Wrongful dismissal: employer guidance

Legal issues surrounding the dismissal of an employee can quickly become costly and difficult to resolve. Wrongful dismissal claims present a specific set of challenges but are often confused with unfair dismissal.

It’s important for employers to understand the distinction between these two types of dismissal, and what this means for avoiding and handling wrongful dismissal claims.

What is wrongful dismissal?

Wrongful dismissal refers to a contractual breach relating to the termination of an employee’s contract of employment. Put another way, it involves a scenario in which the employment contract has been terminated by the employer, and that termination breaches either one or more terms of the contract.

This can include breaches of both implied and express terms, such as the implied term to provide an employee with a minimum statutory notice period, or dismissing an employee without any notice or pay in lieu of notice, or without letting an employee serve their full contractual notice in circumstances where the contract does not make provision for notice pay.

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. Below we examine in more detail the two most common scenarios in which wrongful dismissal can arise.

Dismissal without notice or notice pay

The most common example of wrongful dismissal is where an employer dismisses an employee without notice, or with insufficient notice, in accordance with their statutory or contractual rights.

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.

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.

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. In these circumstances, assuming the reason for the dismissal is justified, ie; 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

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. That said, there must be an express contractual right entitling the employer to make a payment in lieu of notice.

In the absence of any contractual provision permitting notice pay on dismissal, making such a payment may not remove the employee’s claim for damages, save except where the employee is put in the same financial position as they would have been in if notice had been given.

The difference between wrongful dismissal and unfair dismissal

The terms unfair dismissal and wrongful dismissal are often used interchangeably, but there are clear distinctions and key differences in law – the main one being that unfair dismissal concerns statutory rights, while wrongful dismissal relates to contractual rights.

Below we examine each of these employment concepts in more detail, drawing direct comparisons between the two.

Unfair dismissal

The determination of whether a dismissal is fair or unfair will depend upon the employer’s reason for dismissal, and whether or not it was one of the five potentially fair reasons cited under the 1996 Act. It is also dependent on whether the employer acted reasonably in treating this reason as sufficient to justify dismissing the employee, and followed a fair dismissal procedure.

The five fair reasons for dismissal as set out under the Act are: capability, conduct, redundancy, statutory illegality or for ‘some other substantial reason’; the latter being a catch-all provision to allow an employer to dismiss when none of the other potentially fair reasons apply.

Having established a fair reason for dismissal, the focus then turns to the employer’s conduct, and whether or not the employee’s dismissal was fair and reasonable in all the circumstances, typically having regard to the size and resources of the employer.

An employment tribunal will look at what procedures have been followed, taking into account the guidance given under the ACAS code of practice for dismissals in the context of conduct and capability matters, and whether or not the decision to dismiss fell within a band of reasonable responses available to the employer.

If the employer has either failed to dismiss for a fair reason, or failed to act reasonably or follow a fair process, the dismissal will be deemed unfair.

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.

However, for an employee to bring a claim for wrongful dismissal, they must have two years’ continuous service with the employer to , unless the reason for dismissal is automatically unfair, for example, a reason relating to an employee’s pregnancy, maternity or parental rights.

Where an employee is eligible, an employment tribunal claim for unfair dismissal must be received within the period of three months beginning with the employee’s effective date of termination.

Wrongful dismissal

The right not to be wrongfully dismissed comes from common law, while the protection afforded to an employee not to be unfairly dismissed by their employer derives from statute.

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.

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.

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

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, minus one day, from the date of the employee’s dismissal. In stark contrast, an extended six-year limitation period applies to breach of contract claims in the civil courts.

What is a tandem claim?

A tandem claim is where an employee pursues an unfair dismissal and wrongful dismissal claim at the same time, although an employee would not be entitled to receive double recovery for the same loss.

In some cases, however, high earners may opt to bring a claim for wrongful dismissal rather than unfair dismissal, especially where their contract makes provision for lengthy notice periods, sometimes as much as 12 months or more.

By suing under the terms of their contract, an employee on a high salary stands to gain more from damages for the losses flowing from any breach, in some cases representing the whole of the notice period they should have been given. This is as opposed to the amount they could receive for unfair dismissal that is largely governed by their loss of earnings, and subject to a statutory cap of £88,519.

That said, an employee is still under a duty to mitigate their loss. This means that if an employee finds alternative employment within the period of notice, as with a tandem claim they will not be entitled to any double recovery. The new salary received is to be taken into account in calculating any loss to the employee.

What are the consequences of wrongful dismissal?

If an employee successfully brings a claim for wrongful dismissal, either before the employment tribunal or the civil courts, this will sound in damages.

The amount of damages awarded for wrongful dismissal will usually equate to the value of the employee’s pay and benefits – such as pension entitlement, private health cover, car allowance and even bonuses – during the period of notice (or any contractual dismissal procedure or remaining fixed term) that the employee would have received had the contract been terminated lawfully.

On the whole, however, any award of damages for breach of contract is unlikely to be significant, save except where the employee is an especially high earner with a contractual entitlement to enhanced notice pay, or where a fixed term contract has been unlawfully terminated with a substantial period remaining.

There is also a £25,000 limit to the amount of compensation that can be awarded in the tribunal for this type of claim, where an employee would need to pursue the matter before the civil courts if the value of their claim is worth more.

That said, in addition to any award of damages, there can often be other consequences arising from wrongful dismissal, where an employer risks serious reputational damage for failing to comply with its basic contractual obligations.

How to avoid wrongful dismissal claims

The dismissal process can be complex and fraught with legal difficulty, where careful handling, and a clear understanding of the law, is required at all times. If an employee thinks you have dismissed them unfairly or unlawfully, they might take you to an employment tribunal, or even to court where costs can escalate.

It is important to understand the rights and entitlements of your employees before making any decision to dismiss. Equally, it is important that you understand how to fairly and lawfully terminate a contract of employment to avoid any costly mistakes.

Be proactive in the following areas to help reduce the risk of wrongful dismissal:

• Ensure employment documents – including contracts, handbooks and policies – support fair and lawful practices. Review and update these regularly.
• Deliver training across your organisation to ensure awareness of expectations, standards and best practice for management and workforce as a whole.
• Ensure any disciplinary procedure is fair and lawful.
• Ensure any dismissal is supported by fair and lawful reasons.
• Keep contemporaneous notes and ensure effective record-keeping.
• Treat all workers fairly and consistently.

Wrongful dismissal FAQs

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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.