Severance Clause Nullifies Mitigation Duty

In Malinowski v. Wall Street Source, Inc., 09 Civ. 9592 (PAE) (SDNY Dec. 2, 2011), NYLJ 1202534751470, the Southern District of New York held that evidence of plaintiff’s post-termination wages was inadmissible in light of the severance clause in plaintiff’s contract (which provided that plaintiff could only be fired for cause).

Plaintiff sought unpaid wages, a bonus, and a severance pursuant to the contract; defendants alleged, among other things, that plaintiff breached his duty of loyalty.

The court observed that “when an employment contract contains a severance clause, New York courts view such a clause as ‘in essence a liquidated damages clause’ that ‘fixes the exposure of the employer following a discharge without cause and thus serves to remove [such a case] from the ordinary rule requiring the employee to mitigate damages.'”

The operative language in plaintiff’s contract provided that:

“Employer shall continue to pay Employee’s Base Salary (at the rate in effect on the date of termination) for 18 months from the effective date of termination. In addition, Employer shall pay Employee a cash bonus of $60,000 per year for 18 months from the effective date of termination.”

This, held the court, was a “classic severance clause” that exempted plaintiff from a duty to mitigate.

The court was unpersuaded by cases cited by defendants relating to employees’ duty to mitigate post-termination back pay, as they did not involve severance clauses.   Furthermore, as they addressed post-termination damages, they were irrelevant to plaintiff’s separate claim for unpaid wages allegedly accrued prior to his termination.