Breach of contract happens when an employer or employee fails to comply with the terms of the employment contract.
We outline below the most common types of breaches and the potential claims that they can trigger.
What is a ‘breach of contract’?
A breach of contract occurs when either an employer or employee fails to follow the terms of the employment contract.
The employment contract is a legally binding agreement that governs the employment relationship between an employer and employee.
Legally, employers are required to provide employees with a ‘written statement of employment particulars’ when they start work.
This sets out important employment terms such as pay, hours of work, notice periods etc.
However, the employment contract does not need to be written and it can consist of a range of terms, including:
- Express terms – terms which are clearly agreed either in writing or verbally.
- Statutory rights – terms that are implied by law (e.g. the right to receive minimum wage, statutory holiday entitlement, statutory notice period).
- Implied terms – essential terms that are implied in all employment contracts (e.g. the duty of mutual trust and confidence).
- Terms implied by custom and practice – terms that have not been agreed but are applied consistently by an employer over a long period of time so that they become contractual.
Therefore, breach of contract will occur when any of these employment terms are broken, regardless of whether they are written or verbal, express or implied.
Breach of contract by an employee
The most common ways that an employee will breach their employment contract are by:
- Resigning without providing sufficient notice;
- Not adhering to restrictive covenants;
- Committing gross misconduct.
What to do if an employee breaches the employment contract
If an employee breaches their employment contract, you should always try to resolve the matter informally with them.
If you cannot settle the issue informally, you can sue them in the county court or high court for breach of contract.
You would not be able to bring a claim in the employment tribunal, as employers can only bring counterclaims for breach of contract in the employment tribunal.
The court will only award you compensation if you can show that you have suffered financial loss as a direct result of the employee’s breach, which can be difficult to prove.
For example, if the employee left without providing you with sufficient notice, you could claim for the additional costs incurred in hiring staff to cover their work during the notice period or lost revenue.
If an employee breaches their restrictive covenants, such as poaching clients or creating a competitor business shortly after leaving, you could apply for an injunction from the court to prevent them from taking such action.
Breach of contract by an employer
It is important that you understand and adhere to the terms of the employment contracts you enter into, as there are many ways that you can breach the contract.
We highly advise that you issue employees with a written employment contract that contains all the terms of employment as this ensures that you are both aware of your rights, responsibilities and duties.
The most common ways that employers breach employment contracts are:
- Not paying wages, travel expenses, holiday pay and sick pay in line with the employment contract.
- Not paying the employee during their notice period or not paying them in lieu of this.
- Not following the contractual disciplinary and grievance procedures.
- Changing the terms of employment without consulting the employee.
Therefore, you must be aware of the payments and other benefits employees are entitled to receive under their employment contract and ensure that these are provided.
If you want to change the terms of the employment contract, you should consult with employees and obtain their written agreement, especially if the terms are fundamental.
Claims employees could bring
If an employee suspects that you have breached the employment contract, they should always attempt to resolve the issue informally with you.
However, they may be entitled to bring one of the following claims in respect of the breach.
1) In the Employment Tribunal
Employees can only bring a claim for breach of contract in the employment tribunal if they no longer work for you and they must bring the claim within 3 months of the breach occurring.
The amount of compensation that can be awarded to an employee for breach of contract in the employment tribunal is limited to £25,000.
However, an employee may be entitled to additional compensation if they bring other claims, such as unfair dismissal or discrimination.
If an employee sues you for breach of contract in the employment tribunal, you can bring a counterclaim for any losses you have suffered due to the employee’s conduct.
2) In The Civil Court
If the employee is still working for you or they are seeking to recover over £25,000, they will bring their breach of contract claim in a civil court, such as the county court or high court.
There is a much longer time limit of 6 years for breach of contract claims in civil courts and the process is much more complex.
Unlawful deduction from wages
If you have breached the employment contract by failing to pay an employee their wage, holiday pay or sick pay in accordance with their employment contract, the employee will be entitled to bring a claim of unlawful deduction from wages in the employment tribunal.
If the claim succeeds, the tribunal will direct you to repay the employee the amount deducted from their wages.
The tribunal may also order you to pay the employee a compensatory award for any financial loss caused by your breach, for example if they incurred overdraft charges.
An employee can bring a claim for constructive dismissal if you commit a fundamental breach of the employment contract that is so severe that the employee can no longer work for you and subsequently resigns.
Examples of such repudiatory breaches include non-payment of wages, making the job impossible and unwarranted disciplinary action.
Constructive dismissal claims are incredibly difficult for employees to bring as the threshold for the claim to succeed is very high – they must resign without delay and be able to prove that their resignation was due to your breach.
If you dismiss an employee in breach of the employment contract, they will be able to bring a claim of wrongful dismissal.
For example, if you do not pay the employee their notice or you dismiss them without following the contractual disciplinary process, they may bring a wrongful dismissal claim.
Unlike, unfair dismissal, there is no length of service requirement to bring a claim, therefore all employees are entitled to claim wrongful dismissal.
If a wrongful dismissal claim is brought and the tribunal decides that you have not fulfilled your contractual obligations, you will be required to compensate the employee for their notice pay.
Having a comprehensive written employment contract will give you a clear understanding of your contractual obligations as an employer, reducing the chance of you breaching the contract.
There are different types of claims an employee can bring (depending upon the type of breach) but generally they can only seek compensation for financial loss.