidated Damage Clause in an employment contract addressing breach by the employer is a provision that establishes the predetermined compensation an employee should receive if the employer violates the contract terms. It can take the form of a Fixed Amount Clause or a Penalties Clause. Employers must carefully consider the enforceability of such clauses and ensure they are reasonable and represent a genuine estimate of potential damages.
