Ohio Liquidated Damages Clauses: Enforceability Guide
Liquidated Damages in Ohio
Liquidated damages clauses set a predetermined amount for specific breaches, eliminating the need to prove actual damages in court. They are common in Ohio's construction, manufacturing, commercial real estate, and employment sectors.
Ohio's Two-Pronged Test
Ohio courts apply a two-pronged test as articulated in Samson Sales, Inc. v. Honeywell, Inc. (1984) and reaffirmed in subsequent cases. A liquidated damages clause is enforceable if:
- The stipulated amount is reasonable in relation to the probable damages resulting from the breach
- Actual damages are uncertain and difficult to prove at the time the contract was formed
If the amount is unreasonable or actual damages can be readily calculated, Ohio courts treat the clause as an unenforceable penalty.
Ohio-Specific Considerations
- Public contracts — Ohio Revised Code Section 4113.01 et seq. governs certain public contract provisions, and liquidated damages in state and local government construction contracts are subject to specific statutory requirements
- Proportionality review — Ohio courts are willing to compare the liquidated amount to actual damages that occurred, and a gross disparity may indicate a penalty
- Commercial vs. consumer contexts — Courts give more latitude to liquidated damages clauses negotiated between businesses than those in consumer contracts
- Partial performance — Ohio courts may consider whether the liquidated amount accounts for partial performance or applies as a blanket penalty regardless of how much was completed
Red Flags
- The liquidated amount does not vary based on the nature or severity of the breach
- Actual damages from the breach can be easily calculated using standard methods
- The clause applies to minor technical breaches as well as material breaches
- The amount dramatically exceeds the value of the contract itself
When to Consult a Lawyer
Consider consulting an Ohio attorney if a liquidated damages clause involves a substantial sum, appears disproportionate to the potential harm, or is part of a public contract subject to statutory requirements. A lawyer can apply the two-pronged test to your specific facts.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.