HR Minute

Prominence is Key: Is Your Limitation of Liability Clause Enforceable in Georgia?

Taylor English represents a number of Staffing companies that contract with entities across the nation in a variety of industries. These contracts can often represent big dollars to the firm providing the staffing services, but like any business relationship, they can also generate quite a bit of risk. As a result, one provision garnering increasing use in these arrangements is the limitation of liability clause. When used properly, these clauses can be an excellent way for your business to minimize risk and create predictability where uncertainty traditionally reigns: a lawsuit.

A question every company–staffing or otherwise–needs to  be asking itself is this: Am I using or signing onto a limitation of liability clause? If the answer is yes, you and your company need to determine its enforceability. Much to the chagrin of companies working on a national scale, the enforceability of these clauses vary from state to state and if you’re not careful, your efforts to create predictability can be thrown into chaos if a limitation of liability clause is found to be unenforceable.

A limitation of liability clause–much as the name suggests–is a mechanism contract drafters can employ to limit the parties’ potential liability in the event one party breaches the contract’s terms. In other words, where one party might sue in the event of breach for an undetermined amount of punitive, compensatory and/or consequential damages, a limitation of liability clause can cap those damages at a particular dollar amount. Damages can add up quickly depending on the individual facts and circumstances surrounding the breach of contract claim, so having a limitation of liability clause can be a game-changer when it comes to mitigating risk and uncertainty.

Regardless of the type of damage inflicted by one party on another, however, the concept of signing away rights does not often sit well with state legislatures or the courts. Even the most stalwart defenders of the principals of “freedom of contract” will place some limitations on the signing away of rights to future damages.

There are a number of factors a court will consider when determining the enforceability of limitation of liability clauses, and it should be noted that these factors can vary widely from state to state. Knowing what your state focuses on may be the difference maker when faced with the unfortunate onset of a lawsuit.

In Georgia, a significant factor is the prominence of the clause in the contract itself. A recent Georgia Appellate case declined to uphold a limitation of liability clause where the drafter failed to draw adequate attention to the clause. The court reasoned that because these types of clauses “amount to an accord and satisfaction of future claims and waive substantial rights, they require a meeting of the minds on the subject matter and must be explicit, prominent, clear and unambiguous."[1] [Emphasis Added. Internal quotations omitted.]

Among the things the court found wrong with the clause were its proximity (or lack thereof) to the “DAMAGES” section of the contract, that the type face was not capitalized or set off in any unique or prominent way, and that it "appears toward the end of the second, long sentence in [the] subsection..."[2]

What does this mean to the drafters of a contract with a limitation of liability clause? PUT THE ENTIRE THING IN ALL CAPS. Although this concept may be jarring to the average reader, it is imperative when it comes to the enforceability of clauses that waive substantial future rights in Georgia. Further, the courts tend not to be forgiving to the drafter when it comes to resolving any ambiguity or uncertainty. Indeed, “any ambiguities in [limitation of liability clauses] are construed against the drafters."[3]

In short: Georgia businesses looking to mitigate risk in their agreements should take a good hard look at including a well-crafted limitation of liability clause in their contracts. That said, if they do decide to include it, MAKE SURE THE PARTY YOU’RE CONTRACTING WITH CAN SEE IT.

[1] Monitronics Int’l, Inc. v. Veasely, 323 Ga. App. 126, 135 (2013)

[2] Id.

[3] Id.

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