Mitchell Engler, ‘Pay for Play: The Compensated Leisure Flaw of Contract Damages’

Contract damages aim to leave the injured party in as good a position as if the contract had been fulfilled. But discharged laborers often obtain a much better result due to the lack of a reduction for their excused work effort on breach. After first exposing the problematic ramifications of this unjustified deviation, this Article then provides two workable corrections.

Legal neglect of the labor/leisure tradeoff primarily explains the defect. Under this economic principle, workers must sacrifice valuable leisure to get paid. Contract law, however, can provide discharged workers compensated leisure: full payment despite retention of their leisure time after the breach. Interestingly, legal disregard of the leisure tradeoff also permeates the current firestorm over the value of a law degree. Evidencing a pattern of leisure time neglect, legal analyses similarly overstate service contract damages and the value of a law degree.

Practicalities also play a role as recognition of the flaw does not itself yield a ready solution. Current law’s mitigation offset for new work might seem to be the most feasible response. But mitigation does not apply if the new work is insufficiently comparable or if the worker could handle both jobs under the lost volume doctrine. Given mitigation’s limited scope, I demonstrate a superior offset. In theory, the contract price should be reduced by the worker’s lowest acceptable price for the job. With such reduction, the worker would receive just his real benefit, limited to the ‘surplus’ value of the deal. I propose a novel way to estimate this proper offset: a sliding scale percentage reduction keyed to probability findings on job comparability or lost volume capacity. Labor elasticity studies provide another innovative way to estimate the offset as such studies calibrate the impact of wage changes on hourly work choices. Either approach would enhance the law’s coherence, fairness, and efficiency.

Engler, Mitchell L, Pay for Play: The Compensated Leisure Flaw of Contract Damages (October 8, 2015). George Mason Law Review, Vol 22, 2015, p 297; Cardozo Legal Studies Research Paper No 462.

First posted 2015-10-13 18:11:10

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