What Happens When an Employment Contract Is Breached? 

When the relationship between an employer and an employee is governed by a contract, both parties are expected to adhere to the agreed terms. The employment contract lets both parties – the employer and the employee – know what they can expect from their relationship, the rights they have, and the obligations they must fulfill. This provides stability and security for both parties.  

But what happens when one party breaches the agreement? A breach occurs when either party fails to abide by the terms of the agreement. This can have both legal and financial consequences for the breaching party.  

Here at McCarter | East PLLC, we serve business owners and employers who hire people to help them grow their business. We provide employers with proactive, full-service counseling and guidance, which includes drafting employment agreements, defending against breach of contract claims, and taking legal action when employees fail to honor their obligations under the contract.  

What Is a Breach of an Employment Contract?

A breach of an employment agreement occurs when either party to the contract fails to fulfill their contractual obligations. This can range from minor infractions to major violations that disrupt the workplace harmony and operations. 

There are several ways an employment contract can be breached, including but not limited to: 

• Material breach – a significant failure of one party to fulfill their obligations 

• Minor breach – a party’s failure to meet a minor promise outlined in the contract 

• Anticipatory breach – a party’s intention not to fulfill their future obligations  

Each type of breach has different implications and requires a tailored response from the employer. In any situation, employment contracts are legally binding documents, and any breach can potentially lead to legal repercussions for the breaching party. As with any other contract, when an employment contract is breached, the non-breaching party must prove the elements of a breach of contract claim.  

Examples of Employee Breaches of Contract

While there are many ways an employee may breach an employment contract, some are more prevalent than others:  

• Unauthorized absences. When an employee takes leave without prior approval or valid reason, it disrupts workflow and can strain team dynamics. 

• Confidentiality violations. Employees who share sensitive company information without permission can cause irreparable harm to the company. 

• Failure to perform duties. Failing to perform assigned duties as stipulated in the contract can include neglecting responsibilities, poor performance, or not meeting job expectations. 

Sometimes, an employee may breach a contract accidentally without realizing their actions constitute a breach.  

What Action Can Employers Take if an Employee Breaches a Contract?

If you believe your employee has breached their contract, the first thing you should do is document the breach. Gather all relevant evidence, including emails, attendance records, and witness statements if appropriate. Timely documentation will be crucial if the situation escalates to legal proceedings.  

Depending on the severity of the breach, an employer can take various actions, including:  

• Verbal or written warning 

• Performance Improvement Plans (PIPs) 

• Suspension or termination 

Each action should be proportionate to the breach's impact and follow company policies and legal guidelines. In severe cases, legal action may be necessary. Employers can seek legal remedies such as damages, injunctions, or specific performance orders. Consult with an attorney to discuss the best course of action in your particular situation.  

What Happens if the Employee Accuses the Employer of Breaching an Employment Contract?

When an employee accuses you of breaching the contract, it’s essential to take their concerns seriously. The worst thing you can do is ignore the problem. As an employer, you could unintentionally breach a contract due to: 

• Miscommunication and misunderstandings 

• Changes in business needs 

• Administrative errors 

Recognizing these common issues could help you prevent breaches from occurring. However, if you have already been accused, start by reviewing the contract and the specific allegations. Gathering all relevant documents and communications can provide clarity and help in formulating a response. You may also need to conduct an internal review, which involves:  

• Examining the employment contract in detail 

• Reviewing any changes or communications regarding the contract 

• Interviewing involved parties to understand the context 

This step can help determine if a breach occurred and what steps are needed to address it. You may also need to consider arranging a meeting with the employee to discuss their concerns and provide your perspective. This dialogue can often clear up misunderstandings and show your commitment to resolving the issue amicably, which helps prevent adversarial and costly litigation. However, before you take any steps to address the matter, it may be a good idea to consult with an attorney first. Everyone’s situation is different and may require legal counsel.  

The Potential Consequences of an Employment Contract Breach

One of the most immediate consequences of breaching an employment contract is financial liability. If found guilty, employers may be required to pay damages to the affected employee. These damages could include unpaid wages, compensation for lost benefits, and even punitive damages in some cases. Depending on the severity of the breach, the financial impact can be devastating, affecting not just the company's bottom line but also its financial stability. 

Beyond the financial costs, an accusation of contract breach can severely damage your company's reputation. In today's digital age, news of legal disputes can spread rapidly through social media and online reviews. Potential employees may think twice before joining a company known for not honoring its contracts. It could also make current employees feel insecure about their job stability, leading to a decrease in morale and productivity. 

Additionally, when an employee accuses you of breaching their contract, the legal and administrative processes that follow the accusations can disrupt your business operations. Investigations, meetings with attorneys, and court appearances can divert time and resources away from your core business activities. This distraction can lead to missed opportunities, delayed projects, and a general decline in productivity. 

Don’t Put Your Company at Risk. Get the Guidance You Can Trust

Compliance issues and contract disputes are an unfortunate reality when you operate a business and have your employees sign employment agreements. However, when a breach of contract occurs, you need to have a clear plan of action to defend yourself, as an employer, against the accusations or hold the breaching employee responsible for failure to fulfill their contractual obligations. And, our attorneys at McCarter | East PLLC may be able to help you in both scenarios. Schedule a free consultation with our team and let’s discuss your situation.