Employers risk legal claims if they breach the terms of an employment contract with an employee.
In this guide, we explore the different types of terms that make up an employment contract—both express and implied—and provide guidance on how employers can avoid breaches and address issues effectively.
Understanding employment contracts
An employment contract is a legally binding agreement between employer and employee, setting out the terms and conditions that govern the working relationship, including the rights and responsibilities of both parties.
Under the employment contract both you and your employee will become bound by its terms until it comes to an end. This could be either through resignation or dismissal, or where a contractual variation is agreed.
Typically, an employment contract will be in writing, or at least evidenced by way of a written statement of employment particulars. However, to be legally binding, contractual terms do not need to be contained within any standard format or even written down. The contract can be either verbal, in writing, or a combination of both. That said, the main terms and conditions will typically be set out within a single written document, signed by both parties, so as to provide both you and your employee with a clear record of what has been agreed.
Employment contract terms
The employment contract sets out legally enforceable terms and conditions that govern the working relationship between the parties. As such, where either party breaks one of those terms this is known as breach of employment contract for which legal redress can be sought.
However, contractual terms can be both express or implied. This means that in addition to those terms that have been explicitly agreed between employer and employee, either verbally or in writing, other terms will arise by implication in the context of the employment relationship. Express terms typically relate to core contractual matters. These can include things like an employee’s salary, working hours, holiday entitlement and notice periods. In contrast, implied terms are unwritten or unspoken but, for example, are ones which the parties must have intended to include to give business efficacy to the contract.
A term can therefore be implied into the employment contract to either reflect the intention of the parties at the time the contract was entered into or because the contract does not make commercial sense without that term. It could even be where there is clear evidence of previous custom and usage, such as an employee’s entitlement to an annual bonus.
Certain terms of employment can also be implied by operation of law, even where these terms were not necessarily intended by the parties to be included. These are terms that arise automatically as a legal incident from the nature of the employer-employee relationship.
All implied terms, although unwritten and unspoken, are contractually binding — and any employment contract, however comprehensively drafted, will contain certain implied terms.
What is breach of employment contract?
A breach occurs when either party fails to uphold the terms of the contract. For employers, common breaches include non-payment of wages, failure to provide statutory or contractual notice, or significant changes to an employee’s working conditions without agreement. Implied terms, such as maintaining trust and confidence or adhering to statutory rights, are equally enforceable.
Common examples of breach of employment contract by employers in the context of express terms can range from a failure to pay an employee’s stated salary, either on time or at all, to a failure to provide the correct contractual notice period on termination of their employment.
In many cases, however, where the parties have failed to clarify from the outset the basic rights of an employee, either verbally or in writing, certain terms will automatically be implied into the contract by statute as an absolute minimum. As such, where the contract is silent on things like notice periods, but the employer fails, for example, to provide or make payment in lieu for the minimum statutory notice period as set out under the Employment Rights Act 1996, this will be classed as breach of an implied term, ie; a term implied by statute.
Whatever the contract states, the employer must give the employee at least their statutory minimum employment rights — such as one weeks’ notice if they have worked for the employer for between one month and two years — regardless of whether the contract provides for less. If the contract grants enhanced contractual rights, which are greater than the minimum provided for by statute, the employee will be entitled to enforce these enhanced rights in the event of any breach.
Terms can also be implied into an employment contract by operation of common law. This is again where the parties did not necessarily intend for the term to be included, but it still arises as a legal incident from the nature of the employment relationship. One of the most common terms implied into all employment contracts is the duty of mutual trust and confidence. This means that both employer and employee are bound not to act, without reasonable and proper cause, in a manner likely to seriously damage or destroy the relationship of mutual trust and confidence between them.
The implied term of mutual trust and confidence is often relied upon by employees in claims for constructive dismissal. This is where an employee has felt forced to resign in consequence of their employer’s conduct, alleging a serious or fundamental breach of trust that has made it impossible for them to continue working for them. This could be, for example, where the employer has been made aware by the employee that they’re being harassed or bullied at work, but the employer has failed to take reasonable steps to prevent this from taking place.
A constructive dismissal claim could also be based on a serious breach of an express term, for example, where an employer significantly changes an employee’s working conditions in the absence of either any express agreement or a suitably drafted flexibility clause within the employment contract permitting them to do so. That said, a breach of the implied duty of trust and confidence will usually still be cited in support, where any significant breach of an express term is also likely to be treated as irreparably damaging the working relationship.
If an employer breaches employment contract terms
If an employer breaches the employment contract, the employee has a number of potential options.
They can choose to waive the employer’s breach and affirm the contract as remaining in force. Where they continue to work for the employer without raising any grievance or even delaying too long in taking action, they may be treated as having accepted the breach. Alternatively, they can raise the alleged breach with the employer with a view to it being resolved.
In cases of minor breach, for example, where the employer has failed to pay wages on time, this type of issue can often be resolved quickly and effectively by way of an informal chat with the line manager, or with someone from HR or payroll. Often contractual breaches arise out of a simple mistake or oversight that can be easily rectified.
Where the complaint is not satisfactorily resolved informally, however, or in the case of more serious breaches, the employee should raise a formal grievance. The employer will then be obliged to investigate the matter, providing the employee with a written outcome and a right of appeal.
If the employee is not satisfied with the outcome of the grievance, they may then want to consider taking legal action. This may also be the case where the employee no longer works for the employer and post-termination negotiations have proved futile.
Breach of contract claims
As a basic premise, where there has been a breach of employment contract, either express or implied, provided that the employee can prove they’ve suffered a financial loss as a direct consequence of that breach, they may be able to sue the employer for damages. In some cases a claim can be brought before the employment tribunal, in others, before the civil courts.
A claim for breach of employment contract can be lodged with the tribunal, but only if your employment has ended. There’s also a £25,000 limit to the damages that can be awarded in the tribunal for this type of claim, with a three month time limit. If your claim is worth more than the tribunal limit, or you are out of time, you would need to issue proceedings before the courts where there is no damages cap and a much more generous six year time limit.
Common examples of claims based on breach of contract where an employee’s contract has been brought to an end include wrongful dismissal, where an employee has not been provided with the correct statutory or contractual notice period, or constructive dismissal, where an employee has forcibly resigned because of a fundamental breach of contract.
In cases where the employee is still working for their employer, a strict breach of contract claim would normally need to be pursued through the civil courts, rather than before the employment tribunal. However, in many instances, the same claim may also fall to be determined by the tribunal, for example, as a claim for unlawful deduction from wages. This will provide a much easier statutory basis for an existing employee to claim any monies owed, such as non-payment of wages, or non-payment of holiday pay or sick pay.
Guidance for employers
Employers should be aware of the potential legal consequences of a breach, including claims for constructive or wrongful dismissal, and take proactive steps to mitigate risks.
When an issue arises, employers should act promptly to resolve it. For minor breaches, informal discussions can often resolve misunderstandings. For more serious matters, a structured grievance process should be followed, with thorough investigation and clear communication of outcomes.
Employers can minimise risks by ensuring contracts are clear, comprehensive and regularly reviewed. Effective communication with employees, proper documentation, and compliance with statutory requirements are also important. Employers should also ensure flexibility clauses are included where operational needs might require changes to terms.
Breach of employment contract FAQs
What is a breach of an employment contract?
A breach of an employment contract occurs when either the employer or employee fails to meet their obligations as outlined in the contract. For employers, this can include non-payment of wages, failing to provide agreed benefits, or not adhering to notice periods.
What are express and implied terms in a contract?
Express terms are explicitly stated in the contract, such as salary, working hours, and notice periods. Implied terms are not written but arise by law or through the nature of the working relationship, such as the duty of mutual trust and confidence.
What happens if an employer breaches a contract?
If an employer breaches the contract, the employee can address this informally or formally, such as raising a grievance. If unresolved, the employee may take legal action, such as claiming damages or, in severe cases, alleging constructive dismissal.
What is constructive dismissal?
Constructive dismissal occurs when an employee resigns because of a fundamental breach of contract by the employer, such as significant changes to working conditions or failure to address workplace harassment.
Can an employee claim for a minor breach?
In most cases, minor issues are resolved informally, but persistent minor breaches may justify formal action or legal claims.
What are the risks for employers in breaching contracts?
Employers may face legal claims, reputational damage, or loss of employee trust and morale if they breach contracts. Compliance with legal obligations and clear communication can help prevent such issues.
How can employers avoid breaches?
Employers should ensure contracts are clear, legally compliant, and regularly reviewed. Maintaining good communication with employees and addressing concerns promptly can also help avoid disputes.
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
