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Breach of employment contract

What is an Employment Contract?

The first stage in assessing whether there has been a breach of contract in the employment relationship is to scrutinise the employment contract. This is the legally binding contract between employer and employee. Although employers are legally obliged to send employees a written Section 1 Statement setting out their main terms and conditions of employment within two months of the employee starting work some fail to do so. A verbal contract is still legally binding although in cases of dispute it can be more difficult to determine the nature of the agreed terms.

Employment contracts are made up of express and implied terms. These can include:

  • Express terms such as rates of pay and working hours.
  • The terms that are implied by statute such as the right to equal pay, the national minimum wage and a statutory notice period.
  • Rights implied by common law such as those relating to the duty of trust and confidence. This includes a duty on employers to act fairly and a duty on employees to act faithfully.
  • Terms implied by custom and practice.

How is an employment contract breached?

This can take place in a number of different ways and it is important to remember that both employers and employees can breach the contract and both parties can sue the other if losses flow as a result of the breach. 

  • The employer’s conduct breaches a fundamental term of the employment contract allowing the employee to claim constructive dismissal.
  • An employee’s conduct, or rather misconduct, is so serious that it breaches the employment contract entitling the employer to dismiss for gross misconduct.
  • The employer dismisses the employee without giving notice or pay in lieu of notice or in breach of some other term/s of the contract.
  • The employee breaches restrictive covenants which typically prevent him from poaching or soliciting business from his employer’s or ex-employer’s clients for a set period after the termination of his employment.
  • The employee resigns without giving his employer contractual notice. 

What compensation is available for breach of contract?

The employee may have a claim for damages for breach of contract if the employer does indeed breach their contract or dismisses them in breach of contract and causes them loss. Generally speaking the only damages available to the employee is notice pay. There is no financial loss for distress or hurt feelings. If an employer fails to pay an employee’s wages the employee may submit a claim to an Employment Tribunal for an unauthorised deduction of wages.

The employer may also sue the employee in certain circumstances. For example, if the employee resigns without working their notice and the employer has to pay for a locum to cover his work or sustains other losses the employer can sue for those losses. Where an employee breaches their restrictive covenants the employer can apply to the Court for an injunction to stop the employee working for a competitor or to hand over confidential material the employee has unlawfully taken. The employer can also sue for damages if it can prove its losses as a result of the employee’s unlawful breach of the covenants.

Employees who wish to sue their employer for constructive dismissal (a breach of contract claim, sometimes referred to as constructive unfair dismissal) should bear in mind that the employer would be entitled to countersue them for any losses sustained as a result of their conduct. 

Where to sue for Breach of Contract?

The employee may need to make a strategic decision about whether to sue in the Employment Tribunal or the County or High Court. There are pros and cons to each. Employees can only sue in the Employment Tribunal if their employment has already ended. There is also a limit to the damages that can be awarded for breach of contract in the Employment Tribunal of £25,000. The time limit for Employment Tribunal claims is three months less one day from the date of the breach. The advantage of the Employment Tribunal is that it is often quicker, simpler and the general rule is that the loser will not need to pay the winner’s legal fees.

If the employee's breach of contract claim is worth more than £25,000, or the employee is still employed then they will need to submit a claim to the County or High Court, depending on the value of the claim. The time limit for submitting a breach of contract claim in these civil courts is six years although it in unwise to wait so long for submitting a claim. These civil courts are also governed by the Civil Procedure Rules which are far more complex and formal than the Employment Tribunal Rules of Procedure but the advantage is that the loser does generally have to pay the winner's legal costs (although it is unlikely that they would be ordered to pay 100% of the winner's legal costs). For Claimants with high value claims with very strong prospects of success the civil courts may be the most advantageous venue in which to sue.

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