In this month’s edition of LAWmail, we thought it would be worthwhile to undertake a short spotlight on the topic of wrongful dismissal. In this article, we ask what is wrongful dismissal; how does it differ from unfair dismissal; and what are the potential risks and liabilities where an employee is wrongfully dismissed?
What is it?
In a nutshell, wrongful dismissal occurs when the employee is dismissed in breach of their contract of employment. This would cover both the express terms of the employment contract and the implied terms. The most common examples of wrongful dismissal are:
- Dismissal without adhering to the employee’s contractual notice entitlement;
- Dismissal without following a contractual procedure, such as a disciplinary or redundancy procedure; and
- Early termination of a fixed-term contract.
An employer can generally avoid liability for wrongful dismissal by ensuring the contract is drafted robustly. In relation to the first example, the employer should include a pay in lieu of notice (PILON) clause in the contract which allows them to terminate the employee’s employment with immediate effect and pay them the sum they would have received had they worked their contractual notice period. The clause should stipulate how the PILON will be calculated to avoid any dubiety, either inclusive or exclusive of benefits other than basic salary. The contract should also confirm whether there are any circumstances in which the employer reserves the right to dismiss without notice, such as where the employee is found guilty of gross misconduct.
Similarly, the disciplinary and redundancy policies should state that they are non-contractual and may be departed from at the employer’s discretion in cases where the employee has under two years’ service if, of course, that is the employer’s intention. Finally, it would be wise for an employer to include a clause in its fixed-term contracts which allows either party to terminate the contract prior to the expiry date upon provision of notice.
Relationship with Unfair Dismissal
The terms “wrongful dismissal” and “unfair dismissal” are often used interchangeably despite referring to two entirely separate legal claims. A dismissal may be wrongful but not unfair, or unfair but not wrongful. In a wrongful dismissal claim, the tribunal is concerned solely with whether there has been a breach of contract. Unlike in an unfair dismissal claim, it does not concern itself with the statutory rules on substantive or procedural fairness. Most unfair dismissal claims have a minimum service requirement of two years whereas employees with any length of service may pursue a wrongful dismissal claim.
Risks and Liabilities
Wrongful dismissal claims may be brought in the employment tribunal or in the civil courts. For the employee, choosing the correct forum is important. There is an upper limit of £25,000 imposed in the employment tribunal which is not similarly imposed in the civil courts, however the latter process can incur substantial costs whilst the former is currently free. Furthermore, the time-period for raising a wrongful dismissal claim in the employment tribunal is just three months compared with six years in the civil courts. Generally speaking, the tribunal process will be much quicker than in the courts, albeit in present times even reasonably straightforward tribunal cases can be subject to delay.
If the claim is upheld, the tribunal or court will award the employee damages equal to the net value of salary and any other contractual benefits to which the employee would have been entitled during their notice period and/or the period of time it would have taken to complete a relevant contractual procedure. In a fixed-term contract case, if the employer is in breach it will have to pay for the entirety of the rest of the term of the contract.
Essentially the damages put the employee in the financial position they would have been in but for the wrongful dismissal. There are no additional damages for injury to feelings as there would be in a discrimination case, or compensation for ongoing loss as with unfair dismissal. The employee may not seek reinstatement or re-engagement and only in the civil courts may they seek a declaration or injunction/interdict.
Sometimes the employer might conclude that the financial risks associated with wrongful dismissal claims are minimal: essentially they are limited to the amount the employer would have paid to dismiss the employee correctly anyway. However, there are other risks which the employer should be aware of. Importantly, a wrongful dismissal will free the employee from any restrictive covenants and other contractual obligations. Put simply where the employer committed a repudiatory breach of contract by dismissing the employee in breach of the notice provisions, the employee is entitled to treat himself as discharged from any further performance of his obligations under the contract. Therefore, we recommend that employers err on the side of caution and take the relatively simple steps above to protect against wrongful dismissal claims.