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Employment contracts with end dates need to specify penalties for early departure

On Behalf of | Jul 8, 2021 | Uncategorized |

If any or all of your company’s employment contracts are for fixed terms, you need to know what options you have for taking action against a person who decides to leave before their contract has expired. 

Ideally, this is something you should think about as you’re drafting your contracts with your attorneys. Let’s take a look at some of the potential legal remedies you may want to consider including in your contracts if an employee’s departure before the end of their contract could create problems for your company.

Monetary penalties

You can stipulate that if an employee leaves before their contract is up, they will have to pay a specified amount. The easiest way to ensure this is to take it from their final paycheck. Typically, a reasonable penalty would be the amount you have to pay to hire and train another person to take over the job.

Forfeiture of bonus

Sometimes contracted employees will receive a bonus, assuming they achieved or exceeded their goals, at the end of their contract. You can include a provision in the contract that if they don’t complete it, they forfeit all or part of their bonus.

Breach of contract action

It’s typical to include verbiage in contracts regarding what constitutes a breach. If leaving the company before the end of the contract is specified as a breach, you have the right to take legal action.

Since Tennessee, like most states, has “at-will” employment, most employees aren’t under contract. It’s more common to hire independent contractors to handle projects or issues with a projected end date. However, regardless of whether the contract is with an employee or independent contractor, it’s important to consider all possibilities as you draft the contract. That’s why experienced legal guidance is crucial.