A business lives on the agreements it makes. Contracts with employees, a vendor or any other entity define what a company can do and when it can do it. A breach of any of those contracts can cost time and money, but not all breaches are equal and it’s important to understand how they can differ.
Material breach of contract
Every contract is different, involving different parties and different terms. The parties to any specific contract are bound by its specific terms and a violation of any of those terms can result in a breach. But how serious was the violation? This is a critical question to ask, since the answer informs what action the non-breaching party can or should take.
A material breach is any breach which represents a substantial departure from the contract’s terms. In the context of an employment contract, this may be the failure of an employee to perform their duties as specified in the contract. Or, in a contract with a supplier, their failure to provide a product demanded by the contract could constitute a material breach.
Minor breach of contract
Unlike a material breach, a minor breach of contract does not damage the non-breaching party’s interests substantially. So, where failure to provide a promised product entirely would be a material breach, providing it only a day or two late may constitute a minor breach. Although the non-breaching party’s rights have been abridged, it may not be a significant infringement.
Not all breaches of contract require litigation to resolve – there are often other options, sometimes included within the contract itself. But identifying the severity of the breach is a necessary first step. When in doubt, speak to an attorney who is experienced in business contracts.