Wrongful dismissal

Employment law – Wrongful dismissal

What is wrongful dismissal?

This is essentially a breach of contract claim against your employer.

If your employer has acted in breach of its contractual obligations, for example a failure to give notice in accordance with the entitlement set out in your contract of employment ,then your employer becomes liable to pay you damages for wrongful dismissal, which will reflect all losses you have sustained flowing from your employer’s breach.

The damages recoverable will be the salary and other benefits that would have been earned or accrued during the contractual notice period, such as pension entitlement, private health cover, car allowance and bonus (especially where the bonus is tangible, and not discretionary). In some cases, you will also be able to recover the losses flowing from your failure to exercise stock options, which you would otherwise have been able to do if the correct notice had been given.

Those that are on a high salary may find it more preferable to bring a claim for wrongful dismissal, as opposed to unfair dismissal, especially where they have lengthy notice periods. This is because they stand to gain more from damages for breach of contract (possibly representing  the whole of the notice period they should have been given) as opposed to the amount they could receive on an unfair dismissal claim (which is largely governed by their loss of earnings only, and is subject to a statutory cap of circa £93k).

If an employee is dismissed as a result of gross misconduct, ie theft, and the employer was justified in dismissing the employee in this way, there can be no claim for wrongful dismissal, as the employee will have been treated as repudiating the implied term of trust and confidence between the parties, which the employer then accepts by the summary dismissal.

Dismissals with pay in lieu of notice

It is common for an employer not to require an employee to work out his notice period and to pay him in lieu of notice. Such payment in lieu of notice is usually regarded as damages for wrongful dismissal (unless otherwise specified in the contract). In these circumstances, the employer would not be in breach of contract by making a payment in lieu and it is therefore unlikely that there could be any claim for wrongful dismissal.

If there is no contractual right to terminate by making a payment in lieu of notice, then the making of such a payment may not extinguish the employee’s claim for damages unless, in all respects, the employee is put in the same position as he would have been in if notice had been given.

Amount of damages

The amount of damages for wrongful dismissal is based on pay and other benefits, such as the use of a company car, which the employee would have received if the employer had complied with his contractual obligations. An employee may put in a claim for other contractual benefits such as discretionary bonus payments which they will have missed out on, although it can be difficult to prove such a claim. If the employee finds a new job within the period of notice, which he would have been entitled to from his old employer, then he is not entitled to a double recovery. The new salary received must be taken into account in calculating the loss to the employee. It should be remembered that the employee is under a duty to take all steps to mitigate his loss, ie seek such alternative employment.

Any damages which an employee receives under wrongful dismissal will reduce the amount of the compensatory award under unfair dismissal by the same amount.

When should an employee make a claim?

An employee should make a claim for wrongful dismissal in the Employment Tribunal within 3 months less one day from the date of termination of his employment (by lodging the claim with ACAS), and within 6 years if the claim is being made through the courts. The maximum amount that you can claim for wrongful dismissal in the employment tribunal is £25k. If the amount you are seeking for breach of contract is more than this, the claim would have to be brought in the courts.

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