Rmployees who breach their obligations under a severance agreement may be liable for actual damages incurred by their former employers but not for refund of an amount paid as part of any severance agreement. In Hallmark Cards, Inc. v Murley, 703 F.3d 456 (8th Cir. 2013), an employee challenged a jury award of $860,000 for breaching a confidentiality provision in a $125,000 severance agreement by providing proprietary data to a competitor. The 8th Circuit Court of Appeals upheld the portion of the award of $735,000 for actual damages in favor of the former employer, but reversed as to the portion paid as severance on grounds that the breach could not apply retroactively.
Attorneys for parties receiving severance payments can point to this case in resisting efforts to recover severance payments due to a subsequent violation by employees of prospective obligations such as noncompete, nonretaliation, confidentiality, or other clauses. Employers may try to negotiate a provision in a severance agreement allowing recovery due to future breach. They also may attempt to show actual damages incurred due to such breach. But because of the difficulty of establishing those damages, they may consider including a liquidated damages clause in severance agreements.
Marshall H. Tanick
Hellmuth & Johnson, PLL