No duty to mitigate: Overview, definition and example
What is no duty to mitigate?
The concept of "no duty to mitigate" refers to a contractual provision that releases a party from the obligation to minimize or reduce their losses in the event of a breach of contract or other harmful event. Typically, in many legal systems, the injured party is required to take reasonable steps to mitigate their damages to avoid unnecessary financial losses. However, a "no duty to mitigate" clause expressly states that the injured party is entitled to recover damages without being required to take such steps.
This provision is often used in contracts involving liquidated damages, severance agreements, or other cases where the damages are pre-agreed or not contingent upon mitigation efforts.
Why is no duty to mitigate important?
A "no duty to mitigate" clause is important because it provides clarity and protects the rights of the injured party to recover damages without being required to take additional actions to minimize their losses. It ensures that the breaching party bears the full responsibility for the harm caused, even if the injured party does not actively seek to offset those damages.
For businesses, this provision simplifies damage calculations and reduces the likelihood of disputes over whether reasonable mitigation efforts were made. It is particularly useful in contracts where pre-determined damages are agreed upon or where mitigation would be impractical or unfair to require.
Understanding no duty to mitigate through an example
Imagine a company terminates an executive’s employment without cause. The severance agreement includes a "no duty to mitigate" clause, allowing the executive to receive the full severance payment even if they find another job shortly after termination. Without this clause, the employer could argue that the executive’s severance should be reduced by the amount they earn in their new role.
In another example, a tenant breaches a lease agreement by vacating the property early. The lease contains a "no duty to mitigate" clause, stating that the landlord is not required to re-rent the property to reduce their financial losses. Instead, the tenant remains liable for the full amount of rent owed under the lease until the end of the term, regardless of the landlord’s actions.
An example of a no duty to mitigate clause
Here’s how a no duty to mitigate clause might appear in a contract:
“The Parties agree that the Injured Party shall have no duty to mitigate any damages arising from a breach of this Agreement. The Injured Party shall be entitled to recover the full amount of damages as specified herein, regardless of whether any steps were taken to reduce such damages.”
Conclusion
A "no duty to mitigate" clause provides a straightforward way to protect the rights of an injured party by removing the requirement to minimize their losses. It simplifies damage recovery and ensures that the breaching party remains fully accountable. Including this clause in contracts is particularly useful in cases involving pre-determined damages or where mitigation would be burdensome or inequitable. A well-drafted "no duty to mitigate" clause helps promote clarity and fairness between the parties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.