Legal Article - Employment Law

Wrongful dismissal: Breach of Contract

This refers to any dismissal where the employer breaches a term of the contract of employment in carrying out the dismissal. In most circumstances this occurs when the employer does not give sufficient notice of termination of employment (i.e. the employee is entitled to 12 weeks notice and the employer only gives 6 weeks notice).

Once an employee has completed 6 months continuous service, they are then eligible to claim compensation for wrongful dismissal. 

The employee’s remedy is to seek damages from the County Court or Employment Tribunal.

If the employer makes a payment in lieu of notice, providing this covers the financial loss the employee suffered through not being given proper notice, then for all practical purposes there is no incentive for the employee to take the matter further. The payment in lieu should cover the loss of net salary and any benefits with a monetary value.

If the contract of employment states that the employer has a right to make a payment in lieu of notice, any such payment is subject to Income Tax and National Insurance deductions, which must be paid to the Government.

Where the contract is silent and the employee has no reasonable expectation of receiving a payment in lieu of notice, then when payment in lieu of notice is given no Income Tax or National Insurance need be paid. The employer can thus pay gross wages or net wages and keep the tax and national insurance.

This payment is classed as “damages” for breach of contract and not “pay”.

Where an employer unilaterally changes the terms and conditions of employment without having a right to do so and without proper notice, an employee can treat this as a breach of contract and either carry on working under protest and subsequently claim damages, or resign. This would be a wrongful dismissal.

However, if the employer gave the correct notice of termination of employment before the change is implemented and offers to reengage them under a new contract of employment on different terms, the employee will not have been wrongfully dismissed.

In either case it may be an unfair dismissal however, unless the employer had a good business reason for implementing the change, has acted reasonably and the employee is not placed in too disadvantageous a position (e.g. no significant pay loss occurs; or it does not cause significant domestic problems for the employee.


Published: 03 Jun 2011


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