Penalty or Damages?: A Case Against Liquidated Damages

Clauses in Georgia Teacher Employment Contracts1

By Ann E. Blankenship, J.D., Ph.D.

Assistant Professor

The University of Southern Mississippi

Prepared for the Education Law Association 61st Annual Conference

1 Note: this is a draft of a working paper. All references may not be in proper Bluebook format.

Please do not cite to this document.

1

I. Introduction

As one school year comes to a close, school districts must immediately begin assessing their

faculty and staff needs for the following year. From mid-May to mid-June, a shift occurs where

teachers leave jobs in one district to accept jobs in another. This requires delicate maneuvering

because generally a teacher cannot be under contract in two districts at once but a teacher does

not want to let go of one position until they have secured a new one.

It is in this context that the DeKalb County School District (DCSD) in Georgia incorporated a

$750 liquidated damages provision into its 2014-15 teacher contract, arguing that the number of

teachers moving to other districts was leaving them unprepared to serve its students in the fall.2

However, attempted enforcement of the liquidated damages provision and other district actions

prompted two teachers to file suit, claiming that the provision, as it was enforced, constituted a

breach of contract and implied good faith and fair dealings. Specifically, plaintiffs note that

DeKalb County contract renewal, which generally happens in mid-May, was pushed up nearly

six weeks, forcing teachers to make difficult and uninformed decisions regarding their job

options in early April. As stated in the Complaint, the district reminded teachers of the

liquidated damages provision and threatened ethics sanctions against teachers who later sought

release from their contracts.

A liquidated damages provision is not unique to DeKalb County. Surrounding counties in

Georgia have similar provisions in their contracts, as do many districts across the country.

Liquidated damages provisions ranging from a few hundred dollars to several thousand dollars

2 Add numbers from the testimony

2

have gone unchallenged and have in some cases been upheld by state courts. Liquidated

damages provisions are permissible when they represent fair and reasonable attempts to fix

appropriate compensation for anticipated damages, particularly in cases where actual damages

may be difficult to calculate. Conceptually, a liquidated damages provision could serve to

recoup damages suffered when a teacher resigns right before a new school year begins, or even

in the middle of the summer. However, in DeKalb County, it appears that they were attempting

to apply the liquidated damages provision to teachers who were strong armed into renewing their

contracts in early-April and resigned before June 1, making any damage to the district minimal at

best. Furthermore, DeKalb County repeatedly referred to the liquidated damages provision as a

“penalty” and threatened to report offending teachers to the Professional Services Commission

for failure to adhere to the terms of their contracts.

In this paper, the author will outline the facts specific to the case in DeKalb County, Georgia and

evaluate each cause of action.3 Using the DeKalb County School District as an example, the

author will discuss the broader implications of liquidated damages provisions, their purpose, and

how they are being used in teacher contracts today. Specifically, the author will review the three

types of liquidated damages provisions most used in teachers’ contracts. Finally, the author will

discuss the possible implications on both theory and practice for education practitioners,

scholars, and attorneys.

II. Research Questions and Methodology

3 Complaint, Bettis v. DeKalb County School District, No. 14A528776 (DATE).

3

This study examines current litigation in Georgia, state and federal case law, and a sampling of

teacher employment contracts to answer the following research questions: (1) What law governs

the use of liquidated damages provisions in teacher employment contracts, (2) What kinds of

liquidated damages provisions are most frequently included in teacher employment contracts,

and (3) What lessons can be learned from the litigation in Georgia about how to best use

liquidated damages provisions to protect the interests of both teachers and school districts with

the ultimate goal of improving student achievement.

In this study, the author used the “law in context” method of legal research. Compared to black

letter law, law in context is a relatively new method of legal research. Growing out of the post-

realist legal academy, it focuses on problems in society that may be solved in whole or in part by

law or policy.4 Also called socio-legal research, it incorporates social science methods,

including both qualitative and qualitative analysis, with more traditional legal research methods.5

The goal is to "explain legal phenomena (though not necessarily all legal phenomena) in terms of

their social setting."6 As a result, research conducted using the law in context method both

informs legal practice and examines how the law operates in context.

Law in context relies on traditional legal research resources, in the form of constitutions, statutes,

legal opinions, and legal scholarship. Specifically, the research included in this study includes a

review of the following evidence: (i) all court filings, deposition transcripts, documents, and

4 Tracey E. George, An Empirical Study of Empirical Legal Scholarship: The Top Law Schools,

81 Indiana L. J. 141, 144 (2006).

5 Id. at 144-45.

6 Id. at 145.

4

evidence for Bettis v. DeKalb County School District7; (ii) Georgia court opinions on the use of

liquidated damages in employment contracts; (iii) state and federal court opinions found by

searching the internet and WESTLAW on the use of liquidated damages in employment

contracts; and, (iv) a review of 50 teacher employment contracts that include liquidated damages

provisions from across the nation. The resources were analyzed, organized, and then reassembled

to create a coherent framework, providing orderly and cohesive look at how liquidated damages

provisions are being used in school districts across the country and the possible implications.

III. The Georgia Case

A. Facts of the Case as Plead

Each spring, public schools districts in Georgia issue teaching contracts for the following school

year. Georgia law requires that school districts must notify teachers of renewal or non-renewal

of their teaching contracts no later than May 15th

.8 If the teacher elects not to accept the contract

extension, he or she must notify the local school board in writing no later than June 1st.9 If a

teacher abandons his or her contract without prior release from the employer after June 1st, the

7 Complaint, Bettis v. DeKalb County School District, No. 14A528776 (DATE).

8 O.C.G.A. § 20-2-211(b) (2014). The law further requires that, “Such contracts…shall be

complete in all terms and conditions of the contract, including the amount of compensation…and

shall not contain blanks or leave any terms and conditions of the contract open.” Id. If the

district fails to notify the teacher of renewal or non-renewal status on or before May 15th

, the

teacher’s employment is automatically renewed for the following school year.

9 Id.

5

teacher is in violation of Georgia law and Standard 8 of the Georgia Code of Ethics for

Educators.10

School districts seeking to hire new teachers generally do so at the end of the school year (May

and June), when they have had a chance to assess their hiring needs for the following school

year. Therefore, during this time, teachers are moving in and out of school districts, resigning

from one school district to accept a position with another school district. Vacated positions are

quickly filled by new teachers entering the system or veteran teachers moving into the district.

However, DCSD sought to control this process after a negative experience leading into the 2013-

14 school year. In a hearing in front of the DeKalb County Board of Education, the chief human

resources officer for DCSD, Dr. Ward-Smith explained that going into the 2013-14 school year,

500 or more teachers requested a release from their contracts. Of those 500, 400 were granted a

release and the remaining 100 who were not were expected to adhere to the terms of their

contracts. According to Dr. Ward-Smith, approximately 50 teachers failed to show up on the

first day of the 2013-14 school year.11

Consequently, Superintendent Michael Thurmond chose

10

Cite to the Code of Ethics, retrieved from http://www.gapsc.com/Rules/Current/Ethics/505-6-

.01.pdf. Furthermore, Georgia law prohibits teachers from being under contract with two school

districts at the same time.

11 Transcript of Working Session, DeKalb Schools Board of Education, April 1, 2014, retrieved

from http://view.earthchannel.com/PlayerController.aspx?&PGD=dekalbschga&eID=177 (add

cite to actual lines and reformat)

6

to include a liquidated damages provision into the 2014-15 DCSD teacher contracts.12

Pursuant

to the liquidated damages provision in the 2014 contracts, teachers who terminated their

contracts after the prescribed period (May 5th

that year) were subject to a $750 penalty which

would be subtracted from their final paycheck for the 2013-14 school year and possible sanctions

from the Professional Services Commission.13

DCSD allowed four circumstances under which

teachers would be released from their contract without penalty: promotion, new marriage,

moving at least 50 miles from DeKalb County, or severe illness.14

Approximately 6300 DeKalb County teachers15

were provided contracts in March, well before

most school districts were advertising open positions for the following school year. DCSD

educators were given a deadline of April 4th

to return their signed contracts in order to keep their

12

Cite to transcript, p. 15. In his testimony to the DeKalb County Board of Education,

Superintendent Thurmond made it very clear that the adoption of the liquidated damages

provision was his decision, not a decision of the school board.

13 Cite to contract

14 Dr. Tekshia Ward-Smith 30(b)(6) Deposition, 83:15 – 83:22, July 23, 2015. Note that the

Georgia Professional Standards Commission will not sanction a teacher for abandonment of

contract after June 1st if s/he gives at least a two week notice and the resignation is because of a

personal health problem (or family medical problem that requires the teacher’s full time care); a

documented spousal relocation out of a reasonable commuting distance; or a documented

promotion. FAQs, GEORGIA PROFESSIONAL STANDARDS COMMISSION,

http://www.gapsc.com/Ethics/FAQ.aspx#4 (last visited Sept. 17, 2015).

15 Cite to hearing transcript

7

tenure, six weeks prior to the statutory mandate for notice of non-renewal. Plaintiffs Chayka

Bettis and Leslie Hein were both teachers in the DeKalb County School District for the 2013-14

school year.16

Both women signed and returned their teaching contracts for the 2014-15 school

year. However, both later resigned (prior to June 1st) to accept positions in neighboring districts

the better served their particular family needs. The women each discussed their situation with

their principal, filed the appropriate paperwork, and requested a release from her contract. Ms.

Bettis and Ms. Hein submitted their resignation paperwork on May 8 and May 14, 2014

respectively. Each received a letter shortly thereafter denying their request for release from their

2014-15 contracts because their new positions were lateral moves. The letter indicated that any

breach of contract constituted a violation of the Georgia Code of Ethics and their teaching

contract, triggering the liquidated damages provision.

Both women chose to leave the district and $750 was deducted from their final paycheck for the

2013-14 school year. They sought counsel from an attorney which ultimately led to the lawsuit

at hand. Plaintiffs filed suit against the district and district officials for breach of contract and

implied good faith and fair dealing.17

These causes of action are discussed below. The lawsuit

survived defendants’ Motion to Dismiss but both sides are expected to file Motions for Summary

Judgment.18

16

Complaint, Bettis v. DeKalb County School District, No. 14A528776 (DATE).

17 Id.

18 Note that, pursuant to Georgia case law:

Determining whether a liquidated damages provision is enforceable is a question of law

for the court, which necessarily requires the resolution of questions of fact. At trial the

8

B. Breach of Contract

Plaintiffs argue that Defendants breached their teaching contracts for the 2013-14 school year by

withholding $750 from their final paycheck as liquidated damages associated with the 2014-15

contract.19

They contend that the liquidated damages provision was invalid and unenforceable;

as such, in the absence of a severability clause, their contracts for the 2014-15 school year were

invalid.20

Further, Plaintiffs argue that they fulfilled the terms of their 2013-14 contract and

Defendants had no legal basis for withholding the $750 from their final paycheck.

burden is on the defaulting party to show that the provision is a penalty, but this burden

does not arise at the summary judgment stage. To obtain summary judgment, the moving

party must show there is no genuine issue of material fact as to the three factors set out

[in Southeastern Land Fund v. Real Estate World, 237 Ga. 227, 227 S.E.2d 340 (1076)]

and that the undisputed facts warrant judgment as a matter of law. To obtain summary

judgment, a defendant need not produce any evidence, but must point to an absence of

evidence supporting at least one essential element of the plaintiff’s claim. Our review of a

grant of summary judgment is de novo, and we view the evidence and all reasonable

inferences drawn therefrom in the light most favorable to the nonmovant.

Nat. Svc. Indus., Inc. v. Here to Serve Restaurants, 695 S.E.2d 669 (Ga. 2010). See also, JR

Real Estate Dev., LLC v. Cheeley Inv., L.P., 709 S.E.2d 577 (Ga Ct. App., 2011)

19 Complaint, Bettis v. DeKalb County School District, No. 14A528776 (DATE). See also,

Plaintiffs’ Response to Defendants Motion to Dismiss, Bettis v. DeKalb County School District,

No. 14A528776 (Dec. 8, 2014).

20 GA. CODE ANN. § 13-1-8 (West 2015).

9

Plaintiffs’ breach of contract claim hinges on the claim that the liquidated damages provision in

the 2014-15 contract is invalid and unenforceable. Pursuant to Georgia law, “If the parties agree

in their contract what the damages for breach shall be, they are said to be liquidated and, unless

the agreement violates some principal of law, the parties are bound thereby.”21

To determine

whether a liquidated damages provision is enforceable, Georgia courts look at three factors:

“First, the injury caused by the breach must be difficult or impossible of accurate estimation;

second, the parties must intend to provide for damages rather than for a penalty; and third, the

sum stipulated must be a reasonable pre-estimate of the probable loss.”22

If a liquidated damages

provision does not satisfy all three factors, it may be ruled invalid and unenforceable.23

Thus far,

Plaintiffs have focused their attacks on the second and third factors.

i. Penalty

Plaintiffs contend that the liquidated damages provision was intended to be a penalty rather than

a reimbursement for damages. Georgia law stipulates, “whether a provision represents liquidated

damages or a penalty does not depend upon the label the parties place on the payment, but rather

21

GA. CODE ANN. § 13-6-7 (West 2015)

22 Southeastern Land Fund, Inc. v. Real Estate World, Inc., 227 S.E.2d 340, 343 (Ga. 1976),

quoting John Calamari & Joseph Perillo, THE LAW OF CONTRACTS, 367 (St. Paul, MN: West

1970). “[W]here the amount plainly has no reasonable relation to any probable actual damage

which may follow the breach,’ the contractual provision will be construed as an unenforceable

penalty.” Miazza v. Western Union Tel. Co., 178 S.E. 764, 765 (Ga. Ct. App. 1935). See also,

Prime Business Investments v. Peacock, 364 S.E.2d 106, 107 (Ga. Ct. App. 1987).

23 Id.

10

depends on the effect it was intended to have and whether it was reasonable.”24

Therefore, while

there are appear to be several instances in which agents for DCSD, acting in their professional

capacity, referred to the liquidated damages provision as a penalty,25

the Georgia court will look

further, at the intended consequence of the provision.

The intent of the liquidated damages provision, as argued by the Plaintiffs, was to deter teachers

from breaching their employment contracts for the following year. Under Georgia law, “[w]here

a designated sum is inserted into a contract for the purpose of deterring one or both of the parties

from breaching it, it is [a] penalty.” Georgia law provides little guidance as to what constitutes a

sufficient deterrence to a breach of contract. In what appears to be some circular language, one

Georgia appellate court indicated that a liquidated damages provision will be considered a

penalty used to deter a breach of contract if the “liquidated damages are unreasonable and there

is no difficulty ascertaining future damages.”26

That forces the focus to shift to the third factor

24

Id. See also, Caincare, Inc. v. Ellison, 612 S.E.2d 47 (Ga. Ct. App. 2005); Turner v. Atlanta

Girls Sch., Inc., 653 S.E.2d 380, 382(Ga. Ct. App. 2007); Pierre v. St. Benedict’s Episcopal Day

Sch., 750 S.E.2d 370, 375 (Ga. Ct. App. 2013)

25 In particular, in a hearing with the DeKalb County School Board, Superintendent Thurmond

noted, “[T]he real focus on this is that we want all of our outstanding, highly qualified teachers

and certified employees to come back next year.” Dr. Tekshia Ward-Smith 30(b)(6) Deposition,

79:10-79:13, July 23, 2015.

26 Jefferson Randolph Corp. v. Progressive Data Systems, Inc., 553 S.E.2d 304, 308 (2001), cer.

granted, rev’d 568 S.E.2d 474, reconsideration denied, cert. denied, 538 U.S. 922, vacated in

part 574 S.E.2d 394.

11

for analyzing liquidated damages provisions: the reasonableness of the liquidated damages

provision as a pre-estimate of loss.

ii. Reasonable Estimation of Loss

The first and third factors of the analysis both focus on the relationship between the liquidated

damages and the actual damages. Damages must be difficult to estimate but the liquidated

damages sought should be a reasonable estimate of loss. Concurrent analyzation of these two

ideas may prove challenging, and even contradictory. First, the court must consider whether

actual damages can be practicably assessed. If it is difficult or impossible to estimate actual

damages, a liquidated damages provision may be appropriate. In this case, Defendants may

argue that actual damages may be difficult to calculate because so many employees are involved

in the hiring process. Bringing in a late hire may require the attention of many employees, from

top administrators, such as the principal or superintendent, to human resources personnel. While

hiring new employees may be part of their typical job duties, having to attend to an emergency

hiring situation may require attention to be diverted from ongoing projects. While an employer

surely uses resources to fill positions at the last minute, it may be difficult to calculate actual

damages based on the amount of time spent on a particular hire by several employees. Other

costs associated with new hires may include advertising (website, newspaper, radio) and hosting

and/or attending job fairs.27

These expenses may be done periodically throughout the year,

rather than for one position, making the cost per new teacher hired more difficult to calculate.

27

See Dr. Tekshia Ward-Smith 30(b)(6) Deposition, 110:1 – 112:25, July 23, 2015.

12

While Defendants may argue that the above referenced factors make it difficult to calculate

actual damages, they may use the same factors to prove that the liquidated damages provision is

a reasonable estimate of damages suffered. In fact, Defendants claim that the actual cost to

replace a teacher who has abandoned their contract is approximately $3,500.28

After calculating

their estimated actual cost, Defendants compared that amount with liquidated damages

provisions from neighboring districts, which ranged from $500 to $1,250. DCSD concluded that

$750 would help off-set the costs associated with filling teaching positions left vacant between

contract periods but would not overburden teachers.29

It will be left to the court to determine if actual damages would, in fact, be difficult or impossible

to calculate. Based on the fact that Defendants were able to calculate estimated damages of

$3,500, the court may find that the liquidated damages fails on the first prong of the test.

However, if they agree with the Defendants argument that these are only general estimates and

actual damages would be far more challenging to assess and prove, the court will move on to the

other prongs. Particularly, the court will consider if the liquidated damages provision is a

reasonable estimate of damages. Here, it appears that the liquidated damages represents an

arbitrary number with relation to the actual estimate of damages. That it is more in-line with

neighboring districts may not be relevant. While it may be an arbitrary number, it is much less

than the estimated $3,500 figure; a judge may find that by reducing the cost born by the teacher,

DCSD has made the amount requested more reasonable.

28

Id. at 110:24-112:7.

29 Id. at 123:8-124:11.

13

If the court concludes that, as a matter of law, the liquidated damages provision meets the three

factors set out in Southeast Land Fund,30

the liquidated damages provision will survive the

breach of contract claim. However, if the court concludes that damages resulting from the

breach of contract can be reasonably calculated, the parties intended the liquidated damages

provision to provide act as a penalty rather than providing for damages, or the amount set-out in

the provision was not a reasonable pre-estimate of loss, the court grant Plaintiffs’ Motion for

Summary Judgment.

B. Implied Covenant of Good Faith and Fair Dealing

The Plaintiffs’ second cause of action is breach of the implied covenant of good faith and fair

dealing. They claim that Defendants’ alleged breach of the 2013-14 contract as described above

also constituted a breach of implied good faith and fair dealings. Generally, Georgia courts will

enforce written contract provisions as written, even if it is unfavorable for one of the contracting

parties.31

The court may not decide whether the parties to a contract should exercise particular

privileges or obligations reserved in the contract.32

The purpose of the good faith and fair

dealing covenant is:

[T]o prevent parties from taking opportunistic advantage of each other in a way that

could not have been contemplated at the time the contract was drafted. Thus, only that

30

Southeastern Land Fund, Inc. v. Real Estate World, Inc., 227 S.E.2d 340, 343 (Ga. 1976).

31 Westinghouse Credit Corp. v. Hall, 144 B.R. 568, 576 (S.D. Ga. 1992).

32 Id.

14

which is not regulated by the contract or resolved explicitly by the parties should be done

in such a way as to show good faith in carrying out of what is expressed.33

The court will find no breach of the covenant where a party to a contract has done what he or she

has the express right to do under the contract.34

Thus, the implied duty to good faith and fair

dealings cannot create duties or obligations in conflict with the express terms of the contract.35

Therefore, whether Defendants’ breached the covenant of good faith and fair dealings rests on

whether the liquidated damages provision is valid and enforceable. If the court determines that

the liquidated damages provision survives the three-factor test discussed in the previous section,

then Defendants’ enforcement of the liquidated damages provision was their right under the

express terms of the contract. If, however, the liquidated damages provision is deemed invalid,

then Defendants’ enforcement of the provision may constitute a both a breach of contract and a

breach of the covenant of good faith and fair dealings.

C. Restraint on Trade

While not originally plead in the Complaint, in their Response to Defendants’ Motion to

Dismiss,36

Plaintiffs contend that the liquidated damages provision constitutes a restraint on

33

Id. See also, Fulton Nat’l Bank v. Willis Denney Ford, Inc., 269 S.E.2d 916 (Ga. Ct. App.

1980); kham & Nate’s Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351 (7th

Cir. 1990).

34 Robin v. Bellsouth Adver. & Pub. Co., 471 S.E.2d 294, 296 (Ga. Ct. App. 1996).

35 Willis v. First Data Pos., Inc., 526 S.E.2d 198, 201 (2000), rev’d on other grounds, 546 S.E.2d

781 (2001), vacated, 553 S.E.2d 319 (2001).

15

trade, in violation of Georgia law.37

The Georgia Code states, “A contract that is against the

policy of the law cannot be enforced. Contracts deemed contrary to public policy include but are

not limited to…Contracts in general restraint of trade, as distinguished from contracts which

restrict certain competitive activities….” The Georgia Constitution also speaks to restraint of

trade, noting, “The General Assembly shall not have the power to authorize any contract or

agreement …which may have the effect of or which is intended to have the effect of defeating or

lessening competition, which is hereby declared to be unlawful and void.”38

Generally, when considering a restraint on trade, courts look at whether parties were permitted to

compete freely in the marketplace. While this typically applies to the provision of goods and

services to the public, Georgia courts have considered whether provisions in teachers’

employment contracts which restrict their movement from one district to another constitutes a

restraint on trade. In Austin v. Benefield, the court considered the constitutionality of funding

provisions in teachers’ contracts when the legislature does not have the money to fully fund

teacher contracts.39

It noted, “It has long been held that an onerous contractual provision in

restraint of a person’s trade or profession is illegal and cannot be enforced.”40

While the court

36

Plaintiffs’ Response to Defendants Motion to Dismiss at 10-11, Bettis v. DeKalb County

School District, No. 14A528776 (Dec. 8, 2014).

37 GA. CODE ANN. § 13-8-2(a)(2) (West 2015).

38 Ga. Const. Art. 3, § 6, para. V (West 2010).

39 230 S.E.2d 16 (Ga. Ct. App. 1976).

40 Id. at 19; Rakestraw v. Lanier, 30 S.E. 735 (Ga. 1898). The court further noted that if the

contract were severable, the illegal provision could be severed from the contract without

16

did not rule on the restraint of trade cause of action, it did indicate that it may be appropriate in

these circumstances.

Georgia courts have recognized the problems associated with restraint on trade since the

nineteenth century. In Rakestraw v. Lanier, the Georgia Supreme Court noted:

[I]t is certain that contracts in unreasonable restraint of trade are contrary to public

policy, and void because they tend to injure the parties making them; diminish their

means of procuring livelihoods and competency for their families; tempt improvident

persons, for the sake of present gain, to deprive themselves of the power to make future

acquisitions and expose them to imposition and oppression; tend to deprive the public of

services of men in the employments and capacities in which they may be most useful to

the community as well as to themselves; discourage industry and enterprise, and diminish

the products of ingenuity and skill; prevent competition, and enhance prices, and expose

the public to all the evils of monopoly.41

Whereas a restraint of trade may render a contract void (or at least a contract provision),

restrictive covenants are permissible as partial restraints of trade, and will be upheld it “the

restraint imposed is not unreasonable, if founded on valuable consideration, and is reasonably

necessary to protect the interest of the party in whose favor it is imposed, and does not unduly

rendering the entire contract invalid. Note that the Austin court did not rule on the restraint of

trade cause of action because the contract’s restraint-of-profession provision was not before the

court in that case. Id.

41 Rakestraw, 30 S.E. at 738.

17

prejudice the interests of the public.”42

Whether the restraint imposed by the provision of the

employment contract is reasonable is a question of law for the court.43

The court may consider

three elements in determining reasonableness: duration, territorial coverage, and scope of

activity.44

Based on the facts of the case as presented in the parties’ pleadings and motions, it appears that

the circumstances under which the parties’ entered into the contract, rather than the contract

provisions themselves, may have been the actual restraint on trade. DCSD issued contracts to

their teachers on March 24, 2014, weeks before other school districts. While Georgia law only

sets a deadline by which all offers of employment must be made, by issuing contracts so early in

the season, teachers were forced to make decisions about the following school year with little or

no information regarding other job opportunities. In fact, there were no job opportunities posted

in neighboring school districts as of April 1, 2014.45

As a result of some funding issues, DCSD pays teachers with similar qualifications and

experience approximately much less than neighboring school districts. For example, teacher

with a bachelor’s degree and ten years of experience make $12,000 less in DeKalb County than

42

McAlpin v. Coweta Fayette Surgical Associates, P.C., 458 S.E.2d 499, 501 (Ga. Ct. App.

1995).

43 Id. See also, W.R. Grace & Co. v. Mouyal, 422 S.E.2d 529 (Ga. 1992).

44 Id. See also, W.R. Grace & Co. v. Mouyal, 422 S.E.2d 529 (Ga. 1992).

45 Dr. Tekshia Ward-Smith 30(b)(6) Deposition, 225:11-226:3, July 23, 2015

18

they do neighboring Atlanta Public Schools.46

Furthermore, DeKalb teachers were making less

money than they had previously made for the same job because of cutbacks and furloughs. As a

result, the salary information included in the teachers’ contracts were in the form of daily rates

rather than yearly rates, making it more difficult for DCSD teachers to understand and compare

the offer to other opportunities.47

Finally, from the communications that were sent out to teachers, it appears that DCSD was using

the threat of sanctions as a way to keep teachers from leaving the district. Teachers were forced

to either sign the new contract by April 4, 2014 or risk losing their tenure status.48

If they did

sign those contracts and then ask for a release after May 5th

, teachers were faced with

enforcement of the liquidated damages provision and DCSD tuning them in to the PSC for

abandonment of contract. While the facts are somewhat in dispute, it does appear that on one or

more occasions, DCSD, or representatives therefor, told teachers that they could be reported for

abandonment of contract and face losing their teaching license if they resigned, even before the

June 1st date noted in the PSC guidelines.

49

46

Cite to transcript. James McMahon (DeKalb County Board of Education Member, Vice

Chairman of the DeKalb Board of Education) 7:9-7:22

47 Dr. Tekshia Ward-Smith 30(b)(6) Deposition, 241:19-242:24, July 23, 2015. DCSD first

included daily rates rather than yearly salaries in their contracts for the 2013-14 school year. As

indicated above, they experienced a higher than antic pated number of requests for release from

contracts that year.

48 Id. at 226:19-226:22.

49 Id. at 281:22-287:19.

19

D. Conclusions about the Georgia Case

Plaintiffs are waging an uphill battle. Liquidated damages provisions are a common inclusion in

teachers’ contracts in Georgia. Plaintiffs do not appear to have a clear cut argument for any of

the causes of action. The law itself does not favor the Plaintiffs’ case. However, as with many

cases, the outcome will depend on the judge and whether he is swayed by the agreed upon facts

in this case. The facts paint DCSD in a negative light. From the timing of the contracts to the

threats of sanctions, it seems clear that DCSD was trying to keep its teachers from moving to

other districts using any means possible. The DCSD Superintendent indicated that the liquidated

damages provision was meant to protect the district against teachers who resigned in the 11th

hour, leaving students without teachers on their first day of class. However, applying this

provision to teachers who requested release from their contract in mid-May, giving the district

months to fill their positions, seems to be in conflict with the districts goals. Additionally,

because hiring for the district generally occurs in May and early June, it seems that those two

positions might have been filled at the same time the district did all of its hiring, making the

actual damages suffered as a result of Ms. Bettis and Ms. Heins’ resignations negligible.

Regardless of the outcome of this case, DCSD would be wise to revisit the inclusion of the

liquidated damages provision in their teacher contracts. When other districts are offering greater

resources and opportunities, a liquidated damages provision may not be enough to dissuade

teachers from leaving. Furthermore, the $750 is only a small part of the estimated cost to replace

a teacher. DCSD must weigh whether the amount earned in liquidated damages is worth the

possible damage to teacher morale and trust.

IV. Liquidated Damages

20

A. Overview of Case Law

Generally, courts are inclined to carry out the intentions of parties to a contract unless there is

some fatal flaw. Liquidated damages provisions are permissible when they represent fair and

reasonable attempts to fix appropriate compensation for anticipated damages as they may save

the parties to a contract the time and expense of litigating the issue of damages.50

Liquidated

damages are particularly useful when actual damages are uncertain or difficult to estimate or

measure.51

Such provisions will be enforced as long as “the amount stipulated for is not so

extravagant, or disproportionate to the amount of property loss, as to show that compensation

was not the object aimed at or as to imply fraud, mistake, circumvention or oppression.”52

The

fact that the actual damages are shown to be more or less than the contractually agreed upon

amount does not render a liquidated damages provision void. However, a liquidated damages

provision is not intended to be a penalty used to spur performance.53

Both federal and Georgia

state case law agree that the parties must agree that the liquidated damages are to provide for

damages rather than a penalty.

The party challenging the liquidated damages provision bears the burden of proving that it is

void or unenforceable.54

The Federal Circuit Court of Appeals noted, “That burden is an

50

DJ Mfg. Corp. v. United States, 86 F.3d 1130, 1133 (Fed. Cir. 1996).

51 Priebe & Sons v. U.S., 332 U.S. 407, 411 (1947).

52 Wise v. United States, 249 U.S. 361, 365 (1919). See also, United States v. Bethlehem Steel

Co., 205 U.S. 105, 121 (1907).

53 Kothe v. R.C. Taylor Trust, 280 U.S. 224 (1930); Priebe & Sons v. U.S., 332 U.S. 407 (1947)

54 Jennie-O Foods, Inc. v. United States, 580 F.2d 400, 411 (Ct. Cl. 1978).

21

exacting one, because when damages are uncertain or hard to measure, it naturally follows that it

is difficult to conclude that a particular liquidated damages amount or rate is an unreasonable

projection of what those damages might be.”55

While some courts may be wary of liquidated

damages provisions, they are almost always upheld in federal courts. In the few instances in

which liquidated damages clauses were invalidated, it was clear at the time of contracting that a

breach would not result in damages56

or that enforcement of the provision would be against

public policy.57

Few challenges to liquidated damages provisions to teachers’ contracts make it to state appellate

or supreme courts.58

With a single exception, courts have upheld liquidated damages provisions

55

DJ Mfg. Corp, 86 F.3d at 1134. See also, Restatement (Second) of Contracts § 356 cmt. B

(1981) (“the greater the difficulty of either proving that loss has occurred or of establishing its

amount with the requisite certainty…the easier it is to show that the amount fixed is

reasonable.”)

56 Priebe & Sons, Inc., 322 U.S. at 413.

57 Kothe v. R.C. Taylor Trust, 280 U.S. 224 (1930) (The contract as issue in Kothe included a

provision that directed in the case of lessees bankruptcy, the lessor would be entitled to recover

damages for the breach in the amount equal to the rent due for the remaining term of the lease.

The court found this liquidated damages policy to be void because it was “contrary to the

purposes of the Bankruptcy Act.”) Id. at 226-27.

58 This review does not include trial court rulings because they are not controlling authority in

subsequent cases. Furthermore, the author only reviewed state appellate and supreme court cases

that were published in the Westlaw database.

22

in teacher contracts. For example, in Bowbells Public School District No. 14 v. Walker59

, the

Supreme Court of North Dakota, the court upheld a liquidated damages provision, noting:

We are not unmindful of the fact that this is a public contract and that it is the public as a

whole that suffers when such a contract is breached. In this respect, this case is not

unlike those cases in which a governmental body liquidated the amount of damages it

may recover for a delay in the performance of a public construction contract. Although

the damages suffered by the governmental body itself may be readily ascertainable, the

damages sustained by the public are not readily ascertainable, and, on such basis,

liquidated damages provisions are generally upheld….60

This sentiment was reflected in subsequent cases, in North Dakota and beyond.61

Is it important

to note that the facts in all of these cases are also strikingly similar. While the actual amount of

59

231 N.W.2d 173 (N.D. 1975).

60 Id. at 176.

61 See, for example, Arduini v. Bd. of Educ. of Pontiac Twp. High. Sch., Dist. 90, Livingston

Cnty., 441 N.E.2d 73 (Ill. 1982); Arrowhead School District v. Klyap, 79 P.3d 250 (Mont. 2003);

Bd. of Educ. of Talbot Cnty., v. Heister, 896 A.2d 342 (Md. 2006); Bottineau Pub. Sch. Dist. No.

1 v. Zimmer, 231 N.W.2d 178 (N.D. 1975); City of Fargo v. Case Dev. Co., 401 N.W.2d 529

(N.D. 1987). The Kansas Court of Appeals actually quoted Bowbell (from North Dakota) in a

1981 opinion, stating:

[W]e cannot ignore the interruption to the school system and the resultant debilitating

effect such interruption has upon the learning process of students in the school system.

The possibility that the replacement teacher who was obtained may be less experienced

23

the liquidated damages sought varied, each of the teachers at issue in the case resigned from his

or her position just before the a new school year began, leaving very little time for the school

district to find a replacement.

There was one case in which a state court ruled a liquidated damages provision to be

unreasonable and unenforceable. The liquidated damages provision at issue in Foreign

Academic and Cultural Exchange Services, Inc. v. Tripton62

was part of a foreign teacher

recruiting contract, which provided that, in the event of a breach, the recruiting company “would

be entitled to an award including, but not limited to, monetary damages in an amount not less

than $36,000.”63

A Romanian teacher was recruited to teach in South Carolina as part of the

or less qualified and, thus, a less effective instructor must also be considered in the

assessment of damages. It would not be possible at the time of contracting to foresee all

these elements of damage that may occur. Even if known, it would be extremely

difficulty to evaluate these damages on a monetary basis. These losses to the public are

no less the proper subject of a liqudated-damage provision than are the losses sustained

by the public in the delay-of-performance situations. In either case, the damage to the

public is real, although most difficult to evaluate. Such damages are not legally

compensable but constitute a public injury which the school district was entitled to

consider.

Unified Sch. Dist. No. 315, Thomas Cnty. v.DeWerff, 626 P.2d 1206, 1210 (Kan. Ct. App.

1981).

62 715 S.E.2d 331, 272 Ed. Law Rep. 658 (2011).

63 Id. at 333.

24

Mutual Educational Cultural Exchange Program; she failed to return to Romania for at least two

years after the contract expired, in breach of the recruiting contract. Consequently, the recruiting

company sought damages of $36,000, pursuant to the liquidated damages provision.64

The court

ruled that the provision was penalty and it was “unenforceable because $36,000 is plainly

disproportionate to any probably damage resulting from respondent’s failure to return home.”65

This case is certainly an outlier. The facts are unusual in that the case involved a recruiting

contract and a teacher from a foreign country. Also, the damages sought were so much greater

than in most other liquidated damages cases. As a result, this case does not provide much

guidance. However, it does indicate that there are some limits to when and how a liquidated

damages provision may be imposed.

B. Liquidated Damages Provisions in State Contracts

As part of this study, the author reviewed teachers’ contracts that were publicly available using

an internet search.66

This is, by no means, an exhaustive review of liquidated damages provisions

in teacher contracts. It is simply meant to be a snapshot of provisions publically available to

identify trends in liquidated damages provisions.

64

Id.

65 Id. at 334.

66 For this study, the author reviewed over 50 teachers’ contracts from 11 states (Alaska,

Arizona, Georgia, Illinois, Iowa, Kansas, Missouri, New Hampshire, North Dakota, South

Dakota, Texas, and Wisconsin). North Dakota, South Dakota, and Wisconsin had the highest

number of teachers’ contracts with liquidated damages provisions available to the public on-line.

25

i. Calculation of Liquidated Damages

Districts that choose to include liquidated damages provisions in their contract, generally use one

of three particular models for damages: (1) a specific dollar amount that appears to have some

relationship to calculated damages; (2) a set dollar amount that may not have any relationship to

specifically calculated damages; or (3) a percentage of the teacher’s salary. Of the contracts

reviewed, only two, one in Georgia and one in Wisconsin included a liquidated damages

amounts so specific as to signal that they have some relationship to a calculated sum of damages.

For example, the liquidated damages provision for Rockdale County Public Schools in Georgia

sets the damages for breach of contract at $2,104.2667

and Central Westosha School District in

Wisconsin sets the damages for breach after August 1st at $1,837.

68 Forty-two of the districts

have a set dollar for breach of contract, ranging from $10069

to $4,000.70

Finally, seven school

districts calculate liquidated damages based on a percentage of the breaching teacher’s salary.71

67

Rockdale County Public Schools, Teacher Contract, 2014-15

68 Central Westosha School District, Teacher Contract, 2014

69 Greenfield School District, Wisconsin, Teacher Contract, 2014 ($100 penalty for breach of

contract from June 1-July 1)

70 Metlaketla School District, Alaska, Teacher Contract, 2013-14. The district has a graduated

liquidated damages provision ($2,000 for breaches before June 1; $3,000 for breaches from June

1-30; $4,000 for breaches after June 30). Note that $4,000 for liquidated damages may be

considered reasonable in districts that have a particularly difficult time filling vacant teaching

positions. In urban distracts with teacher surpluses, a court may find the same liquidated

damages provision unreasonable.

26

Furthermore, the great majority of districts used a graduated liquidated damages provision,

meaning that the damages for breach of contract increased over time, as the new school year

became more imminent. Only 15 of the 30 school districts had one set amount or rate that

applied regardless of when the breach occurred. This supports the argument that damages occur

and/or increase as it gets closer to the new school year because most quality teachers have

accepted positions earlier in the summer.

ii. Timing

71

Park Forest Heights School District, Illinois, Teacher Contract, 2012 (4%); Butler County

Special Education Board of Education, Kansas, Teacher Contract, 2014-15 (4% of salary if

breach occurs after August 1); McLouth Unified School District, Kansas, Teacher Contract,

2014-15 (10% of combined base/supplemental salary if breach occurs after August 1); Minot

Public School District, North Dakota, Teacher Contract (1% of salary if breach occurs from June

1-30, 3% of salary if breach occurs from July 1-31; 5% of salary if breach occurs on or after

August 1); West Fargo Public School District, North Dakota, Teacher Contract 2013-15 (5% of

salary if breach occurs two weeks before the first day of school or anytime thereafter);

Litchville-Marion School District, North Dakota, Teacher Contract 2013-14 (5% of salary);

Northland Pines School District, Wisconsin, Teacher Contract, 2015-16 (2% of salary if breach

occurs from June 16-July 15; 5% of salary if breach occurs from July 16-August 15; 10% of

salary if breach occurs after August 16). Note that two of the districts (McLouth Unified School

District (KS) and Butler County Special Education Board School District (KS) both have set

liquidated damages amounts until July 31 and then switch to percentage of teacher salary

damages on August 1.

27

Of the districts reviewed, a majority (60%) did not seek liquidated damages for breaches of

contract that occurred prior to June 1.72

Thirty-eight percent did seek damages for breaches

occurring before June 1 (or did not specify particular dates of application).73

Three school

districts (6%) leave the amount of damages sought to the discretion of the school board, variable

based on the time of the breach.74

V. Implications for Practice

While liquidated damages have been used in teacher employment contracts for decades, they

have become increasingly popular of late. In a policy environment where teachers are being

“continually denigrated by prominent politicians, conservative critics and the mainstream

72

Two Wisconsin districts do not apply liquidated damages provisions to teachers who request

release from the next year’s contract prior to the end of the current school year. This date will

change from year to year based on the school schedule. See, Madison Teachers Inc., Wisconsin,

Teacher Contract 2014-15; School District of Rhinelander, Wisconsin, Teacher Contract, 2011.

73 Unified School District #440, Kansas, Teacher Contract, 2014-15 allows for the collection of

liquidated damages from 14 days after the contract execution date. Depending on when the

contract is signed, this may be before or after June 1st.

74 Kansas City Board of Education, Kansas, Teacher Contract, 2011-12; Mandan Public Schools,

North Dakota, Teacher Contract, 2012-13; Mukwonago Area School District, Wisconsin,

Teacher Contract, 2012.

28

media,”75

it is imperative that school districts and administrators work with teachers to create

collaborative learning and working environments. Each of these stakeholders are working

towards the same goal – improved educational experiences for students. While districts should

take measures to ensure that all classes are led by highly qualified teachers at the start of each

new school year, they can do so without alienating teachers in the process. The litigation

currently pending against the DCSD can serve as a lesson for school districts and school boards

moving forward. In particular, districts should be cognizant of how and when to apply liquidated

damages so they operate to compensate districts for damages associated with last-minute

resignations rather than penalties.

The increased inclusion of liquidated damages provisions in teacher contracts is not an isolated

issue. Over the last decade, and particularly the last five years, there has been a dramatic shift in

teacher employment rights, from teacher due process rights to teacher evaluation mechanisms, all

under the auspices of accountability.76

Concurrently, many school districts are facing teacher

shortages and challenges with teacher recruitment and retention. Additionally, many states are

faced with inter-district funding disparities that make it even more difficult for low-income

75

John Smyth, Barry Down, & Peter McInerney, ‘HANGING IN WITH KIDS’ IN TOUGH TIMES:

ENGAGEMENT IN CONTEXTS OF EDUCATIONAL DISADVANTAGE IN RELATIONAL SCHOOL

(ADOLESCENT CULTURES, SCHOOL, AND SOCIETY) 172 (2010).

76 Jennifer Thomsen, A Closer Look: Teacher Evaluations and Tenure Decisions, EDUC.

COMM’N. OF THE STATES (May, 2014), http://www.ecs.org/ clearinghouse/01/12/44/11244.pdf.

See also, Ann E. Blankenship, Teacher Tenure: The Times They Are a Changin’. 1 EDUC. L. &

POL. REV. 193 (2014).

29

districts to attract and retain highly qualified teachers. Teacher recruitment and retention and

funding disparities will be discussed below generally with within the context of the DCSD

litigation.

A. Teacher recruitment and retention

While some states and districts are experiencing teacher shortages, recent empirical evidence

suggests that teacher retention, due to low job satisfaction, is a much greater problem.77

This

problem is particularly pressing in urban school districts in which students need the most

support.78

Many teachers are forced out of the profession by policies and practices that make

them feel undervalued.79

Furthermore, “thought the revolving door in urban schools has most

frequently and consistently been turning as new teachers leave, experienced educators are

becoming increasingly frustrated with the state of teaching and may begin leaving at rapid rates

if the situation is not remedied.”80

To retain high quality teachers, when crafting and implementing education policy, decision

makers at the state and district level must look beyond the needs of students and parents and

77

Alyssa Hadley Dunn, The Courage to Leave: Wrestling with the Decision to Leave Teaching

in Uncertain Times, 47 URBAN REV. 84, 86 (2015). See also, Ingersoll 2003; Ingersoll & May

2011.

78 Ingersoll

79 Dunn, supra note

80 Id. at 101.

30

consider the needs of teachers as well.81

While evidence indicates that teachers would value

higher salaries, they rate “[desire] for autonomy in their curriculum, more and better resources,

respect for the profession and their time, less bureaucracy and paperwork, and more

administrative support” even higher.82

Therefore, to retain greater numbers of highly qualified

teachers, policy makers and district officials must consider the teachers’ perspective when

making the decision to include a liquidated damages provision in teacher contracts.

DCSD adopted a liquidated damages policy after an unexpectedly high number of teachers

requested release from their teaching contracts for 2013-14. Caught off guard, DCSD granted a

majority of the requests but did not adequately address the remaining teachers. The district

simply notified teachers that their request for release was denied and the teachers were expected

to report to work on the first day of school. It is no surprise that they started the school year with

50 classes without teachers. Superintendent Thurmond hoped that the inclusion of a liquidated

damages provision, threats of PSC sanctions, and an early contract date would keep his highly

qualified teachers in the district. DCSD charged teachers liquidated damages for requesting

release from their contracts before the end of the current school year, when the school district

was in the process of filling its other vacancies, months before the new school year began. When

all of these facts are taken together, it appears that DCSD was trying to trap teachers in their

current positions. This goes well beyond the intent and function of a liquidated damages

provision and creates a hostile and untrusting employment relationship.

81

Id.

82 Id. See also, Byrd-Blake et al 2010; Santoro 2011

31

If districts opt to include a liquidated damages provision into its teacher contracts, it must

consider the date beyond which a teacher’s resignation would result in actual damages.

Applying liquidated damages so early in the hiring season, particularly when contracts were

issued much earlier than other districts, may cause resentment among teachers, and ultimately

hurt a districts ability to retain their experienced teachers and recruit new teachers.

B. Funding Disparities

Our schools are more segregated today than they were in the 1960s.83

While the number of

Black and Latino students are increasing, as a result of housing and employment options, they

are generally educated in highly segregated schools.84

This racial and economic segregation

produces school districts that are underfunded, even with higher property tax rates. Experienced

and highly qualified teachers often avoid or leave these school districts for school districts that

pay higher salaries, provide greater benefits, and have less challenges. This creates a self-

perpetuating cycle: “As the problem of funding disparity grows so does this unequal distribution

of resources in schools, raising the question whether children are being adequately educated.”85

Without a more equal distribution of resources, low income districts will continue to suffer.

83

Rachel R. Ostrander, School Funding: Inequality in District Funding and the Disparate Impact

on Urban and Migrant School Children, 2015 B.Y.U. Educ. & L.J. 271, 272 (2015). See also,

GARY ORFIELD & CHUNGMEI LEE, HISTORIC REVERSALS, ACCELERATING RESEGREGATION, AND

THE NEED FOR NEW INTEGRATION STRATEGIES, 4 (2007).

84 Id.

85 Id.

32

DeKalb County, Georgia is a large county of nearly 800,000 residents.86

Nineteen percent of its

residents fall below the poverty level, above the Georgia average of 18.2% and its neighboring

counties Fulton (17.6%)87

and Gwinnett (13.9%).88

Following the financial crisis of 2008, like

many school districts, DCSD had to cut costs where it could. In addition to lower base salaries,

DCSD teachers have also been faced with furlough days (for which they do not get paid), further

reducing teachers’ take home pay. Consequently, DCSD has had a hard time retaining its

teaching staff. However, as indicated above, a higher salary is not necessarily the top priority for

most teachers. Having administrative support and being respected as a professional rank high on

teachers’ list of professional needs.89

Given the particular challenges, low-income districts like DCSD may want to consider ways to

improving the teaching experience in their districts to retain quality teachers and recruit new

teachers. While all districts should work towards positive, respectful working environments, this

is especially important in districts that cannot afford to pay top dollar for teacher salaries. This

starts with building a collaborative relationship between teachers and administrations, built on

trust and respect. Efforts to trap teachers in a particular job or position with fines or sanctions

86

DeKalb County Quick Facts, U.S. Census Bureau, Retrieved from

http://quickfacts.census.gov/qfd/states/13/13089.html (last viewed Sept. 30, 2015)

87 Fulton County Quick Facts, U.S. Census Bureau, Retrieved from

http://quickfacts.census.gov/qfd/states/13/13121.html (last viewed Sept. 30, 2015)

88 Gwinnett County Quick Facts, U.S. Census Bureau, Retrieved from

http://quickfacts.census.gov/qfd/states/13/13135.html (last viewed Sept. 30, 2015)

89 Dunn, supra note at 101.

33

will only serve to further alienate teachers from district administration and the collaborative

learning community. Therefore, low-income districts may want to be particularly careful about

how and when to implement liquidated damages provisions. They may end up doing more

damage to teacher morale than any anticipated benefit.

VI. Conclusion

While liquidated damages provision have been an accepted part of government employment

contracts for decades, school districts should take care in how they use liquidated damages. The

body of case law in Georgia and in other states focuses on situations in which a teacher resigned

just before the beginning of a new school year, putting schools in difficult hiring positions and

risking education quality. However, DCSD has taken this idea to a new level, using the

liquidated damages provision as a deterrent for teachers to leave the district early in the hiring

season. While legislation and case law leaves some room for legal debate on the legality of the

DCSD liquidated damages provision, DCSD’s actions to appear to be in conflict with the

purpose of liquidated damages and raise concerns about violations of public policy. Liquidated

damages provisions may have a place in teacher contracts, but districts should only use them as a

means of recovering damages in exigent circumstances. Any other use turns them into a penalty

or sanction.