7. Remedies for breach of contract

If an employer imposes a change to the contract of employment on the employee in breach of contract, the employee will be entitled to bring a claim in the courts or employment tribunal. As stated in Chapter 5, it is essential that the employee does not delay too long before starting legal action, otherwise they can be said to have accepted the changes.

The types of claim that can be brought fall into two categories:

• a claim for damages — these are the losses arising from the breach of contract; and

• an application for an injunction or a declaration - these are remedies that may be awarded by the courts at their discretion. An injunction is an order for a party either to do or not to do something; a declaration is a statement of the claimant’s rights.

Claims of constructive dismissal, which also arise from a breach of contract, are considered in Chapter 8.

Claims for damages can be brought either in the employment tribunal or in the civil courts (County Court or High Court) — an injunction or a declaration is only available through the civil courts. The County Court deals with damages up to a value of £15,000.

However, an employment tribunal can only hear claims for breach of contract if the breach arises or is outstanding on the termination of the employee’s employment. If an employee wants to bring a claim for breach of contract while they are still employed they must do it through the civil courts.

There is no qualifying period of employment before an employee can bring a claim for breach of contract. A tribunal can even hear a claim for breach of contract before employment has started, as long as there is a contract of employment:

Outstanding wages can be pursued as a debt through the civil courts if the employee’s employment has not ended. However, they can also be pursued in the tribunal as an unlawful deduction of wages claim, which stems from a statutory right under Section 13 of the Employment Rights Act 1996 (ERA 96).

Claims for damages for breach of contract that are likely to be heard in employment tribunals therefore include arrears of pay, accrued holiday pay and notice pay (see wrongful dismissal, below) that the employee is owed after their employment has ended.

If a claim is brought in an employment tribunal the time limit is three months from the end of employment (although the tribunal has discretion to extend this limit if it was not reasonably practicable for the claim to be brought before that date). In the civil courts, the time limit for bringing a claim for breach of contract is six years from the breach.

The maximum amount of damages that can be claimed in an employment tribunal for breach of contract is £25,000 so if the claim is for more than this the action should be pursued through the civil courts. Claims for personal injury must also be brought through the civil courts, as must actions relating to restrictive covenants and confidentiality.

When an employee brings a claim for breach of contract this entitles the employer to make a counterclaim for any losses they have incurred as a result of the employee’s actions - and they will be able to pursue the counterclaim even if the employee subsequently withdraws their breach of contract claim.

Employment tribunals can be a cheaper and more easily accessible method of enforcing your legal rights. The costs of bringing an action in the High Court in particular may be prohibitive and anyone contemplating bringing a claim is encouraged to take legal advice. Union members should seek advice from their union.

Wrongful dismissal

A contract of employment must include a term specifying how much notice must be given to the employee to terminate the contract. If the contract is terminated without giving notice it will be a dismissal in breach of contract. This is a wrongful dismissal. This is not the same as a claim for unfair dismissal, which comes from the statutory right under Part X of the ERA 96.

An employee is entitled to the minimum period of notice stated in Section 86 of the ERA 96. After one month’s service this is one week; after two years it is two weeks, and then it increases by one week for each additional year of service up to a maximum of 12 weeks’ notice for continuous employment of 12 years or more. A contract of employment can give a right to more notice than this but not less.

Where no notice period is specified in the contract the courts or tribunal will imply a reasonable period of notice into the contract. This must not be less than the statutory minimum and in practice this may be the period of notice that will be implied unless there are particular circumstances that would make it reasonable to imply more.

An employee who has been employed for one month or more only has to give one week’s notice unless there is a term within (or incorporated into) the contract stating otherwise.

The statutory minimum notice provisions do not prevent either party from waiving their rights to notice or from accepting payment in lieu of notice.

In a claim of wrongful dismissal, there is no qualifying period of employment. This means that if an employee had not got the 12 months’ service necessary in most cases to bring a claim of unfair dismissal, they can still bring a claim for notice pay if they have been dismissed without notice in circumstances that do not justify summary dismissal.

Damages for wrongful dismissal

The principle for recovering damages in a claim for wrongful dismissal is the same as in any breach of contract claim: it is to put the injured party back in the situation they would have been if there had been no breach of contract. This means that the employee can claim:

• a sum equivalent to the wages they would have earned between the date of dismissal and the date that the contract could lawfully have been ended;

• the value of any benefits that the employee would have received during that period.

If the company had a disciplinary procedure that should have been followed before notice could even be given, the length of time this would have taken can be added to the notice period — but there is no entitlement to claim additional damages for the loss of the chance to claim unfair dismissal on the basis that the dismissal might not have happened if that procedure had been followed.

Mitigation of loss

In any claim for breach of contract, the employee has a duty to mitigate, or lessen, their losses. This means that where an employee has been wrongfully dismissed and is claiming loss of income they must take reasonable steps to find alternative work.

This does not mean that they have to take any job that is offered — it is reasonable to refuse a job that involves a significant drop in status, but equally a lower salary does not necessarily make a job unsuitable. It is up to the employer to provide evidence of whether or not the employee has mitigated their loss, from which the court or tribunal will decide whether or not the steps that the employee has taken are reasonable.

The amount of damages awarded will then be reduced by the amount of any earnings that the claimant has received during the notice period in mitigation of their losses.

If an employer offers to re-employ the employee who they have wrongfully dismissed, the employee will usually be justified in refusing that re-employment. However, that is not always the case, as is shown in the following decision by the Court of Appeal:

Manner of dismissal

There is no right to claim injury to feelings as a result of the manner in which an employee was dismissed, either in a wrongful or unfair dismissal. There was some debate in the courts on this issue, but the matter was finally resolved by the House of Lords in the case of Dunnachie v Kingston-upon-Hull City Council [2004] IRLR 727.

However, an employee may be able to claim, in certain circumstances, for damages arising from the way they were treated prior to dismissal.

For example, in Malik and another v Bank of Credit and Commerce International [1997] IRLR 462 the claimants were awarded “stigma” damages because of the dishonest and corrupt way the bank had conducted itself prior to the dismissals. This had put them at a disadvantage when they were looking for alternative work. To succeed in a claim for stigma damages, the employee must show actual loss — it is not enough to say the stigma is likely to make it difficult for them to find alternative work, they must provide evidence of specific jobs that they have been refused.

This is a complex area of law and was considered again in the cases of Eastwood v Magnox Electric and McCabe v Cornwall County Council [2004] 733 — two claims heard together by the House of Lords. Both concerned breach of the implied term of trust and confidence during their employment — one in respect of harassment and unjustified allegations, the other in respect of a long and unjustified suspension from work.

The ruling of the House of Lords was that a claimant could pursue damages for a breach of contract that occurred prior to dismissal but not if the breach of contract occurred in the steps leading to dismissal.

Injunction

As well as providing remedies that are available through relevant legislation or law of contract, courts are able to award what are known as “equitable remedies”. An injunction (or interdict in Scotland) is an equitable remedy. These remedies are based on principles of fairness and, unlike claims in statute or in contract they are discretionary and will only be granted in exceptional cases and where damages alone would not be an adequate remedy. They are relatively rare in employment cases.

An injunction is an order by the court either to do or not to do something. Where one party is in breach of contract, the court can make an order stating that they must carry out the promise that they have made in the contract: this is called an order for specific performance.

Orders for specific performance will generally not be granted in a contract of employment because it would be impossible for the court to supervise it. Injunctions in relation to employment matters are therefore generally concerned with orders not to do something, for example that the employee must not go and work for a competitor because they would be in breach of a restrictive covenant.

However, there are exceptions. In the following case an interdict was used to prevent an employee’s selection for redundancy:

The court was influenced by the fact that the LIFO provision was incorporated in Anderson’s contract of employment, making it a contractual right, and that this was a redundancy situation where there was no suggestion of mistrust between the employer and employee.

Although a breakdown in trust and confidence may prevent the court issuing an injunction that would have the effect of continuing the employment relationship, it does not prevent them from issuing an injunction to allow a disciplinary process to continue:

Declaration

Sometimes it may be appropriate for an employee to apply to a court for a declaration of their rights. As with injunctions, these will be granted in exceptional cases where damages would not be adequate and are rare. A declaration sets out the employee’s rights whereas an injunction enforces them.

In Barber & others v RJB Mining (UK) Ltd [1999] IRLR 308, the pit deputies were required to work more than the maximum average working time of 48 hours per week specified in the Working Time Regulations 1998. They applied to the High Court for a declaration and an injunction. The Court granted a declaration that the employees did not need to work until their average time fell within the statutory limits. They did not grant an injunction restraining the employer as they said this would be “disproportionate” and the employees would have a remedy under the Regulations if they suffered detriment or dismissal as a result of their refusal to work.

Note that in accordance with the 2009 version of the Acas Code of Practice on Disciplinary Procedures, an employee who wishes to pursue a claim in an employment tribunal is generally encouraged to first raise a grievance with their employer.

These procedures are set out in the LRD booklet Disciplinary and grievance procedures.