Before we wrap up our discussion of money damages, expectation damages, liquidated damages, and the constraints on both of those doctrines, I want to offer a case that I think helps to horn our sense of what these doctrines are doing, and also gives an example of a court grappling with a very familiar employment situation. This is a case that basically asks what happens when the duty to mitigate, which is to say the doctrine of avoidability meets the rule of liquidated damages. Two doctrines coming into a crash course here, and the case is called Wassenaar vs Towne Hotel. It's the case of a Milwaukee hotel employee in the 1970s. Here is the hotel employee, is Wassenaar, and he's working at the town hotel. Here's the story, Wassenaar was hired to be a hotel manager on a three-year term. This is not at-will employment. He's hired for a three-year term and promised three years of employment. The form contract that he signed with the town hotel stipulates that if the hotel terminates the employment before the three-year term is up, it will have to fulfill its entire financial obligation. The contract says, if we the hotel fire you, we promise we will just as damages pay out the rest of the term, even if you're not working here. Indeed after, I think a little bit more than a year, he was fired. Wassenaar was fired and sued seeking damages. Now, the hotel said, "Actually, we shouldn't have to pay the amount that we promised to pay in the contract because you, our employee, have overlooked the doctrine of the duty to mitigate. In fact, in this case, you actually did mitigate. About six weeks after we fired you, you went and got a job with a pretty similar pay. Actually, it would make no sense for us to pay you for, say, 22 months of work when you were only out of work for six weeks." The hotel said, "First of all, you had to mitigate, which you did. Given the doctrine of availability, we don't have to pay you for the amount that you mitigated. We don't have to pay you for harms that you didn't suffer. You were off working for somebody else and so you actually weren't unemployed for the 22 months or whatever that were remaining on your contract with us." As a result, this impacts how we should think about the liquidated damages issue. What they said was, if you think about it, the liquidated damages clause here said that we were going to pay you for 22 months of work, which is turned out to be a ton money at the time, which is $25,000. But really you only missed a month and a half of work. Your actual losses were closer to like $1,000 or $2,000. That is a disproportionate amount of money to ask for in liquidated damages clause, and so the liquidated damages should be unenforceable as a penalty. The court says, "We have to figure out two questions in order to know the two-part test basically, in order to decide whether this liquidated damages clause is unenforceable because it's actually a penalty on the hotel." The court said there's two things. One is, how hard is it to actually calculate the harm suffered by the employee here? The difficulty of accurate estimation, the difficulties of the proof of loss. The other question is, how reasonable is this amount? How reasonable it was the parties guess about what the harm would be of early termination? The court basically said it's tempting to think that it's really easy to prove what the losses are here. We have an employee who's paid monthly and who's out of work for a defined amount of time. Let's assume the new job pays the same amount as the old job, and so actually if you think about it, you can calculate the actual loss pretty quickly. Basically out of six weeks of wages, you just figure out as weekly wages multiplied by six. The court said, "I think that would be too simplistic. I think we should take more seriously the fact that the damages are difficult to ascertain." Because think about the possible losses to an employee who's discharged early. There are the hassle factor of having to look for a new job, having to potentially do things like put a hold on various loans or maybe be late with payments for things like rent or credit card. There's the stress of unemployment, which is real, and there's potentially the loss of less tangible professional factors like reputation. Perhaps the new job isn't as good as the old job that can make it in ways that are very hard to put a number on. So the court said, "We think the damages are really difficult to ascertain in this case. We think it is hard for an employee in this case to fully prove his actual losses." Then the court said, "Okay, so what about the reasonableness of the forecast?" Because the hotel is saying this is outrageous, this is a $25,000 award for someone who lost maybe $1,500. There's really disproportionate. The court said when you look at the reasonableness of the liquidated damages number, you need to look at it from the point of view of the parties when they were actually drafting the contract and at the time of breach. The court says think about when the parties were drafting this contract, did they think this number was a reasonable one, you get paid through the end of your contract term? The answer was, yeah, they were thinking this guy's, he's going to have lost salary, there's going to be a job search to deal with. There's potentially a lower salary from a different job. There's the hit to reputation, there's the stress. In this case, the court said the stipulated damages probably seemed reasonable ex ante, which is to say at the beginning when they drafted the contract. The court says, "Actually, I don't know that they're that unreasonable now that we know the situation which is that he got a new job, I don't know how big of a deal the reputational costs and the stress costs and the hassle costs were here. Therefore, we say paying this employee the $25,000 that were promised in the contract in the event of early termination is not unreasonable as liquidated damages clause. What's interesting about this case is that the court says, who drafted this liquidated damages clause? It was the hotel. The hotel gave their employee a form contract, and one of the clauses in this form contract is a promise of job security. We've seen this before. We've seen this promise of job security in the case of Weiner vs McGraw Hill. The court says here the company didn't have to promise this job security. The hotel did not have to promise this. Had they not promised it, the only damages to Wassenaar would have been the expectation damages in the amount of his lost salary for the six weeks he was unemployed. However, in this case, town hotel did promise it, and e the court are not going to invalidate this liquidated damages clause as a penalty just because the hotel believes now that they overshot the mark of what the appropriate damages award would be. It's a court that's really sensitive to the realities or the nuances of how employment matters to the employee in all facets of their life. How employment is going to affect their overall financial picture and their professional goals moving forward. That's a case that both pushes on our intuitions and on the legal rules around the duty to mitigate, and how that interacts with liquidated damages.
