## Facts

- An employer hired an employee as general manager of a hotel under a written, fixed-term, three-year employment contract.
- The contract included a stipulated-damages clause providing that, if the employee were wrongfully discharged, the employer would pay an amount equal to the employee’s salary for the unexpired contract term.
- The employer terminated the employee before the contract term ended (about 21 months early).
- The employee obtained new employment within a short period after the termination.
- The employee sued for wrongful discharge and sought damages under the stipulated-damages clause.

## Issues

1. Whether the stipulated-damages clause for wrongful discharge was an enforceable liquidated-damages provision or an unenforceable penalty.
2. If the clause was enforceable, whether the employee’s duty to mitigate applies so that post-discharge earnings reduce the amount recoverable under the clause.
3. Whether enforceability of the stipulated-damages clause is primarily a question for the judge as a public-policy determination.

## Decision

- The Wisconsin Supreme Court held the clause was a valid liquidated-damages provision and not an unenforceable penalty.
- The Court held that, when a stipulated-damages clause is valid liquidated damages, the mitigation doctrine does not apply to reduce the damages award.
- The Court reversed the court of appeals and affirmed the circuit court’s judgment enforcing the clause and reinstating the jury’s $24,640 award.

## Legal Principles

- A stipulated-damages clause is enforceable if it is reasonable under the totality of the circumstances.
- In assessing reasonableness, courts consider: (1) whether the clause was intended as damages rather than a penalty, (2) whether harm was difficult to estimate at contracting, and (3) whether the amount was a reasonable forecast of harm; modern analysis places greater weight on objective reasonableness.
- The trial judge evaluates enforceability, including relevant circumstances such as anticipated and actual injury, because the penalty doctrine reflects public-policy limits on contract enforcement.
- If a stipulated-damages clause is valid liquidated damages, the nonbreaching party’s post-breach earnings do not reduce the contractual recovery, and mitigation is not used to recalculate the stipulated amount.

## Conclusion

The court enforced a stipulated-damages provision awarding the employee salary for the unexpired term upon wrongful discharge, concluding it was a reasonable ex ante estimate of harm rather than a penalty, and held that a valid liquidated-damages clause displaces mitigation so subsequent earnings do not offset the award.


Wassenaar v. Panos, 111 Wis. 2d 518, 331 N.W.2d 357 (Wis. 1983)