In an action alleging breach of an employment contract, a failure to mitigate damages is an affirmative defense. In Tennessee, an employer must prove both availability of suitable and comparable substitute employment and a lack of reasonable diligence on the part of the employee.
Plaintiff employee ("Maness") sued defendant employer in the Chancery Court for McNairy County (Tennessee) for breach of an employment contract. Maness sold his manufacturing business to the defendant employer, and agreed to stay on as a management-level employee. To that end, Maness entered into a three-year employment agreement with the company, and signed a non-competition agreement. After a few months, the company's new owners terminated Maness' employment on the basis that he had not fulfilled his job duties. Maness filed suit against the company, alleging breach of the employment agreement. The trial court held the employer breached the contract but declined to award damages. Maness appealed, and the employer cross-appealed.
Did the trial court err in holding the employee's failure to mitigate damages barred the recovery of any damages?
It was error to hold Maness' alleged failure to mitigate damages barred recovery of any damages because (1) he was barred from such recovery only if the proof showed he, in the exercise of reasonable diligence, would have earned as much or more than he would have earned under the contract, but the employer did not show suitable and comparable substitute work was available, and (2) a noncompetition agreement acknowledging he could easily find alternative, commensurate, employment did not relieve the employer of this burden, as this was not raised at trial, and it did not stipulate he would have earned such compensation. The trial court's judgment finding breach of contract was affirmed, but its holding that Maness' failure to mitigate damages barred the recovery of any damages was reversed, and the matter was remanded for entry of judgment for Maness and calculation of his damages. The employer, having failed to offer proof of suitable alternative employment available to Maness in the proceedings below, was precluded on remand from submitting such proof.