Excessive “Buyout” Clauses in Employment Contracts are Illegal

If you have been to a hospital or nursing home anywhere in the United States, you have probably seen nurses from the Philippines.  In some parts of the country, more than 20% of all Registered Nurses (RNs) are from the Philippines.

Most of the nurses sign contracts with employment agencies that require payment of “liquidated damages” if they stop working.  A liquidated damages clause is permissible, but only if it is reasonably related to the agency's actual costs and the agency's damages would be difficult to calculate if the contract is breached.

Some of the contracts require payments of $25,000, $45,000, and even $90,000.  Filipino nurses refer to these clauses as “buyout” provisions, because they have to “buy out” their contract in order to stop working for the agency.

The financial pressures on Filipino nurses to continue working for the agencies often lead to abuses.  Some agencies ignore complaints of understaffing, unsafe conditions for patients, and sexual harassment of the nurses.  Others threaten to have the nurses deported if they quit and refuse to pay the “buyout” fee.  Many agencies fail to pay Filipino nurses the prevailing wage, which tends to depress the wages of all nurses.

You May Be Able to Get Out of Your Contract

We have brought dozens of legal challenges against these “buyout” provisions.  In most cases, the agencies have quickly agreed to cancel the contracts and pay our legal fees.  They know that their “buyout” fees are indefensible.

In the cases that have been decided in court, judges have ruled that “buyout” fees are unenforceable when the amount is excessive or when the agency’s actual losses can be calculated.  In several cases, we have convinced courts that “buyout” clauses requiring payment of between $15,000 and $25,000 were unenforceable because the amounts were disproportionate to the agencies’ actual losses.

In the most egregious cases, we have convinced courts that the “buyout” clauses created contracts of indentured servitude.  In other words, the contracts imposed a debt (an indenture) on the nurses that they had to work off or pay off in order to buy their freedom to leave and work someplace else.

In one case – a class action on behalf of more than 200 Filipino nurses – we convinced the court that an agency’s threats to enforce a $25,000 buyout clause violated the Trafficking Victims Protection Act.

Find Out If Your "Liquidated Damages" Clause is Illegal 

If you are worried that you cannot leave an employer because of a “liquidated damages” or “buyout” clause in your contract, call us at (212) 601-2728.  We will review your contract and let you know what your options are.

John Howley, Esq.

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