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 employer would have to prove the actual damages.
Title: An In-depth Look at New Jersey's Liquidated Damage Clause in Employment Contracts Addressing Breach by Employee Introduction: In an employment contract, it is crucial to include provisions that address the consequences of a breach by the employee. One such provision, specific to the state of New Jersey, is the Liquidated Damage Clause. This clause is designed to address potential breaches and the resulting financial damages suffered by the employer. In this article, we will delve into the various types of New Jersey Liquidated Damage Clauses included in employment contracts and their significance in protecting employers' interests. Types of New Jersey Liquidated Damage Clauses: 1. General Liquidated Damage Clause: A General Liquidated Damage Clause is the most common type found in employment contracts. It defines a predetermined amount of damages that the employee agrees to pay the employer in the event of a breach, such as a violation of non-compete or non-disclosure agreements. The predetermined amount serves as compensation for the potential loss suffered by the employer due to the employee's breach. 2. Damages for Unauthorized Use of Proprietary Information or Trade Secrets: This type of Liquidated Damage Clause focuses specifically on the unauthorized use or disclosure of proprietary information or trade secrets by the employee. It outlines the amount the employee is liable to pay the employer as compensation for any harm caused by such actions. This clause is particularly critical when protecting a company's intellectual property. 3. Liquidated Damages for Early Termination of Contract: In some cases, an employment contract may have a specific duration or a termination notice period. If an employee unilaterally terminates the contract prematurely, it can cause financial harm to the employer. To safeguard against such instances, a Liquidated Damage Clause can be included to outline the damages due to an early termination and to compensate for any disruption caused to the employer's business operations. 4. Liquidated Damages for Breach of Non-Solicitation Agreements: A Non-Solicitation Agreement prohibits an employee from soliciting the employer's clients or recruiting colleagues for a certain period of time following the termination of employment. If the employee breaches this agreement, it can result in significant financial harm to the employer. A Liquidated Damage Clause in this context establishes the predetermined amount of damages that the employee must pay as compensation for the breach. Importance and Enforceability: Including a Liquidated Damage Clause in an employment contract is essential for both the employer and employee. It provides clarity and objectivity regarding the potential damages in case of breach. However, it's important to note that New Jersey courts subject Liquidated Damage Clauses to strict scrutiny. For such clauses to be enforceable, they must represent a reasonable forecast of likely harm and not function as a penalty. Conclusion: The New Jersey Liquidated Damage Clause in employment contracts plays an integral role in addressing breaches by employees. By incorporating specific types of Liquidated Damage Clauses, employers can protect their interests, compensate for potential damages, and deter employees from violating contractual obligations. However, it is important to consult with legal professionals to ensure the reasonableness and enforceability of these clauses under New Jersey law.
