Opinion ID: 886354
Heading Depth: 2
Heading Rank: 3

Heading: The Arrowhead-Klyap Teaching Contract

Text: ¶ 58 Having determined that unconscionability will guide our review of liquidated damages issues, we now address the case at bar. Unlike employee wage claims for liquidated damages, see Stewart v. Region II Child & Family Servs. (1990), 242 Mont. 88, 94, 788 P.2d 913, 917 (citing § 39-3-407, MCA, and § 39-3-206, MCA), we have never addressed a liquidated damages clause in a personal service contract in Montana. Accordingly, we will consider analogous clauses that have been addressed in other jurisdictions. See DeWerff, 626 P.2d at 1208. ¶ 59 Under the unconscionability perspective, we first look to whether or not the clause at issue is a contract of adhesion such that the weaker bargaining party had no meaningful choice regarding acceptance of the provisions. Iwen, ¶ 31. This rule incorporates the liquidated damages inquiry into whether or not the parties actually negotiated the clause and whether the parties attempted to estimate anticipated damages. In this case, the School, like most employers, is the more powerful bargaining party. This is demonstrated by the fact that the teachers did not unionize, by the fact that there were 80 applicants for Klyap's position, and by the fact that the School presented Klyap with a form contract with his salary inserted into a fill-in-the-blank space. But cf. Ryan v. Orris (1983), 95 A.D.2d 879, 463 N.Y.S.2d 883 ($35,000 liquidated damages clause in doctor's employment contract was enforceable in part because parties freely negotiated the terms); Ashcraft & Gerel v. Coady (2001), 244 F.3d 948, 954-55 ($400,000 liquidated damages provision in attorney's employment contract enforceable). ¶ 60 Further, there is nothing of record to indicate Klyap had a meaningful choice regarding acceptance of the 20% of salary liquidated damages provision. Indeed, it appears that this provision was inserted on a take it or leave it basis. As discussed above, an employer offering a personal services contract usually prefers performance over contract damages because the particular employee's performance is the whole point of the contract. This is especially true with a teaching contract. Resignations that are submitted by teachers and that are to be effective during the academic year obviously present severe problems for school administrators. They impose instructional problems for students and vexing difficulties for the administration in obtaining qualified replacements. Arduini II, 65 Ill.Dec. 281, 441 N.E.2d at 77. Had Klyap attempted to negotiate the liquidated damages provision to a lower amount, the School would likely have rejected his proposal and simply hired a different teacher because the School would always prefer performance over contract damages. In addition, we doubt that most teachers not represented by a union have the wherewithal to negotiate at arms length with a Board of Trustees or superintendent in order to significantly change contract terms. Therefore, the clause in this case qualifies as a contract of adhesion. ¶ 61 We note at this point that our holding in Weber could be interpreted to require remand to the District Court because the contract at issue here is a form contract and there was no evidence of negotiation between the parties. However, unconscionability does not require that form contracts are automatically unacceptable. Rather, such contracts are only unconscionable if the terms are not within the reasonable expectation of the party who had no opportunity to negotiate. ¶ 62 Accordingly, we turn to the second, and more difficult, question of whether the liquidated damages clause in Klyap's contract was within Klyap's reasonable expectations or was unduly oppressive to Klyap. This inquiry incorporates the liquidated damages inquiry into whether or not the clause is in terrorem to force performance rather than estimate acceptable damages, whether damages were difficult to fix, and whether the liquidated damages approximated actual damages. See John Jay Esthetic Salon, Inc. v. Woods (La.Ct.App.1983), 435 So.2d 1051, 1052 ($25,000.00 liquidated damages for hairdresser struck as penalty because employer took advantage of vastly superior bargaining power to set figure so unrealistic and unreasonable that it cannot be considered a good faith pre-estimate of probable damages.) ¶ 63 Our review of cases from other jurisdictions indicates that such clauses in teaching contracts have almost always been enforced as reasonable. See DeWerff, 626 P.2d at 1208-10 (clause required payment of a lump sum of $400 plus $75 per month of school year remaining in 1978 on any salary amount); Bowbells Pub. Sch. Dist. v. Walker (N.D.1975), 231 N.W.2d 173, 174 (clause required 4% of salary or $252 in 1973); Bottineau Pub. Sch. Dist. v. Zimmer (N.D.1975), 231 N.W.2d 178 (clause required $500 in 1973 on any salary); National Educ. Ass'n v. Lee County Bd. of Pub. Instruction (Fla.1972), 260 So.2d 206 ($100 liquidated damages negotiated as part of end to work stoppage); Arduini I, 49 Ill.Dec. 460, 418 N.E.2d at 106 (4% of salary or $716 in 1979). In fact, our research found only one case in which a clause was struck down as unreasonable. Independent Sch. Dist. v. Dudley (1923), 195 Iowa 398, 192 N.W. 261 (clause that amounted to $200 or 25% of salary struck as unconscionable penalty in 1923). ¶ 64 Further, the School in this case introduced other teaching contracts in Montana with liquidated damages clauses to show the clauses are within the reasonable expectations of teachers in Montana. These contracts included an Ashland teaching contract with a 15% clause, a Havre teaching contract with a 10% clause, and a Willow Creek contract with a $350.00 clause. School staff also testified that the clause was included in the Arrowhead contract at the recommendation of a representative of the Montana School Board Association who also testified. However, there was no testimony regarding how the specific figure of 20% was chosen. ¶ 65 As is evident from the above cases and the other Montana contracts introduced as evidence, none of the enforced liquidated damages provisions go as high as 20% of a teacher's salary. In contrast, the Dudley case struck a 25% of salary clause as a penalty. Therefore, we must determine where Klyap's 20% clause falls in the spectrum of reasonable expectations. ¶ 66 In doing so, we note that the normal rule governing employer damages for breach by an employee is that an employer is entitled to the cost of obtaining other services equivalent to those promised under the contract. Med + Plus Neck & Back Pain Ctr. v. Noffsinger (2000), 311 Ill.App.3d 853, 244 Ill.Dec. 712, 726 N.E.2d 687, 691. In contrast, if it is more efficient for an employee teacher to breach a contract in order to take other employment, thus fulfilling the principle of efficient breach, nothing prohibits that teacher from doing so. See Handicapped Children's Educ. Bd. v. Lukaszewski (1983), 112 Wis.2d 197, 332 N.W.2d 774, 779 (efficient breach by a teacher); Myers-Goldberg Neckwear Co. v. Grossman (1912), 167 Mo. App. 722, 151 S.W. 163, 164 (defendant quit for the sole reason that he was offered employment at a higher rate by another concern.). ¶ 67 Consequently, it was within Klyap's reasonable expectations to compensate the School for the costs of obtaining a teacher who would provide services equivalent to his own. It was also within Klyap's reasonable expectations that he agree to a contract that would be reasonably economically feasible to breach and pay a sum certain in order to end the contract. ¶ 68 After reviewing the facts of this case, we hold that while the 20% liquidated damages clause is definitely harsher than most, it is still within Klyap's reasonable expectations and is not unduly oppressive. First, as the School pointed out during testimony, at such a small school teachers are chosen in part depending on how their skills compliment those of the other teachers. Therefore, finding someone who would provide services equivalent to Klyap at such a late date would be virtually impossible. This difficulty was born out when only two applicants remained available and the School hired a teacher who was less experienced than Klyap. As a teacher, especially one with experience teaching at that very School, Klyap would have to be aware of the problem finding equivalent services would pose. ¶ 69 Second, besides the loss of equivalent services, the School lost time for preparation for other activities in order to attempt to find equivalent services. As the District Court noted, the School had to spend additional time setting up an interview committee and conducting interviews. Further, the new teacher missed all the staff development training earlier that year so individual training was required. And finally, because Klyap was essential to the sports program, the School had to spend additional time reorganizing the sports program as one sport had to be eliminated with Klyap's loss. These activities all took away from the other school and administrative duties that had been scheduled for that time. Further, as the District Court concluded, loss of equivalent services and lost time are types of damages impractical and difficult to quantify. Again, because Klyap was a teacher and because he initiated parts of the sports program, it was within his reasonable expectations to know the School would suffer these types of difficult to prove damages as a result of his departure. ¶ 70 Finally, although the School testified it had an intent to secure performance and avoid the above damages by reason of the clause, as discussed above, such an intent does not turn a liquidated damages clause into a penalty unless the amount is unreasonably large and therefore not within reasonable expectations. Given that Klyap would understand the importance of a teacher committing to employment for at least the duration of a school year in order to give students continuity and given that the School's probable damages were within Klyap's reasonable expectations, we conclude that the 20% of salary figure was within Klyap's reasonable expectations as an estimation of damages the School would incur. ¶ 71 Therefore, because as a teacher Klyap would know teachers are typically employed for an entire school year and would know how difficult it is to replace equivalent services at such a small rural school, it was within Klyap's reasonable expectations to agree to a contract with a 20% of salary liquidated damages provision for a departure so close to the start of the school year. ¶ 72 In sum, although Klyap had no meaningful choice regarding the liquidated damages provision, the clause itself is still not unconscionable because the 20% amount was within Klyap's reasonable expectations as a teacher familiar with the employment needs of the School and the damages the School would suffer upon breach of the contract. Accordingly, we hold the District Court correctly determined that the liquidated damages provision was enforceable.