1.4 Breach of contract


 When either the employee or the employer does not honour their part of the contractual agreement, this is known as a breach of contract. Common examples are:

  • The employer does not pay the employee on time
  • The employee does not attend work when agreed (without a good reason, such as being ill)
  • The employer withholds something to which the employee is contractually entitled, such as a company mobile phone, company car or laptop
  • The employer does not pay travel expenses which are owed to the employee
  • The employee works for a rival company, despite being bound by a contractual term not to
  • Either party terminates the employment without giving enough notice

There are other, less obvious ways, in which a contract can be breached. As well as the terms which have been written down, a contract of employment invariably contains implied terms, for example the duty for employers to treat employees fairly and the duty for employees to act faithfully. In addition, some terms are implied by custom and practice. For example, if an employee’s contract states that they only get 28 days’ holiday per year but in practice everyone is given 30 days’ holiday per year, a refusal to let an employee have those two extra days may be a breach of contract. These sort of breaches are frequently more difficult to prove.

If one party breaches the terms of the contract (but there is no dismissal involved, constructive or otherwise), the wronged party will have a claim against the other for breach of contract.

If an employee is dismissed in breach of contract, he will have a claim against his employer for wrongful dismissal (a specific type of breach of contract claim). Wrongful dismissal should not be confused with unfair dismissal; a wrongful dismissal can have fair reasons behind it but the process of the dismissal has been done incorrectly. The employee is not objecting to the fact that they have been dismissed but rather to the way the dismissal has been carried out.

Example of wrongful dismissal would be when an employer dismisses an employee:

  • Without giving her enough notice pay, contractual sick pay or holiday pay.
  • By giving him payment in lieu of notice (instead of a notice period) when there is no contractual right to do so
  • Before the expiry of a fixed term contract when there is no contractual right to end the contract earlier

In such situations, the employee’s first course of action would be to point out the employer’s mistake and ask to be paid the money owed to her. If this does not work, the employee would have to pursue the matter in an employment tribunal within three months of the date of termination. If successful, the employee would be awarded financial damages equivalent to the amount of money owed to them. This may include pay for the notice period, loss of commission or bonus, loss of pension contributions, holiday pay or loss of benefits such as health insurance. Since employment tribunals do not usually award costs or expenses and since the employee may have to pay a fee to bring the case to tribunal, it is worth considering whether the amount of money being pursued is sufficient to justify the process. An employee may also be awarded up to 25% more damages if the employer unreasonably did not follow the ACAS Code of Practice. There is no financial compensation for distress or hurt feelings. 

As an alternative to an employment tribunal, a breach of contract claim can also be made in the county court. The time limit for submitting a breach of contract claim in a county court is six years, compared to three months in an employment tribunal. A claim can only be made in an employment tribunal if a dismissal has taken place; if there is no dismissal, the employee should bring the claim in a county court. An employment tribunal can award a maximum of £25,000 of damages but if the breach of contract case is taken to a county court, then the damages are unlimited. The employment tribunal is often quicker, simpler and, unlike the county court, the general rule is that the loser will not need to pay the winner’s legal fees. 

If an employee leaves his job without working his proper notice period, the likely outcome is that the employer would simply not pay him for his unauthorised absence. In such a situation, the employer would probably not have lost any money and so there would be no point bringing about a breach of contract claim. However, if the employer had to employ a locum or an agency worker to cover the employee’s work, the employer would have a claim for those losses. Similarly, if the job was very specialised and the employee left halfway through a project which could then not be completed, the employer may be able to prove losses relating to loss of business.

If the employer breaches the employee’s contract in a very serious way, such as cutting their pay without consultation or warning, the employee may feel that they have no choice but to resign. This is called constructive unfair dismissal.

Employees can bring claims for unfair dismissal and wrongful dismissal.

For more help on breach of contract situations, contact info@p4b-law.co.uk

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