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.
A Tennessee Liquidated Damage Clause in an employment contract addresses the potential breach of contract by an employee and outlines the compensation or damages payable by the employee in case of such breach. Such a clause serves as a pre-determined measure to estimate the losses suffered by the employer in the event of breach, considering its difficulty in accurately quantifying the actual damages incurred. The liquidated damage clause serves to provide both parties with clarity and assurance regarding their respective rights and obligations. In Tennessee, the enforceability of a liquidated damage clause depends on various factors, including reasonableness, whether it represents a genuine pre-estimate of damages, and is not an attempt to punish the employee disproportionately. The clause should be clear and unambiguous to avoid any ambiguity or misinterpretation. Types of Tennessee Liquidated Damage Clauses in Employment Contracts Addressing Breach by Employee: 1. Non-Compete Agreement Liquidated Damages: This type of clause serves to restrict the employee's ability to compete with the employer or obtain new employment within a specific geographic region for a certain timeframe, typically after the termination of employment. If the employee breaches the non-compete agreement, they may be liable to pay liquidated damages as pre-determined compensation. 2. Confidentiality Agreement Liquidated Damages: A confidentiality agreement typically restricts an employee from disclosing or using confidential or proprietary information belonging to the employer. In case of breach, a liquidated damage clause may establish the amount of compensation the employee must pay as a result of unauthorized disclosure or use of confidential information. 3. Intellectual Property Agreement Liquidated Damages: This type of liquidated damage clause applies to contracts where the employee's work involves creating intellectual property, such as inventions or computer programs, which would belong to the employer. If the employee breaches the agreement by, for example, using or disclosing the employer's intellectual property without authorization, the liquidated damages' clause would determine the compensation payable by the employee. 4. Training and Education Agreement Liquidated Damages: In certain cases, an employer may invest time and resources into training or providing education to the employee. If the employee terminates their employment or breaches the agreement before a specified period following the training, a liquidated damage clause may indicate the financial compensation due to the employer for the value of the training or education received. It is essential for both the employer and employee to carefully review and understand the liquidated damage clause and other contractual provisions before signing an employment contract. Seeking legal advice may also be beneficial to ensure that the clause aligns with Tennessee laws and is fair and reasonable to both parties.
