What is wrongful dismissal?

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Wrongful dismissal is a contractual breach on termination of an employee’s contract of employment. It is the employers' termination that can trigger a breach of one or more terms of the contract.

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An employment contract consists of terms from a number of sources which set out the respective obligations of the employer and the employee:

 

• The main source will usually be an express agreement between the parties, such as a written document. 

• Some terms are contained in collective agreements and other documents referred to within your contract.

• Other terms are not expressly agreed at all but are implied into the contract, either by common law or by statute. Implied terms can also arise where the contract is silent (or imprecise) on a particular matter.

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A breach can arise either in terms of implied or express terms.  An example of an implied term is that the employer has to provide an employee with a minimum statutory notice period.  Implied terms are relied upon where contract does not make any provision such as notice pay, so dismissing an employee without any notice or pay in lieu of notice, or without letting an employee serve their full contractual notice would be a breach of an implied term because the contract does not contain an express term.

 

Other examples can include an employer’s failure to follow a contractual dismissal procedure or by unlawfully terminating a fixed-term contract before expiry of the term.

 

The most common wrongful dismissal claims are dismissal without notice or notice pay and dismissing without working notice.

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Dismissal without notice or notice pay 

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This can arise where an employer dismisses an employee without notice, or with insufficient notice, in accordance with their statutory or contractual rights i.e an implied or express term.

 

The amount of notice, or pay in lieu of notice, that an employee is entitled to receive on dismissal will be determined by their contract of employment and whether certain statutory minimum notice rights are engaged.  However, as explained above, if a contract does not do so, statutory notice would be triggered.

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Statutory notice is the legal minimum that can be given to an employee, while contractual notice is the length of notice expressly set out in the employment contract. This means that if the notice period in the contract is different from statutory notice, the employee will be entitled to whichever is longer.

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The statutory minimum period of notice, or pay in lieu of notice, that an employer must give an employee when dismissed is at least one week’s notice if they have been employed between one month and 2 years, and one week’s notice for each year if employed between 2 and 12 years, up to a maximum of 12 weeks.  The only exception to this rule is where an employee is summarily dismissed for gross misconduct.   If this arises, if the reason for the dismissal is justified, in circumstances when an employee has committed a serious act such as theft or violence, there is no legal obligation to provide notice or notice pay.

 

Dismissal without working notice period

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There is usually no breach of contract, or resulting claim for wrongful dismissal, as long as the employer allows the employee to work out their notice or pays them in lieu of notice instead. However, there must be an express contractual right entitling the employer to make a payment in lieu of notice which is known as a 'PILON' clause.

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In the absence of any PILON clause permitting notice pay on dismissal, even if a PILON payment is made this would not remove an employee’s claim for damages, if these were justifiable, unless the employee is put in the same financial position as they would have been in if notice had been given.

What is the  difference between wrongful dismissal and unfair dismissal?

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There are clear differences between the terms unfair dismissal and wrongful dismissal, although often they are both included at the same time as heads of a claim.  The main differences between them in law is that unfair dismissal concerns statutory rights, while wrongful dismissal relates to contractual rights.

 

The potential damages for unfair dismissal can be significant, where compensation is made up of both a basic award, usually the same as a statutory redundancy payment, and a compensatory award, which takes into account future loss of earnings and other losses caused by the dismissal. Other potential remedies available to the tribunal include reinstatement or re-engagement.  Whereas wrongful dismissal awards are for contractual breaches and the remedy is to put the employee in the position they would have been financially had the breach not occurred.

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Wrongful dismissal is also different to unfair dismissal in that it focuses solely on whether or not the terms of the contract, express or implied, have been breached. Fairness is not an issue here, where the only relevant considerations for a tribunal or court will be the contractual obligations of the employer.

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To have grounds for wrongful dismissal, an employee must prove that they have been dismissed in such a way that breached their contract of employment, and that they suffered a loss because of that breach, for example, a loss of pay.

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Unlike unfair dismissal – with the exception of automatically unfair dismissal – there is no qualifying service requirement to pursue a claim for wrongful dismissal, it is a right from day one of employment.

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An employee who has been wrongfully dismissed also has the option of pursuing a claim before either the courts or the employment tribunal. As with unfair dismissal, a tribunal claim must be issued within three months, less one day, from the date of the employee’s dismissal.

 

We find that the majority of claims from employees for breach of contract claims are made under the head of wrongful dismissal in and Employment Tribunal where there is no fee outlay, whereas in the civil courts although the limitation to bring a claim is six-years, there is a fee to be paid.  There is a cap on unfair dismissal claims, currently £105,707 from 6 April 2023 (from 6 April 2024 £115,115).  If the claim is wrongful dismissal the Employment Tribunal's jurisdiction is limited to £25,000.

 

Unless a claim for breach of contract is for a significant amount i.e. in excess of £25,000, with a cast iron case of wrongful dismissal this can be resolved quicker and at less cost in an Employment Tribunal rather than in the civil courts.   We do however, represent clients in civil breach of contract claims where there are complex breaches for higher earners and the reasonable legal costs incurred for doing so are claimed against the employer.  Claims for legal costs in Employment Tribunals are limited, however not wholly out of bounds. 

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Throughout the majority of claims where the main complaint is unfair dismissal a claim for wrongful dismissal is brought at the same time.  These are known as tandem claims.  However an employee cannot receive double recovery for the same period of loss i.e. loss of earnings for unfair dismissal if it includes the notice period cannot be claimed under wrongful dismissal for that same period.  What can arise is that if a dismissal is not found to be unfair, it does not necessarily mean that there was no breach of contract. Conversely, if the same period as notice is recovered on an unfair dismissal claim the wrongful dismissal claim would not proceed.

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As with all claims, an employee is under a duty to mitigate their losses, which means if they find other employment within the period of notice, provided they receive the same amount of pay, they will not be entitled to any double recovery. The new salary received has to be credited in calculating any loss to the employee.

 

The amount of damages awarded to employees for wrongful dismissal includes the value of pay and benefits.  This would be items such as pension entitlement, health cover, any car allowance and bonuses which arise that the employee would have received had the contract been terminated lawfully.

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