Breaking an employment contract

Monday, March 19th, 2012

If an employee breaks their contract of employment and the employer suffers loss or damage, aside from taking disciplinary action and potentially terminating the contract, it is uncommon for the employer to take further steps.  The employer may try and settle the matter with the employee informally.  If the employer suffers a financial loss because of the breach, it could sue the employee.  The employer would normally use the ordinary courts and sue for damages.  The only way an employer would be able to make an application to an employment tribunal is in response to a breach of contract claim that the employee has made.

Damages are awarded for financial loss.  To take a very simple example, if the employee does not give notice to terminate, the employer could sue for damages for the extra cost of hiring temporary staff to do the work, or for lost revenue, or any other foreseeable consequential loss. One recent case to be heard by the Courts concerned an employee who had not disclosed all relevant information on the application form they completed.  This turned out to be crucial to their ability to do the job.  The employee was terminated and the employer sued the dismissed employee to recover the costs incurred in hiring a replacement.

The contract could also be broken where an employee provides false references which are then relied upon in offering a position to the employee.  Furthermore if, following their termination, an employee breaches a restrictive convenant by working for a competitor then the employer could raise a claim for breach of contract.

In terms of breaches by an employer, a breach of contract can occur in the way in which an employee is dismissed.  For example, where an employee is not given proper notice or is terminated without their employer following the procedures contained in their contract of employment.  A failure to pay an employee their wages or salary could also amount to a fundamental breach of the contract of employment.  An employee may also be able to argue that their contract has been broken in circumstances where they believe they are due a bonus but the employer does not pay, for example, by taking the view that any bonus award is discretionary.  Had the employee received a bonus year on year then it may be that the right to receive a bonus is regarded as contractual and therefore a failure to pay would amount to a breach of contract.  A breach of contract claim may also arise where the employee believes that the way in which an employer has behaved has destroyed the implied term of trust and confidence e.g. where an employee has been bullied by their line manager.

The difficulty in an employee raising a claim for breach of contract is that they can only sue for breach of contract during the employment relationship in the ordinary courts.  Breach of contract claims can only be raised in the employment tribunal once the employment has terminated.  However, the maximum amount of a breach of contract claim in the tribunals is £25,000.