What is wrongful dismissal?
A claim for wrongful dismissal arises where the employer has dismissed the employee in breach of the terms of the employment contract by, for example, failing to give the employee any or sufficient notice.
In actions for wrongful dismissal, the court/Employment Tribunal’s only concern is whether the correct contractual requirements have been complied with.
The amount of notice which is required to be given to an employee will be determined by the terms of the employee’s contract but this is subject to a statutory minimum. Under the ERA 1996, employees are essentially entitled to one week’s notice if employed for more than one month but less than two years. Employees employed for two years or more are entitled to one week’s notice for every completed year of service up to a maximum of 12 years (i.e. 12 weeks’ notice).
Therefore, if the contract of employment gives less than what is required by statute, the statutory notice entitlements apply.
The only situation in which an employer is not required to give notice is where the employee is in very serious breach of contract, e.g. the employee has been caught red-handed stealing from the employer or has assaulted another member of staff. Dismissals without notice are referred to as ‘summary dismissals’.
Where the claim will be heard
A claim of wrongful dismissal may be made in the County Court or the High Court, or in an Employment Tribunal. Damages awarded for wrongful dismissal claims taken to the Employment Tribunal are subject to a limit of £25,000.
Since claims for wrongful dismissal are claims for breach of contract, the normal limitation periods apply and claims in the ordinary courts must be brought within six years of the date of the dismissal. Claims made in the Employment Tribunal must be brought within three months of the dismissal, subject to a mandatory early conciliation procedure. This is a period of conciliation using the Advisory, Conciliation and Arbitration Service (‘ACAS’) of up to one month before the claim is presented at the Employment Tribunal with the aim of encouraging parties to settle the claim. The clock on the time limit is stopped during this period and starts again if conciliation is not successful.
Remedy for wrongful dismissal
The remedy for wrongful dismissal is damages for breach of contract. The exemployee is therefore under a duty to mitigate his or her loss by seeking new employment. If the ex-employee finds a new job, this must be taken into account and damages reduced accordingly. If the ex-employee makes no attempt to mitigate his or her loss by trying to find another job the amount of damages awarded can be reduced.
Relationship between damages for wrongful dismissal and compensation for unfair dismissal
It is possible for an employee to have a claim for wrongful dismissal and unfair dismissal at the same time if, for example, he or she has been unfairly dismissed and was also not given the proper notice before his or her contract was terminated. In such cases, the compensatory element of the unfair dismissal award will be reduced by the payment received for wrongful dismissal, so that the employee does not benefit from double recovery.
Payment in lieu of notice clauses
A payment in lieu of notice clause (‘PILON’) allows the employer to pay the employee rather than require the employee to work during their notice period.
An employment contract often allows the employer the discretion to give the employee a PILON. If the employment contract contains a PILON clause and the employer dismisses the employee and pays him/her in accordance with the PILON clause – instead of employing him/her until the end of his/her notice period – there will be no breach of contract and no claim for wrongful dismissal. The main reason for having a PILON clause is to preserve any restrictive covenants that would otherwise be unenforceable because the employment would have been terminated in breach of contract.
Payments made under PILON provisions are usually taxable as earnings for income tax purposes.