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Local Governments and School Districts Blog

Liquidated Damages: A Tool for Teacher Retention?

Authored by Kevin J.T. Terry
Posted on February 7, 2017
Filed under Local Governments and School Districts

A common struggle for school districts across Wisconsin is how to attract and retain quality teachers and administrative staff.  In a post-Act 10 world where districts are free to recruit the best and the brightest from their neighboring school district, administrators and school board members wrestle with how to effectively retain quality teachers and soften the blow when quality teachers leave for a higher paying job.  The first place administrators often look is to the liquidated damages provision in the teacher’s individual contract.

Liquidated damages are damages whose amount the district and the individual teacher agree upon during the formation of the individual teaching contract for the district to collect as compensation upon the teacher’s breach by resignation during the term of the contract.  Liquidated damages are not intended to be punishment for the teacher’s breach, but rather to permit the district to recover the cost of finding a replacement for the departing teacher.  Because courts have determined that specific performance, or forcing the teacher to continue under the terms of the individual teaching contract, is not an available remedy for the teacher’s breach, the liquidated damages provision identifies the agreed upon cost borne by the district upon a teacher’s breach.  The difficulty for districts is twofold:  (1) the cost to the district for a teacher’s breach is not the same for every departing teacher; and (2) while not the primary goal, liquidated damage clauses help to dissuade teachers from leaving employment and liquidated damage clauses that call for small monetary awards do not assist districts with retention. 

So what should districts consider when reviewing the liquidated damages provision in their teaching contracts?  First, it is important to know that districts are able to vary these provisions depending on the individual teacher hired.  For example, in Wisconsin, we know that it is difficult to replace quality teachers in specific fields such as technology.  Districts may want to consider raising the liquidated damage amount for those types of teachers.  Second, the district should think about how it intends to enforce this liquidated damage clause.  At times, teachers will choose to breach their current contract and accept new employment in a neighboring district even though doing so is a violation of their current contract.  Additionally, at times, teachers do not make the required payments under the liquidated damages provision.  How will your district handle this scenario? 

One option to consider is to utilize the small claims process rather than filing a lawsuit in district court.  Pursuing the collection of liquidated damages in small claims restricts district’s recovery to no more than $10,000 plus costs, however, it assures that a determination on the breach of contract claim will be reached much quicker than a traditional lawsuit.  Further, districts have had success recovering these costs in front of small claims court judges as these judges understand and are empathetic to the district’s position when a teacher breaches their contract and is not willing to pay costs he or she agreed to in the contract.

At the end of the day, districts do not have many options to combat against a teacher who is seeking employment elsewhere and who is highly valuable to the district.  The liquidated damages provision is one of a handful of tools available to districts to attempt to retain the teacher and alternatively to soften the blow of the departing teacher.  It is important for districts to review their current individual teaching contracts and assess whether the liquidated damages amount is a sufficient reflection of the costs incurred by the district when a teacher departs.  Working with legal counsel is important when amending your individual teacher contracts and if your district needs assistance, please do not hesitate to contact myself or any of the members of the School Law Group at Ruder Ware.