What is wrongful dismissal?
Wrongful dismissal is a claim for a breach of the employment contract. It is not the same as unfair dismissal and only looks at the employment contract to see if the employer has breached it. The most common breach is where the employer dismissed the employee without notice or with less than the minimum notice period either by statute or what was stated in the contract. Advance notice of termination is required, as specified in the contract of employment, but cannot be less than one week for each year of service, with a minimum of one week and a maximum of 12 weeks. This is known as the statutory minimum notice period. For more information, read Notice periods.
In order to bring a wrongful dismissal claim, the employee must establish that they were dismissed in breach of the employment contract or with less than the statutory minimum notice period (ie summary dismissal) and that they suffered a loss as a result (ie the loss of wages sustained). The employer can justify summarily dismissing the employee if the employee commits gross misconduct or a serious breach of the contract (eg theft, violence or dishonesty). See our guide on Summary dismissal and gross misconduct for more information. However, failure to follow a contractual disciplinary procedure can amount to wrongful dismissal.
Rules on wrongful dismissal
Employees should make a claim for wrongful dismissal in the Employment Tribunal within 3 months from the effective date of termination of their employment. There is no required length of service for wrongful dismissal as it is a breach of contract claim. Any damages awarded from a wrongful dismissal claim is capped at £25,000 and the employee can only be compensated for the net loss suffered as a result of the wrongful dismissal. The damages recoverable can also include other benefits that would have been earned or accrued during the contractual notice period which include bonuses, pension entitlement or private health cover.
Dismissals with payment in lieu of notice
It is fairly common for an employer to pay an employee to work out his notice period. These types of agreements are called payments in lieu of notice (PILON) and are typical in some employment contracts. These payments are usually substituted for the notice period especially if the employer wants to minimise the risk of the employer continuing to work at the company. If the employer makes a PILON and the employee accepts, then there wouldn’t be any breach of contract and therefore are very useful in preventing any wrongful dismissal claims. Read our guide on Payments in lieu of notice and create your Contract of employment with a PILON.
Wrongful dismissal vs unfair dismissal
Wrongful dismissal is a breach of contract claim whereas unfair dismissal is a statutory claim. The former only looks at whether the employment contract has been breached whereas the latter determines the overall fairness of the dismissal. With wrongful dismissal there is no need to have been employed for a continuous period of 2 years whereas bringing an unfair dismissal claim requires the employee to prove this (unless certain exceptions apply, this is also known as ‘automatic unfair dismissal’) and other certain elements before they can bring a claim for unfair dismissal. Read our guide on Unfair dismissal for further information.