Wrongful Dismissal: Understanding the Difference from Unfair Dismissal

Wrongful dismissal is about breach of contract, not fairness. Understanding the distinction helps you manage dismissal risks.

What Is Wrongful Dismissal?

Wrongful dismissal occurs when you dismiss an employee in breach of their contract. Most commonly:

• Dismissing without proper notice
• Dismissing without following contractual disciplinary procedures
• Dismissing in breach of other contractual terms

Key point: It's about contract breach, not fairness.

Wrongful vs Unfair Dismissal

Aspect	Wrongful Dismissal	Unfair Dismissal
Legal basis	Breach of contract	Statutory (ERA 1996)
Qualifying service	None (day one right)	2 years
Focus	Was contract breached?	Was dismissal fair?
Typical issue	Notice period	Reason and procedure
Compensation	Contractual loss only	Basic + compensatory awards
Where claimed	Tribunal or court	Employment tribunal
Time limit	6 years (court) / 3 months (tribunal)	3 months less one day

Can You Claim Both?

Yes. An employee can claim:

• Wrongful dismissal (didn't get proper notice)
• AND unfair dismissal (dismissal wasn't fair)

They're separate claims with separate remedies.

Common Wrongful Dismissal Situations

1. Summary Dismissal Without Gross Misconduct

You dismiss without notice claiming gross misconduct, but:

• The conduct wasn't actually gross misconduct
• You can't prove gross misconduct
• Your own procedures weren't followed

Result: Wrongful dismissal - employee was entitled to notice.

2. Insufficient Notice

Employee entitled to 3 months' notice, you give 1 month.

Result: Wrongful dismissal for the 2 months' difference.

3. Breach of Contractual Procedure

Contract says you'll follow a specific disciplinary procedure, you don't.

Result: Potentially wrongful dismissal.

4. Payment in Lieu of Notice (PILON) Issues

Contract doesn't allow PILON, you pay instead of giving notice.

Result: Still technically wrongful dismissal (though employee has suffered no loss if paid correctly).

Notice Period Entitlements

Statutory Minimum

Service	Minimum Notice
1 month - 2 years	1 week
2 - 12 years	1 week per year
12+ years	12 weeks

Contractual Notice

Contract may specify longer notice:

• Often 1-3 months for standard roles
• 3-6 months for senior roles
• 6-12 months for executives

The longer of statutory or contractual applies.

Gross Misconduct Defence

When You Can Dismiss Without Notice

Only for conduct that is:

• Sufficiently serious to justify immediate dismissal
• A fundamental breach of the employment contract
• Proved on balance of probabilities

Examples

• Theft or fraud
• Violence
• Serious breach of safety
• Gross negligence
• Serious breach of confidentiality

The Test

Would a reasonable employer consider this conduct so serious that it justifies dismissal without notice?

Risk

If tribunal/court finds conduct wasn't gross misconduct:

• Dismissal was wrongful
• Employee entitled to notice pay

Calculating Compensation

What's Included

Net loss during the notice period:

• Base salary (net of tax)
• Commission (expected amount)
• Bonus (pro-rata if contractual)
• Benefits value (car, health insurance, pension contributions)
• Lost share options (if would have vested)

What's Not Included

• Compensation for manner of dismissal
• Injury to feelings
• Future loss beyond notice period
• Basic award (that's unfair dismissal)

Example Calculation

Employee entitled to 3 months' notice, dismissed immediately.

Element	Monthly Value	3 Months
Net salary	£3,000	£9,000
Car benefit	£400	£1,200
Pension (employer)	£300	£900
Total		£11,100

Mitigation

Employee must mitigate loss:

• If they get new job during notice period
• Their earnings reduce the claim
• Failure to seek work may reduce compensation

Defending Wrongful Dismissal Claims

Defence 1: Gross Misconduct

If you can prove gross misconduct:

• No notice was required
• No wrongful dismissal

Need evidence: Investigation, witness statements, documentation.

Defence 2: Notice Was Given

Prove you gave proper notice:

• Written notice
• Correct period
• Properly calculated

Defence 3: PILON Clause

If contract allows payment in lieu:

• You can pay instead of notice
• No breach of contract

Defence 4: Employee's Breach

If employee fundamentally breached contract first:

• You were entitled to terminate
• Consider if breach was repudiatory

Defence 5: Mitigation Failure

If employee didn't mitigate:

• Compensation reduced
• Not a complete defence but limits damages

PILON Clauses

Why Have One?

Without PILON clause:

• You must give actual notice
• OR commit wrongful dismissal (even if you pay)

With PILON clause:

• You can choose to pay instead
• No breach of contract

Tax Implications

PILON under contractual clause:

• Taxable as earnings
• Subject to NI

PILON without clause (damages):

• First £30,000 tax-free
• No NI

Drafting PILON Clauses

Clear wording that employer can:

• Terminate immediately
• Pay salary in lieu of notice
• At employer's discretion

Where to Claim

Employment Tribunal

• Limit: £25,000
• Time limit: 3 months less one day
• Usually combined with unfair dismissal
• Faster and cheaper

County Court / High Court

• No compensation limit
• Time limit: 6 years
• For higher value claims
• More formal, potentially costly

Which to Choose?

Tribunal if:

• Also claiming unfair dismissal
• Claim under £25,000
• Want quicker resolution

Court if:

• High value claim (executive)
• Only wrongful dismissal claim
• Prefer court process

Practical Implications

Before Dismissing Without Notice

Ask yourself:

• Is there definitely gross misconduct?
• Can I prove it?
• Have I investigated properly?
• Have I followed procedures?
• What's the risk if I'm wrong?

Considering the Risk

If you dismiss without notice and it's wrongful:

• You pay notice period
• Plus legal costs
• Plus management time
• Potential reputational damage

Sometimes better to: Pay notice and be certain.

Settlement

Many wrongful dismissal claims settle:

• Payment of notice period (or part)
• Avoids litigation costs
• Certainty for both parties

Interaction with Other Claims

Unfair Dismissal

Can claim both:

• Wrongful: Notice pay
• Unfair: Basic award + compensatory award

No double recovery for same loss.

Discrimination

Can claim all three:

• Wrongful dismissal
• Unfair dismissal
• Discrimination

Discrimination awards are uncapped.

Breach of Contract (Other)

May also claim for breach of:

• Bonus entitlements
• Share options
• Other contractual benefits

Checklist

Before Summary Dismissal

• Is conduct genuinely gross misconduct?
• Can you prove it?
• Have you investigated?
• Have you followed procedure?
• Have you considered alternatives?
• What's the financial risk if wrong?

If Giving Notice

• Correct notice period identified
• Written notice given
• Start and end dates clear
• PILON clause used if paying in lieu

If Claim Made

• Assess merits honestly
• Gather evidence
• Calculate potential exposure
• Consider settlement
• Respond within time limits