In employment law, wrongful dismissal occurs where an employee is dismissed in breach of contract. There is no consideration of whether the dismissal was "fair" (please see our article on unfair dismissal for detailed information). The focus is purely on whether their employer breached a term of the contract of employment by their dismissal.
Types of breach
The most common breach of contract occurs when an employer does not allow the employee to work, or pay the employee for the correct amount of notice that they are entitled to receive without justification.
Unless the dismissal is for gross misconduct, the notice period an employee is entitled to will be the statutory minimum (as defined in the Employment Rights Act 1996). This means employees are entitled to one week's notice for up to two years continuous employment and then a further week for each complete year up to 12 weeks. Unless the employer provides the employee with a higher notice period in their contract of employment.
Other, less common breaches of contract are:
- Breach of a contractual procedure; and/or
- Termination of a fixed-term contract before its expiry, where there is no early termination provision.
A "contractual procedure" includes a contractual disciplinary or redundancy procedure.
All employees are entitled to bring a wrongful dismissal claim, regardless of their length of service with the employer.
Where the employee has committed a fundamental breach of contract, i.e. a breach that goes to the heart of the contract and undermines the trust and confidence between the employer and the employee necessary to sustain the employment relationship, the employer will be entitled to dismiss the employee without notice or a payment in lieu of notice.
Dismissing the employee without notice is known as "summary dismissal".
Payment in lieu of notice ("pilon") clauses
An employer may insert payment in lieu of notice clause into its contracts of employment so that the employee does not have to work their notice period in return for a payment in lieu of notice.
If an employer decides to terminate the employment relationship and rely on a payment in lieu of notice clause which states the employee is ENTITLED to a payment in lieu of notice, but then fails to pay the PILON, there is technically not a wrongful dismissal claim. Instead, the employee will be owed a debt by the employer of the amount of their notice period. Therefore, the employee will need to make a debt claim rather than a wrongful dismissal claim.
If the payment in lieu of notice clause states that the employer has discretion as to whether to allow the employee to work their notice OR to make a payment in lieu of notice, whether there is a wrongful dismissal claim depends on whether the employer exercises such discretion. If the employer exercises its discretion to make a PILON, but then fails to pay this to the employee, the employee will have to make a debt claim (as above). However, if the employer chooses not to exercise its discretion to make a payment in lieu of notice, but then fails to allow the employee to work the correct notice period, an employee will be able to bring a wrongful dismissal claim.
If the employer is guilty of wrongful dismissal, the employee will no longer be bound by any restrictive covenants in their contract of employment. Following the employer's breach, the employee will be entitled to treat themselves as discharged from further performance of their obligations under the contract.
This situation commonly occurs where the employer makes a payment in lieu of notice to an employee when there is no payment in lieu of notice clause in their contract of employment. Therefore, when deciding whether to make employees work their notice or pay in lieu, employers should carefully read the terms of that specific employee's contract of employment.
An employee can bring a wrongful dismissal claim in either an employment tribunal or a Civil Court.
If an employee successfully shows that their employer, in dismissing them, breached their contract of employment and thus caused the employee loss, the employee will be able to claim damages against the employer in an employment tribunal to recover these losses.
The purpose of providing the employee damages is to put them in the position they would have been in had the employer not breached their contract of employment.
Therefore, damages in a wrongful dismissal claim are limited to either:
- The employee's notice period; and/or
- The period it would have taken to complete the relevant "contractual procedure".
For fixed-term contracts, where there is no provision for early termination, the damages will cover the loss to the employee for the unexpired term of the contract.
If the employee brings a wrongful dismissal claim in the Civil Courts, the remedies available to them are damages, an injunction and/or a declaration. An injunction and/or declaration will only be granted where the court believes damages will not be an adequate remedy.
In a wrongful dismissal claim, the employee is under a duty to mitigate their losses, i.e. take reasonable steps to find another job. If the employee is successful in a wrongful dismissal claim, any salary and benefits obtained in their new job will be deducted from the damages they are to receive.
If the employee wishes to bring the claim in an employment tribunal, they must bring this within three months (i.e. three months minus one day) of the breach occurring.
If the employee wishes to bring the claim in a Civil Court, they have six years to bring the claim following the breach. This route is therefore used if an employee has missed the timeline in the employment tribunal.