What is a fundamental breach of the contract?

There will be a fundamental contract breach when the employer has broken a core term that goes to the very root of the contract. It must be a breach “which indicates that the employer altogether abandons and refuses to perform its side of the contract” (Wright v North Ayrshire Council [2013] UKEAT 0017/13/2706).

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 hearing the witnesses being cross-examined. Every case is different, but some examples from case law include:

• offering money to leave after an employee asked to change her working arrangements to accommodate her baby’s cerebral palsy (Bates Wells & Braithwaite v MacFarlane EAT/0616/02);

• using foul and abusive language (Horkulak v Cantor Fitzgerald [2003] EWHC 1918);

• publicly reprimanding an employee and not allowing them the chance to respond (Morrow v Safeway Stores [2002] IRLR 9);

• issuing a final warning without a proper investigation (Thakeray v Acequip [2003] All ER (D) 08);

• issuing a final warning for an offence any reasonable employer would have regarded as minor (Stanley Cole (Wainfleet) Limited v Sheridan [2003] EWCA Civ 1046);

• cutting pay and increasing duties where the express contract terms did not permit this (Governing Body of St Edmond of Canterbury Catholic High School v Hines [2003] UKEAT/1138/02/2609);

• paying half pay sick pay when the contract entitles the employee to full pay sick pay (Roberts v The Governing Body of Whitecross School [2012] UKEAT 0070/2/1906);

• transferring an employee to a higher graded post where the result was to deprive the employee of previous pay protection (London Borough of Camden v Collins & Clements [2002] UKEAT/1436/01/2011);

• unilaterally changing a contractual fixed London allowance (Security and Facilities Division v Hayes [2001] IRLR 81);

• instructing an employee to change her hours in conflict with her domestic responsibilities (Greenaway Harrison v Wiles [1994] IRLR 380). The employer argued that she had jumped the gun by resigning before the change was implemented, but the EAT ruled that there was a breach of contract;

• deciding to pay the national rate only, and ignoring the previous collectively agreed local rate incorporated into the employee’s contract (Gibbons v Associated British Ports [1985] IRLR 376);

• fundamentally changing a shift system, resulting in different hours of work, including weekend and bank holiday working, cutting the amount of overtime payments, shift premiums and start-up payments, limiting the choice of holidays (Alcan Extrusions v Yates and Others [1996] IRLR 327);

• replacing full-time work with part-time work (Hogg v Dover College [1990] ICR 39);

• forcing employees, in breach of contract, to accept 18.5% and 13.2% pay cuts or else face dismissal (Hazel v The Manchester College [2014] EWCA Civ 72);

• transferring employees to new work where there was nothing in the contract to allow for this (Hughes v Southwark [1988] IRLR 55);

• demoting an employee and cutting his pay by one-third for posting Facebook comments criticising gay marriage in his own time (Smith v Trafford Housing Trust [2012] EWCA 3221).

Employment contracts are increasingly likely to contain an express term permitting unilateral changes to core contract terms, including location, duties, pay and shift patterns. Where an express term permits the change, an employer that requires employees to comply will not be in breach of the contract. For a good example, see Home Office v Evans [2007] EWCA Civ 1089, discussed on page 317. Even so, sometimes the manner of implementing the change, for example, unlawfully targeting particular groups, failing to consult, or to allow enough notice, could amount to a fundamental breach of the implied duty of mutual trust and confidence and/or discrimination or victimisation. However, these are difficult arguments to win and careful legal advice is needed.

There can be a fundamental breach of contract even if the employer mistakenly believes their actions to be lawful. For a good example, see the case of Roberts v The Governing Body of Whitecross School [2012] UKEAT 0070/2/1906, discussed on page 211 in the context of sick pay entitlement.

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

The fundamental breach of contract need not be the main reason for the resignation, as long as it is one reason (Logan v Celyn House Limited [2012] UKEAT 0069/12/1907). For example, in Wright v North Ayrshire Council [2013] UKEAT 0017/13/2706, Ms Wright resigned both because her employer treated her very badly and also due to her caring responsibilities. The EAT said it was irrelevant which of these was the main cause of her resignation. All Wright had to show was that the bad behaviour contributed to her decision to resign. However, if the employer’s actions are not the main reason for the dismissal, any compensation is likely to be significantly reduced, to reflect the likelihood that the employee would have resigned whatever had happened (see Compensation, page 307).