Breach of Contract in Employment: Employer's Guide

Employment contracts create legal obligations for both parties. Understanding breach helps you avoid costly claims and protect your business.

What Is Breach of Contract?

Definition

Breach occurs when:

• Either party fails to perform a contractual obligation
• Without lawful excuse
• Causing loss to the other party

Types of Terms

Express terms:

• Written in the contract
• Clear and specific
• Agreed by both parties

Implied terms:

• Not written but legally implied
• Trust and confidence
• Duty to provide work (sometimes)
• Health and safety

Types of Breach

Minor breach:

• Less significant
• Doesn't go to heart of contract
• May give rise to damages

Fundamental/repudiatory breach:

• Serious breach
• Goes to root of contract
• Innocent party can terminate

Common Employer Breaches

Non-Payment of Wages

• Most obvious breach
• Also unlawful deduction claim
• Includes late payment
• Includes wrong amount

Failure to Provide Notice

• Dismissing without proper notice
• Not giving notice period stated in contract
• Wrongful dismissal claim results

Unilateral Changes

Changing without agreement:

• Pay cuts
• Demotions
• Location changes
• Hours changes
• Role changes

Breach of Trust and Confidence

The implied term:

• Must not destroy mutual trust
• Must not act in arbitrary manner
• Must treat employee reasonably

Examples:

• Persistent unfounded criticism
• Bullying
• Failing to investigate grievance
• Humiliating employee publicly

Failure to Provide Work

Sometimes implied duty:

• Where skills need practice
• Where commission/bonus depends on work
• Where reputation depends on work

Health and Safety Failures

Implied term to provide:

• Safe working environment
• Safe systems of work
• Adequate equipment

Breach of Confidentiality

If employer discloses:

• Employee's personal information
• Medical details
• Without consent or justification

Common Employee Breaches

Resignation Without Notice

• Must give contractual notice
• Or pay damages for breach
• In practice, rarely pursued

Confidentiality Breaches

• Disclosing trade secrets
• Taking confidential information
• Using for competitor's benefit

Restrictive Covenant Breaches

• Joining competitor in breach
• Soliciting clients/employees
• Working in restricted area

Gross Misconduct

Fundamental breach by employee:

• Entitles employer to dismiss without notice
• Theft, fraud, violence, etc.

Consequences of Breach

For Innocent Party

Options:

• Affirm contract: Continue despite breach
• Treat as terminated: Accept breach and end contract
• Claim damages: Seek compensation for loss

Affirmation

If you continue:

• Contract remains in force
• Lose right to terminate for that breach
• Can still claim damages
• Don't delay too long

Termination

If fundamental breach:

• Can treat contract as ended
• Don't need to give notice
• But must act promptly

Damages

Compensation for:

• Actual financial loss
• Put innocent party in position as if contract performed
• Must mitigate loss

Constructive Dismissal

What It Is

Employee resigns due to employer's fundamental breach.

Requirements:

1. Fundamental breach by employer
2. Employee resigns in response
3. Resignation is prompt
4. Employee didn't affirm the breach

Common Triggers

• Non-payment of wages
• Significant pay cuts
• Demotion without consent
• Bullying and harassment
• Failure to address grievance
• Unreasonable changes to duties
• Breach of trust and confidence

The Test

Would a reasonable employee consider the breach so serious that it justifies resignation?

Employee Must Act Promptly

• Working on after breach may affirm
• No fixed time limit
• Depends on circumstances
• Seeking legal advice doesn't affirm

Not Every Breach Qualifies

Must be fundamental:

• Minor issues don't count
• Needs to go to root of contract
• "Last straw" can tip balance

Claims Process

Employment Tribunal

Can claim breach of contract if:

• Claim arises from or is outstanding at termination
• Maximum £25,000
• 3 months less one day time limit

County Court

Alternative venue:

• No cap on damages
• 6 years limitation
• Higher costs usually

What You Can Claim

Employer claims against employee:

• Confidentiality breaches
• Restrictive covenant breaches
• Notice period not worked

Employee claims against employer:

• Notice pay
• Wages owed
• Bonus entitlements
• Benefits value

Preventing Breaches

Clear Contracts

• Unambiguous terms
• Define obligations clearly
• Avoid vague language
• Review regularly

Flexibility Clauses

Include if needed:

• Right to vary duties
• Mobility clauses
• Right to require different hours

But: Must be reasonable and not unlimited.

Communication

Before making changes:

• Explain reasons
• Seek agreement
• Document consent

Following Procedures

• Consult before changes
• Allow representation
• Consider alternatives
• Act reasonably

Varying Contract Terms

With Agreement

Safest approach:

• Propose change
• Discuss with employee
• Get written agreement
• Update contract

Fire and Rehire

Last resort:

• Terminate existing contract (with notice)
• Offer new contract with different terms
• Risks:
  • Unfair dismissal claims
  • Redundancy payments
  • Industrial action
  • Reputational damage

Collective Agreement

If recognised union:

• Negotiate collectively
• May bind members
• Check collective agreement wording

Implied Variation

Contract may change through:

• Long custom and practice
• Mutual acceptance over time
• But risky to rely on

Damages for Breach

Measure of Damages

Put innocent party in position as if contract performed.

Employee claims:

• Net pay for notice period
• Value of lost benefits
• Bonus if would have been paid

Employer claims:

• Cost of finding replacement
• Loss caused by breach
• But must mitigate

Mitigation

Must take reasonable steps to reduce loss:

• Employee must seek new job
• Employer must find replacement
• Failure reduces damages

Tax Treatment

Damages for breach:

• Notice pay: taxable
• Benefits value: usually taxable
• Pure compensation: first £30k may be tax-free

Checklist

Preventing Breaches

• Clear written contracts
• Terms unambiguous
• Flexibility clauses where appropriate
• Change procedures documented
• Communication before changes
• Agreement obtained in writing

If Breach Occurs

• Identify the breach
• Assess if fundamental
• Consider response options
• Act promptly
• Document everything
• Take legal advice if needed

Making Changes

• Consider if change is necessary
• Check contract terms
• Consult employees
• Seek agreement
• Document consent
• Update records