Fundamental contract breach

For a constructive dismissal claim to succeed, the breach of contract must be fundamental, i.e. very serious. It must show that the employer “altogether abandons and refuses to perform” its side of the contract (Wright v North Ayrshire Council [2013] UKEAT 0017/13/2706). More than just unreasonable behaviour is needed.

The contract term that is broken can be express (i.e. specifically agreed – whether or not in writing) or implied. A common example of an implied term leading to this kind of claim is the implied duty of mutual trust and confidence, which is fundamental to every employment contract.

Whether there has been a fundamental contract breach is a factual question for a tribunal to decide after looking at all the evidence, reading the witness statements and listening to cross-examination. Every case is different, but some examples of fundamental contract breach have included:

• unilaterally cutting pay or hours;

• unilaterally relocating employees to a new site, a significant distance from the old site;

• fundamentally changing duties;

• demoting;

• wrongly withholding contractual sick pay;

• using foul language;

• publicly humiliating an employee;

• engaging in bullying or harassment;

• issuing a sanction such as a Final Warning without investigation;

• failing to investigate a grievance properly and adequately; and

• engaging in unlawful discrimination.

Employment contracts increasingly include express terms that permit the employer to make changes to contract terms without consent, known as “flexibility terms”. These terms make it much harder to succeed in a constructive dismissal claim. Flexibility terms are discussed on pages 68 and 79 of Chapter 3.

Even though the contract contains an express flexibility term, an employer that forces through change without consultation may be found to have fundamentally breached the implied contractual duty of mutual trust and confidence.

Where protected groups are affected, the fundamental breach of contract may also amount to unlawful discrimination in breach of the Equality Act 2010 (see Chapter 6).

There can be a fundamental breach of contract even though the employer mistakenly believes they are acting lawfully (see Roberts v The Governing Body of Whitecross School [2012] UKEAT 0070/2/1906, discussed on page 209).

If an employer fundamentally breaks the contract, the employee is no longer bound by the rest of its terms, except as to confidentiality.