Breach of Contract: A Guide to Why It Should Be Avoided

Woman female employee worker executive tearing up a contract

Most prospects search for jobs that pique their interests and align with their specific skill sets and experience. Once they find a job that fits the criteria, they apply and get notified if the company is interested. However, the hiring process is long and arduous, often requiring examination and a series of interviews. Once the hiring stage is over, the contract negotiation phase begins.

Employment contracts are essential as they outline the responsibilities of both employer and employee during the tenure. These contracts are a sign of trust that both parties will fulfill all written obligations and duties outlined in the agreement.

However, unexpected situations may cause non-compliance, leading to breach of contract charges and numerous legal consequences. It’s best to read and understand your contract to avoid legal issues. Continue reading to learn what a breach of contract is and the steps you can take to avoid it.  More importantly, what to do if you suspect a contract has been breached. 

What is a Breach of Contract?

Written, oral, or implied contracts explain the terms and obligations concerned parties must fulfill. However, a breach of contract occurs when one of the signatories has violated or cannot complete the agreements stated in the contract. 

Not performing the obligations on a specified period, not meeting the set performance standards, or not rendering the agreed-upon services fall under breach of contract.

A breach of contract can be settled internally by discussing with the concerned parties, like your HR or managers, or filing a formal grievance. However, if it cannot be solved internally, it can also be resolved through legal means such as consulting with breach of contract lawyers. A contract can be binding and bear weight if taken to court. 

4 Ways a Contract Can Be Breached

Since contracts can have different terms and conditions, there are also various ways they can be breached. The type of violation helps determine the kind of remedies to be enforced.

1. Minor breach

A minor contract breach happens when you cannot perform a small aspect of the contract, such as rendering the services and products, but not on the agreed-upon date. However, this follows that the contract is still intact, and the non-breaching party is still obligated to perform their duties. This type of breach can arise from technical errors in the agreement, such as typos, wrong date inputs, and the like. 

For example, you were asked to turn in the report at the end of the week but couldn’t because of the amount of work you had; instead, you gave it the following week. This can be a breach since your employment contract states that you must comply with the deadlines given. You violated only one aspect of the agreement but still performed the task.

2. Material breach

A material breach of contract occurs when one or more parties receive something significantly different than what’s agreed. This can be an actionable breach where you can settle the matter through litigation. 

In this type, the damages or effects are so substantial that they essentially render the contract null and void. It means that all parties cannot carry out the agreed-upon terms. If you are the non-breaching party, you are not required to perform your duties in the agreement and have the right to ask for remedies from the breaching party.

Instances like failure to pay employees for services rendered are considered a material breach. In this case, your employer must provide you with the proper compensation and other mandated remedies.

3. Anticipatory breach

An anticipatory breach of contract is when the breaching party informs the non-breaching party that they cannot perform their obligations beforehand but after they have already entered the agreement. They announce they will not carry out their side of the bargain before the specified period.

To illustrate, you hired a contractor for your house remodeling. Both parties had already signed a contract stating each other’s responsibilities, period of construction, and other specifics. However, before the start of the duties, the contractor informed you that they could not provide the service. 

4. Actual breach

On the contrary, an actual breach of contract occurs when a signed party refuses to fulfill their part of the agreement on the specified due date. This also happens when there is complete nonperformance of obligations from the breaching party.

One example is when your employer forbids you to use the work break you were promised and entitled to as per the employment contract. This is an actual breach, as your employer failed to comply with the set agreement at the time when the contract must be performed.

Another example would be a violation of a non-compete clause that prevents you from working for a direct competitor for a certain period. If you start working for a competitor while the non-compete is still in effect, this constitutes an actual breach.

What Happens After a Breach?

1. Employer breach

When employers violate a contract, they usually compensate the non-breaching parties. Cases such as wrongful termination will result in financial reparations from employers, equivalent to what the employees would have received if the contract had not been breached. On top of that, employers may have to pay out the contract’s full price.

However, emotional distress and the like are not compensated for, provided that the nature of the breach was not harassment or discrimination experienced in the workplace.

2. Employee breach

Meanwhile, employees may face disciplinary consequences leading to dismissal if they breach their employment contract. There are even instances when employers ask for financial reparations, such as when employees violate the non-disclosure agreement, resulting in lost profits for the company.

Aside from that, breaching employees may have to pay the costs of replacing them and finishing their contract as initially agreed.

Remedies for Breach of Contract 

1. Damages

Damages are remedies or fixes that compensate the non-breaching party with monetary rewards. 

  • Compensatory damages

Compensatory damages are awarded to the non-breaching parties to make them “whole.” This means they are placed in what would have been their position if there was no contract breach. This type is further classified into expectation and consequential damages.

Expectation damages are given to the non-breaching parties to cover what they might have received if the contract had been upheld. Meanwhile, non-breaching parties receive consequential damages for reimbursements of indirect consequences, like lost profit due to the breaching party’s non-compliance.

  • Punitive damages 

At its core, punitive damages are carried out to punish the wrongdoer for fraudulent and malicious acts. Financial reparations are above more than what would compensate the non-breaching party. This serves to deter others from doing the same violation. However, this type is rarely provided in breaches concerning business contracts.

  • Nominal damages

Non-breaching parties are awarded nominal damages when there is no proven actual monetary loss because of the breach of contract. These are usually tokens or small amounts of damages to show that the court ruling side with the non-breaching party.

  • Liquidated damages

In cases where damages are too difficult to quantify, liquidated damages are already included in the contract. It should state how much the breaching party must pay in the event of non-compliance with the agreement. 

For instance, you fail to show up for work on the agreed-upon start date or choose to terminate your contract before your bond period is over. This breach of contract entitles your employer to damages that compensate them for the loss suffered by your early termination.

However, the court will not award liquidated damages if the amount is enough to be covered by punitive damages. Liquidated damages must be a reasonable estimate of the actual damage from a breach.

2. Specific performance 

A specific performance is a court-mandated, specialized remedy that is a performance of duty for the breaching party under the contract. This happens when the subject of the agreement is so rare and unique that monetary compensation cannot cover it. There may also be instances where damages resulting from a breach are difficult to determine. 

To give an example, you plan to buy a house from your friend. Both of you enter a contract stating that the friend is willing to sell the house, provided you have already paid for it. However, the friend decided not to sell the house even though you already paid for it. In this case, the courts will mandate that your friend sell the house to you as a performance remedy for breaching the contract.

3. Cancellation and Restitution

The cancellation fix relieves all parties of their obligations as the contract becomes null and void. Restitution refers to putting the non-breaching party back in their prior position before the breach.

This remedy stems from the unjust enrichment theory, where a breaching party benefits from the contract before breaking it. For this, the court gives the breaching party’s benefits to the non-breaching party. Consequently, the non-breaching party can cancel the contract and sue for restitution if the breaching party has benefited from them.

How to Fix a Breach of Contract

A breach of contract case is serious in many regards. Fortunately, practical ways exist to fix the issue before it becomes more severe. You may consider the following options when facing a breach of contract situation.

1. Review the contract 

Before taking any legal action, review the employment contract to confirm that there has been a breach. Ensure that you understand the terms and provisions of the agreement, including any remedies or dispute resolution mechanisms.

2. Air your grievances informally 

Most employee complaints need to be in writing per standard processes. However, these situations call for personal meetings. You and all parties involved can discuss and possibly settle the matter before it escalates.

3. Enlist the help of a legal professional

If the breach is severe and other remedies have failed, you may need to consider legal action. An experienced employment attorney can provide legal advice and help you navigate the legal process.

Prevention Over Cure

A breach of contract can lead to severe professional and personal consequences. For employers, one instance of violating terms can lead to legal battles that may result in fines or, worse, the company’s reputation taking a hit. As for employees accused of breaching a binding contract, it may negatively affect your current standing at your company or future employment opportunities. 

As an employee, it is essential to understand the terms written within your employment contract. Understanding the terms will ensure that you are aware of the agreements made between you and your employer.  We hope you use this blog as a guide to help you avoid breaching a contract. 

If you need legal assistance for contract disputes and other workplace issues, don’t hesitate to contact our experts at Shegerian & Associates.

Disclaimer: None of the aforementioned information should be construed as legal advice. Likewise, contacting us via our website does not constitute an attorney-client relationship. Please consult with a competent and qualified attorney to discuss your specific situation before taking action on your own.

Frequently Asked Questions Regarding Breach of Contract 

1. Can a contract be rendered voidable?

A contract might be void if certain extenuating circumstances exist. However, it is best to contact an attorney when questioning if a contract is void. 

2. What elements are necessary to prove a breach of contract?

To prove a breach of contract, you need to show a valid contract between two parties, that one party failed to perform their obligations under the agreement, and that the other party suffered damages due to the breach.

3. Can a breach of contract case be resolved without going to court?

Yes, parties can attempt to resolve a breach of contract through negotiation, mediation, or arbitration before resorting to litigation.

4. What are some remedies for a contract breach?

The remedies for a breach of contract may include monetary damages, specific performance, or cancellation and restitution. The type of remedy awarded depends on the particular circumstances of the breach and the contract involved. It is advised to consult a legal professional to further determine the remedies available. 

Manuela Varela

Relations Manager

Manuela Varela has been with Shegerian & Associates since August 2022. She is responsible for outreach and marketing on behalf of the firm and manages relationships between firms and referring attorneys. She is also responsible for developing business opportunities and affiliations. Manuela graduated from Loyola Marymount University with a degree in Economics and Political Science.