Likely one of the more informative and comprehensive cases to review the jurisprudential thought on liquidated damages in the school context is Arrowhead School Dist. No. 75, Park County v. Klyap, 79 P.3d 250. As Arrowhead points out, courts have inconsistently weighed different factors in cases with liquidated damages at issue. The court did provide some helpful guidelines schools should note.
• Various courts have upheld liquidated damages clauses tied to the teacher’s salary at 4% (two cases), 10%, and 15%. In Arrowhead, the court ultimately upheld the school district’s 20% liquidated damages clause; however, it did note this is a harsh amount. Id, 126
• At least one court has struck down a 25% liquidated damages clause as a penalty. Id, 126
• Schools have based damages on fixed amounts (e.g. $2,500) or prorated amounts (e.g. $200/month remaining).
Courts have the tendency to weigh different elements dif- ferently depending on the jurisdiction, and even from case to case within the same jurisdiction. Below are a list of the elements you should take note of when crafting your liqui- dated damages clause. Note that the overarching concerns are fairness and reasonableness.
• Was the clause intended to provide for a penalty or to cover the cost of finding and onboarding a new employee if the staff member terminates the agreement? (This is based on what the clause says and what the parties say the intent was.)
• Are the damages hard to determine at the time the agreement is entered into? (Schools typically win this; it is notoriously difficult to find adequate school staff mid- school year. The cost may also depend upon when in the school year the breach takes place.)
• At the time the agreement was entered into, was the liquidated damages clause a reasonable estimation of the cost? (Again, it cannot be a penalty and it should be a reasonable estimate of what the school would incur; it shouldn’t put the school in a better place financially.)
• Some courts will look at the reasonableness of the damages clause at the time of the breach as well. What was the actual cost incurred to the school at the time of the breach?
The costs associated with justifying the liquidated damages clause include:
• Paying a substitute teacher while seeking a replacement • Advertising • Administrative time interviewing and vetting applicants
• Training or onboarding—either additional paid days or costs of the onboarding program
Practical Considerations Most of these cases went through multiple rounds of litigation and appeals, with each side likely spending five or six figures to fight over small sums (a sampling of cases
© 2017 by the Association of Christian Schools International
included disputed amounts of $1,569 in 2006; $1,000 in 1996; $2,500 in 2004; $252 in 1973; and $500 in 1973). Are such clauses worth the trouble? Should they be used mainly for staff who are harder and more expensive to replace rather than across the board ?
This also leads to the issue of communication. These lawsuits were not economically based decisions: in most of these cases, regardless of who won, both sides would have lost money after paying for attorneys and the years of protracted litigation. So why the suit? The staff mem- bers likely felt unjustly treated. They may have been told something untrue about the clause they were signing; or they didn’t realize the full implications of terminating the agreement; or the separation was not a good one; or a mix of these. Regardless, if you use liquidated damages in your agreements, your staff should never be surprised when you come asking for payment.
Schools often seek ways to keep staff from leaving midyear. In the realm of legal concerns there is not a singular “silver bullet,” but liquidated damages may be one part of a larger plan to keep staff for their full contractual commitment. Ulti- mately, what will keep staff at a given school will not come down to contractual clauses; it will come down to the cul- ture, care, and individual fit of the employee and the school.
Sample Policy Language
Liquidated Damages. If the employee terminates this agreement for any reason the employee shall pay to [ABC Christian Academy] an amount equal to [percentage or listed amount] of the employee’s yearly salary as described in Section [X]. The parties intend that this liquidated dam- ages is not a penalty but is to compensate [ABC Christian Academy] for additional cost it will incur in finding a replacement for employee [optional: including costs associ- ated with, but not limited to: onboarding, obtaining and paying a substitute teacher, advertising and recruiting, dif- ficulty and additional effort in finding a qualified replace- ment likely after most qualified applicants have been hired for the school year]. The parties acknowledge and agree that the employee’s harm caused by an early termination without proper notice would be impossible or very difficult to accurately estimate at the time this agreement was entered, and that the liquidated damages are a reasonable estimate of the anticipated or actual harm that might arise from the termination. Employee authorizes [ABC Christian Academy] to deduct the liquidated damages from em- ployee’s final paycheck. [Note: some states have limitations on withholding such damages from an employee’s final paycheck unless there is a separate sign-off authorizing such withholdings.]
* The most often cited study on financial impact of teacher turnover was conducted by the National Commission on Teach- ing and America’s Future. Their major study was published in 2006/2007.
27.3 | 63
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24
