In the latest issue of The Wright Toolbox:
- Noncompete Agreements Now Illegal For Lower-Wage Maryland Workers – read now
- Liquidated Damages – read now
Noncompete Agreements Now Illegal For Lower-Wage Maryland Workers
Maryland is now the latest state to prohibit employers from entering into noncompetition agreements with employees who earn equal to or less than $15 per hour or $31,200 annually. This new law took effect October 1, 2019.
The bill passed both houses of the state legislature and automatically became law on May 25, 2019 when the governor did not veto the bill. The law declares that, for employees earning less than the threshold, all “noncompete [provisions] that restrict the ability of an employee to enter into employment with a new employer or to become self-employed in the same or similar business or trade” are “null and void as being against the public policy of the State.”
If you need help navigating this new law in your workplace, please contact the WCS Employment and Labor team.
Liquidated Damages are generally defined as a specific sum of money expressly stipulated by the parties to a contract, in advance, as the amount of damages to be recovered by one party for a breach of the agreement by the other. Typically, a liquidated damages provision will establish a daily rate to be paid by the breaching party for each day the breach continues. For example, a clause in a construction contract might provide for $5,000 a day in liquidated damages for every day of delay. The provision is designed to represent an estimate of the actual damages that would be suffered by the non-breaching party. The amount will generally include some factor for consequential damage, such as lost profits and revenues, loss of use, extended conditions, additional fees that might be incurred, etc.
Liquidated damage provisions are intended to be used in circumstances where actual damages resulting from delay are difficult or impossible to anticipate. They are designed to represent the parties’ reasonable estimate of such damages so that the parties can avoid efforts to attempt to prove such damages in the event of a subsequent breach. Generally, most courts, including Maryland courts, will enforce a proper liquidated damage clause. The courts embrace the “freedom of contract” approach and reason that liquidated damage clauses should be enforced because the issue of potential damages to be sustained is better left in the hands of the parties who are best able to estimate such damages and because the parties are presumed to have taken such clauses into consideration in pricing the contracts they accept.
However, as a general rule, a liquidated damages clause will be deemed to be an unenforceable penalty if it is proven that: (1) there was an intent to deter or punish the breaching party, or (2) the stipulated amount was unreasonable in relation to foreseeable actual damages at the time of the contract. Thus, some courts hold that for a liquidated damage clause to be valid: (1) the amount fixed as damages must be a reasonable forecast for the harm caused by the breach; and (2) the harm that is caused by the breach must be of a kind difficult to accurately estimate. The question of whether a liquidated damage clause will be enforced or rejected as a penalty is a question of law for the court to decide. In addition, the determination of whether a particular clause in a contract is to be construed as providing for liquidated damages, or as a penalty, will depend on the facts and circumstances in each case.
In most jurisdictions, if there is a valid liquidated damage provision, the damaged party will not be able to recover both liquidated damages and actual damages for the same breach. While the general rule is that liquidated damages and actual damages are mutually exclusive, it is important to keep in mind that actual damages may still be recovered for breaches other than those contemplated by the liquidated damages provision.
There are certain well recognized potential defenses to enforcement of liquidated damage clauses. In most jurisdictions, courts will not enforce a liquidated damages for delay clause after the date of substantial completion of the contract. In some cases, courts have held that where the contractor completely abandons the project the liquidated damage clause is not enforceable. In those cases, the courts have found that such provisions did not contemplate total abandonment and that upon abandonment the breaching party is no longer in control of the completion of the work. If the liquidated damage provision relates to delay in completion of the contract, excusable delays to the critical path outside of the control of both the contracting parties will bar enforcement of liquidated damages for that period of delay. Similarly, a liquidated damages clause is not enforceable if the delay is due to the fault of the non-breaching party or due to the fault of one for whom they are responsible for. Courts routinely recognize that where one seeking to enforce a provision for liquidated damages is responsible for the failure of performance, or has contributed in part to it, the provision will not be enforced.
Another possible defense to consider is waiver. The right to enforce a liquidated damage provision can be waived knowingly and voluntarily, either expressly or through actions or conduct. For waiver to constitute a defense the actions or conduct of the party seeking liquidated damages must demonstrate either an intent to relinquish its right to liquidated damages and/or be inconsistent with an intention to enforce that right. Waiver may result from a variety of circumstances, such as the non-breaching party’s: (1) encouragement of continued performance after breach without objection and without invoking the liquidated damages clause; (2) direction to perform extra work after the scheduled completion date; (3) failure to declare a default; or (4) failure to claim entitlement to liquidated damages prior to making final payment.
Liquidated damages can add up fast, if you need help enforcing or defending against a claim for liquidated damages contact our Construction Law Group.
To browse past issues, visit The Wright Toolbox page.