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Wrongful Dismissal

Wrongful dismissal is different from unfair dismissal and it is important not to confuse the two. It is in fact possible for an employer to be found liable for one but not the other. Wrongful dismissal occurs when the employee is dismissed in breach of the express or implied terms of his employment contract. The issue of fairness is not generally taken into account. Unlike claims for unfair dismissal there is also no qualifying period for a wrongful dismissal claim.  

Wrongful dismissal can occur in a number of situations including:

  • When the employee has been dismissed (either fairly or unfairly) but without being paid his statutory or contractual notice pay.
  • When the employee has been summarily dismissed for gross misconduct and therefore without notice pay when in fact the dismissal only merited an ordinary misconduct dismissal and so notice should have been given.
  • When the actions of the employer so severely undermine the employment relationship that the employee is entitled to resign and claim constructive dismissal.
  • When the employer dismisses the employee in breach of contractual disciplinary or dismissal procedures. 

The compensation or damages an employee may claim for wrongful dismissal are limited to the notice period and/or the period of time it would have taken to complete any relevant contractual procedure. If the employer wrongfully dismisses the employee it will be liable to pay damages to put the employee in the position they would have been in had the contract been terminated in accordance with its terms. Therefore damages will reflect the net value of salary and other contractual benefits to which the employee would have been entitled had they been allowed to work out their notice. 

When the Employer may be entitled to Dismiss without Notice

Most employment contracts today include what is known as a PILON or ‘pay in lieu of notice’ clause. This entitles the employer to dismiss the employee immediately providing they make a payment in lieu of the employee’s notice period. This prevents the employee from making a wrongful dismissal claim. Note though that the employee may still have a claim for unfair dismissal under Sections 94 and 98 of the Employment Rights Acts 1996. 

Where there is an express PILON clause any subsequent dismissal will not be wrongful even if the employer does not actually make the payment in lieu. The contract has been lawfully terminated and the employee must claim for their notice pay under their contract, In other words they will have to make a debt claim. However where the clause is drafted so as to give the employer the discretion to make a PILON care must be taken. If the employer does not exercise its discretion to pay PILON the dismissal will still be wrongful. Where there is discretion and it is exercised to pay the PILON there is no breach of contract and the employee becomes entitled to the payment of the debt under the contract.  

In terms of the payment to the employee the difference between a debt claim and one for damages for breach of contract is that with the debt claim an employee is not under a duty to mitigate their loss or give credit for any earnings received in what would have been their notice period.  

The Effects of Wrongful Dismissal on Restrictive Covenants (also known as Restraints of Trade)

The general rule is that a wrongful dismissal will free the employee from any covenant in restraint of trade. The logic is that the employer committed a repudiatory breach of contract by dismissing the employee in breach of the notice provisions. Consequently the employee is entitled to treat himself as discharged from any further performance of his obligations under the contract. Where there is a PILON clause in the contract and the employer makes the PILON clause the restrictive covenants are preserved.  

Where to sue for Wrongful Dismissal 

Because a wrongful dismissal is a breach of contract claim the employee can choose to sue in either the Employment Tribunal or the Civil (county or high) court. Which option is best will depend on the value of the claim, whether the employee is still employed and time limits. Further information on where to sue can be found in the Breach of Contract page.

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