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Horton Law Firm Blog Liquidated Damages Provision in Severance Agreements

 | Liquidated Damages Provision in Severance Agreements

For some South Carolina employees who have been fired, the company will provide a severance agreement, which often contains a liquidated damages provision, along with a host of other contractual provisions that the employee must agree to. I’ve written about the contents of severance agreements and how we can help South Carolina employees negotiate those severance amounts in prior posts, but today I want to focus briefly on one particular paragraph: the liquidated damages provision. 

What is a Liquidated Damages Provision?

A severance agreement is a legal contract where the employee agrees not to sue the company for any reason (generally related to discrimination, harassment, FMLA, or pay issues, but the release covers ALL claims) in exchange for a payment of money. It functions identically to a settlement agreement for the most part, but a severance agreement might also include other provisions for COBRA payments, PTO payouts, unemployment, final pay issues, or other matters associated with the end of employment. 

Often buried in the severance agreement is the liquidated damages provision, normally located near confidentiality provisions and non-disparagement provisions. If the employee violates those provisions by telling someone how much money they received in settlement or by making negative or disparaging comments about the company, then the company would have a breach of contract claim. However, proving monetary damages can be difficult, so the company seeks to have the employee agree in advance as to exactly what the damages would be. I often see something like, “$1,000 per breach,” or something that says the employee has to pay back a certain portion of the settlement per breach.

Should a South Carolina Employee Agree to a Liquidated Damages Provision?

In negotiating severance agreements, I normally demand that they be taken out altogether. I don’t think they are necessary and can just lead to additional fights later on. If the company thinks they’ve been harmed, let them bring a lawsuit and prove it. Agreeing to liquidated damages just gives the company more leverage to cause problems for the employee later on by threatening further litigation. 

In practice, I’ve never had a case come back to me where the client did anything that the company alleged violated the agreement, although those cases certainly exist. In my experience, the employee is ready to leave the company far behind in the rearview mirror, and stirring up trouble is the last thing on their mind. 

To the extent the employee has enough leverage to force a settlement, then getting rid of the liquidated damages provision is worth pursuing. This provision, along with others I find problematic (like a waiver of a jury trial or agreeing to be sued in another state), are subject to negotiation, and having an experienced South Carolina employment lawyer on your side can be helpful. 

If you have any questions about a severance agreement, including wanting to have the agreement review as a whole, please feel free to reach out to our office to set up a confidential consultation. We’ll review the agreement together and determine whether you have a case, can it be negotiated, and what provisions need to be addressed. 


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