Wrongful Dismissal – Complete Guide

Introduction to wrongful dismissal

A dismissal becomes wrongful when it is made in breach of either express term of an employment contract or statutory provisions under Employment law. It is worth noting that wrongful dismissal is a contract of employment between an employer and the employee is essentially a contract, like any ordinary contract. The employment contract can be either for a fixed term or continuous and it could also be in writing or agreed orally”.

Generally, the employment contract expressly states the duties and obligations of each party. The employee and employer can also negotiate the terms of employment in, particularly the terms related to the termination of employment. Where an employer terminates the employment contract in breach of an express term or before the expiry of the contract or in any other improper way, such dismissal will be deemed as wrongful dismissal.

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­­­­­­­­­What is on this page?

  • Introduction to wrongful dismissal
  • What is wrongful dismissal?
  • Breach of contract/termination of the contract
  • Notice Period
  • Wages in Lieu
  • Employee’s remedies for wrongful dismissal
  • Damages, injunctions, and account for profits
  • Tax position if compensation is for over 30k
  • What would you do next?

What is wrongful dismissal?

Wrongful dismissal is a dismissal which is in breach of the employment contract, usually the breach of notice term to terminate the contract. Wrongful dismissal also includes constructive dismissal, which occurs when the employer commits a repudiatory breach of contract which the employee accepts by leaving the employment.

Breach of contract/termination of the contract

There are several ways in which the contract of employment may be terminated at common law, that is by a supervening event; notice is given by either party, breach of agreement, dismissal, agreement, performance and frustration.

Notice Period

Under the Employment Rights Act 1996, section 86, the minimum notice period for an employee with under two years continuous employment is one week; where there are over two years continuous employment, the employee is entitled to one week´s notice for each year up to a maximum of 12 years.

The statutory minimum that an employee must give to the employer to terminate the employment contract is one week if the employee has been employed for four weeks or more.

Section 86 of the Employment Rights Act 1996 does not affect the rights of either party to terminate the employment contract through the other party´s conduct and does not prevent either party from waiving his or her right to notice on any particular occasion, additionally, the employment law does not prevent a party from accepting payment in lieu of notice. In practice, many organizations would prefer to have express provisions for payment in lieu of notice in the employment contract, and these “payments in lieu of notice” help the employer and employee to avoid unnecessary litigation.

termination 110302 640 Wrongful Dismissal - Complete Guide
Wrongful Dismissal

Wages in Lieu

Wages in lieu is whereby the employer gives the employee the wages which the employee would have earned during the notice period, and the employer instructs the employee not to work out the notice period, allowing the employer to dismiss the employee immediately. These provisions are particularly helpful for organizations that are involved in Research and Development and where the employer has serious concerns about the Spring Boarding of the former employee and would like to prevent the business secrets.

Employee’s remedies for wrongful dismissal

The potential remedies for wrongful dismissal UK are specific performance, injunction; declaration; judicial review remedies; and damages.

If an employee is wrongfully dismissed, they may claim compensation for all financial and other benefits that would have been received had the employee been dismissed in compliance with the contract, had they remained employed until the end of their notice period, or until the end of the contract if it is for a fixed term.

Some employment contracts may expressly provide and incorporate in the employment contract a precise sum or a precise means of calculating it, which must be paid to the employee to end the contact lawfully, either as an alternative to giving notice or as an only means for contract termination.

Some employers would stipulate a specific sum that is to be paid in compensation in the event of dismissal in breach of contract for the sake of certainty and in order to avoid litigation, as in the end the employment contracts are contracts in essence and the employee and employer can choose or exclude certain terms.

Damages, injunctions and account for profits

A wrongfully dismissed employee is entitled to damages equal to his or her wages or salary during the notice period.

The law looks at the definitive contractual liabilities of the employer in assessing damages, not at what the employee might have received, excluding a discretionary bonus, during the term of the contract.

For the general rule on damages, there are exceptions:

  • Fixed-term contracts, where the contract of employment is for a fixed term, not terminable by notice, the damages recoverable are the amount which the employee would have earned under the contract during the remainder of the term, after the wrongful dismissal subject to mitigation.
  • Additional benefit work, certain untypical contracts of employment may be constructed as envisaging a greater reward for the employee than only the wages or salary so that the damages in respect of this further loss can be recovered in addition.
  • Loss of statutory rights as the wrongful dismissal UK action cannot be used to challenge an employer´s use of short notice to avoid an unfair dismissal claim.
  • Discretionary benefits, there will be no award of damages for bonuses that are solely within the discretion of the employer, and share options that are purely in the discretion of the employers.
  • Stigma damages, damages for injury to feelings and/or manner of dismissal. No damages are recoverable for the humiliating way in which the employee was dismissed or for stress and anxiety.
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Factors which may have an impact on compensation i.e. increase or decrease

Once the amount of damages for the wrongful dismissal has been ascertained, may be subject to reduction:

  • The employee is under a duty to mitigate his or her loss and give credit for sums earned during the notice period or during the remainder of the contract’s fixed term, which means essentially finding another job.

However, the employee need only do what is reasonable to mitigate, they need not to take any job immediately, but the employee may continue to search for the right job for a reasonable period.

  • If an employee is offered his old job back, they will fail to mitigate if they turn down that offer, where it would have been objectively reasonable to accept.
  • Regarding other benefits particularly applicable to wrongful dismissal cases, it appears that contractual payments by the employer such as sick pay are deductible, even if provided under an insurance policy maintained by the employer, jobseeker´s allowance received by the dismissed during the period by which the damages are calculated is deductible.

Also, the same rule of deductibility applies to income support and redundancy payment. The redundancy payment is not deductible except in a rare case where it can be shown that the employee would have been made redundant anyway.

Tax position if compensation is for over 30k

The taxation of damages for wrongful dismissal, under the Income Tax (Earnings and Pensions) Act 2003, post-cessation receipts are taxed to the extent that they exceed £30.000, which means to the first £30.000 of damages for wrongful dismissal, must be awarded net of tax, but not to any amount over and above the £30.000, which must be awarded gross, and will then be taxed by the revenue.

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