Wrongful Dismissal

Wrongful Dismissal

A wrongful dismissal is a dismissal by the employer in breach of contract. To prove wrongful dismissal the employee must therefore establish that:

• he/she has been dismissed; and

• the employer breached the contract when dismissing.

The most common type of breach arises from an employer’s failure to provide any notice (or payment in lieu of notice) to the employee or providing inadequate notice (or PILON payment in lieu of notice) when dismissing. If an employer dismisses an employee in breach of the contractual (or statutory minimum, if greater) obligation to provide notice, and the employee has not committed an act of gross misconduct, then the dismissal will be wrongful. The claim can be brought in the Employment Tribunal or the County or High Court.

Remedies

The usual remedy for wrongful dismissal is damages.  The purpose of wrongful dismissal damages is to place the employee in the position the employee would have been in had the breach not occurred. Therefore, where the breach arises from a failure to provide notice or adequate notice, the aim is to compensate the employee for the net loss of wages/salary and fringe benefits they would have earned had they served the appropriate notice.   Wrongful dismissal damages can be assessed by using the following approach:

• Identify the damages period (usually the notice period or shortfall in notice)

• Identify (by reference to the contract) the net salary and benefits the employee was entitled to during the damages period and calculate the total they would have earned

• Deduct any sums received over the damages period, such as earnings received from a new job

• This will provide the net loss.

Bonuses

Wrongful dismissal claims may be substantial if there is a long notice period or if there is, for example, a contractually-required bonus which falls due during the notice period. Whether a bonus is contractual or genuinely discretionary can give rise to significant disputes especially when a senior executive’s contract has been terminated. See Clark v Nomura International Plc (2000) IRLR 766; and Horkulak v Cantor Fitzgerald International [2005] ICR 402.

Mitigation

The employee who intends to claim damages for their losses is under a general duty to take reasonable steps to mitigate (reduce) their losses once dismissed. This duty will be discharged by taking reasonable steps to find another job. If the employee has not made an effort to mitigate their losses, then a court/tribunal has the discretion to reduce their damages to reflect what might have happened had they done so (e.g. by not awarding any damages beyond a date when the court/employment tribunal considers the employee would, in view of their skills and the job market, have found a job had they been looking). If the employee does mitigate his loss, the following scenarios can arise:

• the employee finds a job which pays as well as or better than the previous job – here the Court/Tribunal will find that the employee’s losses stop at the point at which he starts the new job;

• the employee finds a new job which does not pay as well as the previous job – here the Court/Tribunal has the discretion to award damages covering such period as it thinks necessary to compensate the employee for the difference between the old and new salaries.

Accelerated receipt

Where the employee receives damages in one lump sum to compensate future loss over a long notice period he is effectively being put in a better position because he would have receive that money in monthly instalments had he served his whole notice period. Courts and tribunals have the discretion to apply a small percentage reduction (of around 1 to 2%) to account for the advanced payment of salary.

Wrongful dismissal v Unfair Dismissal

When wrongful and unfair dismissal is compared both claims arise out of a dismissal they are conceptually very different. Wrongful dismissal is a breach of contract claim whereas unfair dismissal is a statutory claim based on the statutory concept of fairness.