Breach of contract
Introduction
The relationship between employer and employee is governed by a contract of employment. A contract is an agreement and may be in writing, verbal or partly in writing and partly verbal. Employment Contracts also include implied terms which can either be implied by “custom and practice” or by the law. Collective agreements made between Trade Unions and Employers can also be incorporated into employees contracts.
Most disagreements between employers and employees which end in litigation are brought under specific Employment legislation, but it is possible to bring claims for breach of contract in either a Court or, in some cases, and Employment Tribunal.
The most common claims for breach of contract are as follows:-
1. Claim for insufficient notice of termination
2. Failure to pay all wages due
3. Claim for unpaid bonus
4. Claim by employer for breach of restrictive covenant by employee
1. Insufficient Notice
When the employer is in breach of contract, this is sometimes called “wrongful dismissal.”
It may be brought because the employer disputes the employee’s notice entitlement or, more commonly because the employer claims that because the employee is guilty of “Gross Misconduct,” they don’t have to give any notice.
An Employment Tribunal or Court will decide whether or not the employee was guilty of gross misconduct. Unlike “Unfair dismissal” there is no concept of “reasonableness” or “contributory fault.” For that reason employees may bring claims for breach of contract at the same time as for unfair dismissal.
There is a requirement for an employee to “mitigate their loss” by seeking new employment. A successful employee will have their notice pay reduced by the amount they have earned (or should have earned) in the notice period.
If an employee is in breach of contract by giving insufficient notice of resignation and employer can sue the employee! This rarely happens because the employer normally has limited financial loss. The employer has a duty to mitigate their loss by hiring a replacement and their claim is only for any financial loss caused by the employee’s early departure. If an employee can show that the employer’s treatment was such that they did not need to give notice (“Constructive Dismissal”) the employer will not succeed.
2. Failure to pay wages
If this claim is brought in the Employment Tribunal it is usually a claim for “Unlawful deduction from wages.”
3. Unpaid Bonus
Some bonuses are provided for under the contract, and others are discretionary. A Court or Tribunal may have to determine whether there was a contractual bonus and if so what the terms of it were.
Even if the bonus is discretionary, there is an implied contractual term that the employer will use its discretion reasonably.
An employee can therefore claim breach of contract for an unpaid bonus even though it is “discretionary.” If an employer can provide a good reason for exercising its discretion not to award the bonus, the employee’s claim will fail.
4. Breach of Restrictive Covenants
There are some terms of an employment contract which continue to operate after employment has come to an end.
There is an implied term of confidentiality in all contracts of employment which means that employees cannot take confidential information about the employer’s business with them after their employment comes to an end.
There can also be specific written terms of the contract which restrict what work an employee can do after the employment comes to an end. These are known as “restrictive covenants.” Usually they specify a period of time and often a geographic restriction on an employee setting up or working for a competing business, or poaching employees to come and work with them.
If an employee breaches a restrictive covenant or the implied duty of confidentiality, an employer can take an injunction out against them and claim compensation for loss of profits, and their legal costs.
However, if the Court finds that the restrictions go further than is necessary to protect the employer’s interests then the whole restriction becomes void. This could be disastrous for an employer who will be unable to prevent the old employee competing, and find that any other employees who leave may feel they can safely ignore the restrictions. For this reason it is important that advice and careful thought is given when putting restrictive covenants into a contract to make sure they have the desired effect, without going too far.
Court or Employment Tribunal
In many cases, claims are brought in the Employment Tribunal because its proceedings are more straightforward and takes less time than a Court claim. Also there is no fee for bringing an Employment Tribunal claim, whereas there is usually a Court fee for staring a Court claim.
However, there are restrictions on the types of claims that can be brought in the Employment Tribunal.
1. An Employment Tribunal cannot deal with claims for breach of contract while the employee is still employed (although it can deal with a claim for unlawful deductions from wages).
2. An employer cannot bring a claim of breach of contract to an Employment Tribunal unless the employee brings a breach of contract claim first (In which case the employer can counterclaim)
3. An employer can never bring a claim for breach of restrictive covenants to an Employment Tribunal
4. The Tribunal only has the power to award up to £25,000 for breach of contract. Well paid employees with long notice periods may be able to claim more in a Court claim.
5. Most claims must be brought before an Employment Tribunal within 3 months of the employment terminating, whereas a claim can normally be brought before a Court up to 6 years from when the breach of contract took place.
Other possible reasons for bringing claims to a Court rather than an Employment Tribunal are:
1. The Tribunal does not normally order the unsuccessful party to pay the successful party’s costs, whereas in the Court, if a claim is worth more than £5,000 the Court normally orders the unsuccessful party to pay the successful party’s costs. Someone with a strong claim worth more than £5,000 may wish to go to Court in order to recover their legal costs.
2. People living outside major cities might find they have further to travel to the nearest Employment Tribunal than the nearest county Court, as there are 217 County Courts in England & Wales but only 21 Employment Tribunals.
Disclaimer
Please note that the information on this page is intended to be a guideline and is therefore a summary of the law only and not a complete guide. Before taking any action based on this information you are strongly advised to take legal advice. Whilst every effort has been made to ensure that the information contained on this page is up to date and accurate, no guarantee can be given to this effect.