3

I came across a mention of a "no break clause" in academic contracts, i.e. a clause in working contract by which an academic is liable to a penalty if they terminate their contract before the end of a fixed term. This is not related to a compensation of relocation costs.

I wonder if this was or is legal and practicable in the U.S. and Europe? I am equally interested in historical perspective (1950s) and modern days.

  • The cleanest way to implement the goal today would be via a defined bonus if certain conditions were met, i.e., staying through the desired length of the contract. One could view it either way - leave early and have the penalty of a forfeited bonus or stay the full term and receive a bonus. Such a method would be much easier than attempting to claw-back something that was already paid. – Dave D Jul 26 '16 at 12:35
3

In contract law in the United States, this is a "liquidated damages" clause. It provides that when one side breaches the contract, it has to pay a certain amount of money to make up for it. Normally this is done where it is difficult to calculate the actual damages in the event of a breach, or where the parties would rather avoid calculating the actual damages--a common example is where you put in an earnest money deposit on a house and then forfeit the earnest money if you do not buy.

However, there are restrictions on what kind of damages are permitted. Notably, a "penalty" usually refers to an unreasonable amount that is unenforceable as against public policy. It would ordinarily be unreasonable to make someone pay a hundred million dollar penalty for breaking a ten thousand dollar contract, for example. Liquidated damages clauses frequently say "this is not a penalty" and "the parties agree this is reasonable" to make it harder to invalidate them on public policy grounds.

Instead, if the liquidated damage payment is a payment meant to reflect actual damages that are just hard to calculate, it is much more likely to be enforceable. You would need to research liquidated damages and penalties in the state whose law governs the contract to determine whether the particular clause is permissible under state law.

See https://www.google.com/search?q=restatement+of+contracts+penalty&ie=utf-8&oe=utf-8

| improve this answer | |
  • 1
    Aside from general contract law principles, it seems to me a much more specific issue here is labor law, which is likely to regulate terms that are and are not enforceable in an employment contract. For instance, if the payment of the penalty would reduce the employee's net pay to less than the legal minimum wage, I would expect that penalty to be unenforceable. At some point, laws forbidding indentured servitude would come into play. – Nate Eldredge Apr 27 '16 at 15:16

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy