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.
In Michigan, a liquidated damage clause in an employment contract is a provision that addresses potential breaches by employees. It is intended to compensate an employer for the harm caused by the employee's failure to abide by the terms of the contract. This clause provides clarity and certainty regarding the damages that will be awarded in case of a breach, sparing both parties the need to enter into time-consuming and costly litigation. The Michigan liquidated damage clause serves as a preemptive measure to determine the amount of compensation that the employer is entitled to receive if the employee breaches the employment agreement. The amount specified in the clause is typically based on a reasonable estimate of the damages the employer may suffer due to the employee's non-compliance. There are different types of Michigan liquidated damage clauses in employment contracts addressing breaches by employees. Usually, these clauses include the following variations: 1. Specific Monetary Compensation: This type of liquidated damage clause stipulates an exact dollar amount that the employee must pay to the employer in case of a breach. For example, if an employee violates a non-compete agreement, they may be required to pay a specific sum of money as liquidated damages. 2. Calculation Based on Specific Factors: Some liquidated damage clauses in Michigan rely on predetermined formulas or calculations to determine the amount of compensation. These calculations may consider factors such as the duration of the breach, the employee's salary, or the potential financial impact on the employer's business. 3. Reasonable Estimate of Damages: In certain cases, the liquidated damage clause provides a reasonable estimate of the damages the employer is likely to incur due to the breach. The amount specified should not be excessive or penalize the employee disproportionately. Instead, it should be a fair assessment of the actual losses incurred by the employer as a result of the breach. It is important to note that Michigan courts scrutinize liquidated damage clauses to ensure they are not punitive or unreasonable in nature. If a liquidated damage clause is deemed excessive or fails to satisfy the legal requirements of reasonableness, it may be reclassified as an unenforceable penalty. Therefore, when drafting or reviewing an employment contract containing a liquidated damage clause in Michigan, it is advisable to seek legal counsel to ensure compliance with state laws and ensure the enforceability of the clause if necessary.
