Is it possible to have an efficient breach for employment contracts?

[dstoltz]

Looking for an example of an efficient breach for employment contracts that make both parties better off economically. Don't really need details since I'm more interested in if this is just possible. I can't think of any off the top of my head. There are many examples of efficient breach in contracts but is there one for employment contracts?

Thanks,

DS

 

[army judge]

Here is an old law school outline I used many years ago.

Does this help?

I hated this then, I loathe it now!!!

Ugh!

But, to answer your query, yes; such a breach is possible in any form of contracts.

That applies to employment contracts, too.

However, there are certain employment contracts where it would not apply.

Wanna take a stab at presenting a couple examples?



Might I ask, what is your interest in this rather boring and academic topic?

This is a law review article that offers some insight into this topic.

http://llr.lls.edu/volumes/v36-issue2/mccamus.pdf

Another useful example:

http://law.scu.edu/FacWebPage/Neustadter/contractsebook/main/commentary/Compensatory damages.html

You might find this somewhat on point:

http://skepticlawyer.com.au/2009/02/13/efficient-breach-canned-by-hca/

And, yet another scholarly law review of this subject:

http://www.michiganlawreview.org/assets/pdfs/107/8/shiffrin.pdf

I gotta stop now.

This hurts me more than words can say!

EFFICIENT BREACH
I. THE THEORY OF EFFICIENT BREACH
Elements of the theory
Goal > Pareto Efficiency.
Legal rules lead 2 wealth-maximizing individuals to make pareto superior moves when available.
Where performance will cost promisor more than it will benefit promisee, contract 2 be breached.
Both parties will prefer breach if costs > damages > value and the end result after damages will be pareto superior to performance.
Promisor will prefer breach when costs > damages.
Promisee will prefer breach when damages > value.
What is efficient is not = what is individually rational—for example, transaction costs can make efficient breach no longer individually rational.
Example of effect of transaction costs on performance decisions: fee shifting UK.
Stakes go up, so settlement price will go up.
Some breaches will not occur because they will not be individually rational, despite the fact that they would be efficient.
American rule lowers the cost of nonperformance to breaching party, making efficient breach more likely.

II. PROS AND CONS OF THE THEORY OF EFFICIENT BREACH
Arguments in favor
Contracts facilitate efficiency.
Resources R allocated to those who value them the most.
Critiques of the theory
Transaction costs can be high, making it inefficient on its own terms.
Expectation damages tend to undercompensate.
Rewards individualistic, uncooperative behavior, which is socially undesirable.
Undermines laws which tend 2 promote fairness and justice.
Most people not rational & efficient economic actors.
Inadequate account of noneconomic costs to promisees of breach.