Breach of employment contract: essential guide

If an employer or employee breaks or fails to meet terms under the employment contract, they may be in breach of the employment contract. Breach of an employment contract can include anything from relatively minor breaches, such as an employer’s failure to pay an employee’s expenses on the correct date, to fundamental breaches of contract arising from, for example, gross misconduct on the part of the employee.

Breach of contract can give rise to remedies for the other party, such as suing for damages. This makes it important for both the employer and employee parties to understand the nature of the employment contract and their respective obligations under it, not least their legal rights, remedies and claims in the context of different kinds of breach.

Employment contract: the essentials

A contract of employment is a legally binding agreement between the employer and employee, setting out the terms and conditions governing the working relationship between the parties, including their rights and responsibilities.

In this way, the employment contract helps to clarify the nature and extent of the obligations on either party, providing clearly defined rights, with potential legal redress where those rights are breached.

That said, although the contract of employment will usually be set out in writing, or at least in part documented by way of a written statement of employment particulars, to be legally binding the contractual terms do not need to be written down. The contract can be either written, verbal or even both.

Moreover, contractual terms can be express or implied. In other words, in addition to those terms that have been expressly agreed between the parties, either verbally or in writing, other terms will arise by implication in the context of the employment relationship.

Express & implied terms in employment contracts

Express terms are those explicitly agreed between the parties, and typically relate to core contractual matters including salary, sickness, working hours, holiday entitlement and notice periods for terminating the contract.

The employment contract will also often include express provision to protect an employer’s legitimate business interests by way of restrictive covenants and confidentiality clauses. In particular, a restrictive covenant can be used to prevent an employee from working for a competitor, either during the currency of the employment contract or even post-termination, albeit only for a specified period of time. A confidentiality clause, on the other hand, will prevent an employee from disclosing sensitive and confidential information to a third party.

The contract may also contain a clause specifically permitting an employer to make certain, albeit reasonable, contractual changes to the employee’s working conditions. These are known as flexibility clauses and are often used by an employer to make changes to either the employee’s hours or place of work, the latter more commonly referred to as a mobility clause.

In contrast, to express terms, implied terms are not necessarily agreed between the parties but, nonetheless, are still contractually binding on both parties, often to reflect the intention of the parties at the time the contract was made or because the contract does not make commercial sense without that term.

A term will usually be implied into an employment contract in one of three ways:

• Implied by fact – where the parties must have intended to include this term, even though it has not been expressly stated. The test here is either whether the officious bystander would consider the term to be so obvious as to be assumed, or it is otherwise necessary to give business efficacy to the contract. This could include, for example, the contractual requirement for an HGV driver to hold a valid licence.
• Implied by custom or usage – where there is clear evidence that a set practice operates within a particular trade or industry, or even a particular firm, although this practice must be so well recognised and reasonable that the parties must be said to have had it in their minds when they entered into the employment contract. This could include, for example, payment of an annual bonus upon hitting a certain sales target.
• Implied by operation of law – where the parties did not necessarily intend for such a term to be included, or even knew about it, but it still arises as a legal incident from the nature of the employment relationship. These types of implied terms can be automatically implied either by statute or by operation of common law and are discussed in more detail below.

Breach of employment contract explained

The contract of employment sets out legally enforceable terms and conditions that govern the working relationship between the parties. As such, in circumstances where either party breaks one of those terms, either express or implied, this is known as breach of employment contract for which legal redress can potentially be sought.

In cases of minor breaches, these can often be resolved internally without recourse to legal proceedings. In particular, an existing employee looking to raise a complaint about an alleged breach of employment contract by their employer may be able lodge a formal grievance within the workplace, whilst an employer looking to resolve an alleged breach on the part of an employee can instigate disciplinary proceedings to deal with the matter.

In many cases, minor breaches of contract by either party can often be resolved informally, by way of a chat between the employee and their line manager, or even someone from HR, without the need for a more formal approach.

However, in circumstances where the matter cannot be resolved internally between the parties, either on a formal or informal basis, or perhaps where the employment contract has already been brought to an end and post-termination negotiations have proved futile, the matter may result in a claim before the employment tribunal or the courts.

Breach of employment contract by employer

The legal rights and remedies of an employee alleging breach of employment contract on the part of the employer will primarily depend upon the nature of the alleged breach. This could be a breach of either an express or implied term.

Implied terms can arise in a number of ways, where in many cases an employee will have certain minimum rights implied by statute, regardless of what the contract states, for example, to be paid the national minimum wage or to be granted a minimum level of paid holidays. However, in the event that the employment contract provides the employee with greater rights than the minimum provided for by statute, the employee will be entitled to enforce these more generous rights in the event of any breach.

In cases of breach of contract, an employee may be eligible to claim compensation where this has resulted in some form of financial loss, although where the employee is still working for their employer, this will need to be pursued as a breach of contract claim through the courts rather than the employment tribunal.

That said, in many instances, the same claim may also fall to be determined by the employment tribunal as an unlawful deduction from wages claim. This provides a much easier statutory basis upon which an existing employee can claim any monies owed, such as non-payment of wages, holiday pay or sick pay.

Further, in circumstances where an employer fails to pay an employee for any notice period, or pay in lieu of notice, as required under the terms of the contract or as a statutory minimum, the employee will be entitled to bring a claim for wrongful dismissal before an employment tribunal.

In respect of serious breaches of contract, the employee may even be entitled to claim constructive dismissal before the employment tribunal. This is where the employer’s conduct is so serious that it justifies termination of the contract, in other words, it forces the employee to resign.

This could include, for example, where the employer cuts an employee’s pay without their agreement or significantly changes their working conditions in the absence of either express agreement or a flexibility clause within the contract of employment permitting them to do so.

In this context, an employee will often rely upon the duty of mutual trust and confidence that is implied into all employment contracts by operation of common law, not least because any significant contractual breach is likely to irreparably damage the working relationship such that the employee feels they can no longer continue working for their employer.

Breach of employment contract by employee>

A breach of employment contract is not limited to breaches on the part of just the employer. It is equally possible for an employee to breach the terms of the employment contract, both express and implied, for which the employer can sue the employee for any losses flowing as a result of that breach.

This could include, for example, where an employee leaves their job without providing the employer with adequate notice, or where the employees leaves and immediately goes to work for a competitor, even though their employment contract prohibits them from so doing for a specified period of time.

In these circumstances, an employer not only has the right to sue the employee for any financial loss arising out of their breach of employment contract, but they may also be entitled to seek injunctive relief through the courts so as to prevent the employee from working in breach of any restrictive covenant.

Further, in the same way that an employee will commonly rely upon the implied duty of mutual trust and confidence in a constructive dismissal claim, an employer can also cite breach of this duty against an employee who has acted in bad faith, either to justify a decision to dismiss and/or to form the basis of a claim for breach of contract.

In addition, the employer may seek to rely on the implied duty of fidelity that again arises by operation of common law. This refers to the duty on an employee to serve their employer with good faith and fidelity, such that an employee must not act against the interests of their employer whilst in their employment, for example, they must not misuse company property or take advantage of their employment position for their own personal advantage.

The duty of fidelity also includes an implied duty not to compete, as well as an implied duty of confidentiality. This means that during the course of their employment, the employee may not work in competition with their employer, nor disclose any confidential information or trade secrets obtained as a result of their employment, or use such information for their own purposes.

Any financial losses suffered by the employer in consequence of a breach of any common law duty on the part of the employee could again sound in damages.

Breach of employment contract before start date

The parties should also be cautious of any potential breach of employment contract even prior to an employee commencing their job. An employment contract will, in fact, come into existence, and therefore be contractually binding, at the point the offer of employment has been accepted by the employee.

By way of example, a breach of employment contract before the start date might occur where the employer withdraws the job offer due to a change of heart or finding a more preferable candidate, or even where an employee has accepted the offer of a job in breach of post-termination restrictions from a previous employment contract with another employer.

The aggrieved party would still need to prove some form of financial loss to succeed in any claim for breach of contract where, in most cases, the parties will often concentrate their time and efforts into either finding a different job or recruiting a different candidate.

Breach of employment contract damages

Either party to the employment contract can claim for breach of contract, although only in circumstances where financial losses have resulted from that breach. This will not include any claim for distress or injury to feelings.

Further, as previously explained, employees can only lodge a claim for breach of contract before the tribunal if their employment has already ended. There is also a £25,000 limit to the damages that can be awarded in the tribunal for this type of claim.

If an employee no longer works for an employer, they should bring a claim in the employment tribunal within three months of the breach of contract. If, on the other hand, the employee is still employed by the employer against whom they are alleging breach of contract, or the breach of contract claim is worth more than the tribunal limit, they will need to issue a claim via the courts.

Given the potential costs consequences of issuing a claim through the courts, expert legal advice should always be sought. Further, both parties should always seek early legal advice in respect of any breach of contract so as to minimise the risk of the matter being litigated.

Breach of employment contractFAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.