When an employer and employee enter into a contract of employment, the onus is often assumed to be only on the employer to meet various contractual and statutory obligations — but a contract is two-way. It’s important for both parties to understand the reciprocal nature of the employment contract, including their respective rights and remedies in the event the other party breaches any terms of the agreement.
In this guide, we look at the circumstances in which employee breaches of contract commonly arise in practice, and the action an employer can take in response. We also examine the procedure to be followed when bringing employment to an end and dismissing an employee for breach of contract.
What is an employee breach of contract?
A contract of employment is a legally binding agreement, setting out the terms and conditions governing the working relationship between the employer and employee, including their respective rights and responsibilities. This means that the employment contract can be breached by either party to that contract: the employer or the employee.
An employer breach of contract is where the employer has failed to meet its duties under the employment contract, either express or implied. For example, a failure to pay the employee pay in lieu of notice on termination, or to follow its own dismissal procedures, can constitute an express breach of contract, whilst a failure to prevent an employee from being bullied or harassed at work could amount to a breach of the implied duty of mutual trust and confidence.
Equally, in the same way that an employer can be found to be in breach of contract, the employee can also be in breach of the terms and conditions by which they’re contractually bound. This is called employee breach of contract. This can again include breach of either an express term or a term arising by implication in the context of the employment relationship.
Examples of employee breaches of contract
Common examples of express breach of contract by an employee include:
- A failure to carry out the duties for which they were employed to do, contrary to their job title, job role and daily responsibilities as part of that role.
- A failure to provide adequate notice on resignation, contrary to express contractual provision to work a prescribed number of weeks or months having resigned.
- Resigning to work for a competitor, or setting up business in direct competition with the employer, contrary to the scope of any post-termination restrictions.
In the context of implied terms, these include the duty of mutual trust and confidence, the duty of fidelity and the duty of confidentiality that arise by operation of common law.
The duty of mutual trust and confidence implies a duty on the part of both employer and employee not to act in such a way that’s likely to seriously damage, or destroy, the relationship of trust and confidence between the parties. The implied duty of fidelity requires the employee to faithfully serve the employer, and not to act against the employer’s interests, during the course of their employment. The implied duty of confidentiality refers to the duty not to disclose any confidential information obtained by the employee in the course of their employment, or to use such information for their own financial or personal gain.
Common examples of an implied breach of contract by an employee include:
- Acts of gross misconduct, such as physical violence, serious insubordination, serious breaches of health and safety requirements, intoxication or possession of alcohol and drugs, discrimination or harassment, theft or fraud, and misuse of company property.
- Acting dishonestly, such as falsifying personal or workplace records.
- Taking advantage of their employment position for their own personal advantage or gain.
- Working for another business at the same time as working for the employer.
- Carrying on a business in competition with the employer whilst still employed by them.
- Disclosing confidential information or trade secrets obtained as a result of their employment, or using such information for their own purposes.
In some cases, the nature of the employee’s conduct may constitute a breach of more than one implied duty, for example, misuse of company property, such as customer or client lists, can amount to both breach of the implied duty of mutual trust and confidence and the implied duty of fidelity. Equally, disclosing confidential information, such as divulging a company or client password, would be both a breach of confidentiality and of mutual trust and confidence.
What action can employers take for employee breach of contract?
As the contract of employment sets out legally enforceable terms and conditions that govern the working relationship between the parties, both express or implied, if either party breaks one of those terms, this is a breach of contract for which legal redress can be sought through the tribunal or the courts (for the employee) or the courts (for the employer).
There are alternative options available to either party to address any alleged breach of contract, without recourse to legal proceedings. However, the action that can be taken will very much depend on when the alleged breach occurred, either during the course of employment or post-termination, and whether the employment relationship is continuing.
Below we look at the different ways in which employee breach of contract can be dealt with by an employer in the context of both existing and former employees.
Breach of contract by an existing employee
If the employee is still working for the business, the employer will need to assess the nature and extent of any breach to determine the best way of dealing with this.
In cases of minor employee breach of contract, where this has had little or no adverse impact on the business or other members of staff, the employer may want to address this informally, for example, by way of a one-to-one chat and, where necessary, a verbal warning. For more serious breaches, it may be appropriate to initiate formal disciplinary proceedings, in some cases with a view to dismissal, depending on the outcome of the investigation and severity of the matter.
An employee breach of contract can include anything from minor breaches, such as poor time-keeping or a one-off unauthorised absence, to a fundamental breach arising from, for example, gross misconduct. A fundamental breach of the employment contract, where the breach has made it impossible for the working relationship to continue, will allow the employer to treat the contract as coming to an end and, in this way, providing grounds for dismissal.
The employer may also be able to sue the employee for damages for any financial losses arising out of the breach of contract, even if the breach is relatively minor, although, in practice, this will only usually arise where the breach is so serious that it warrants dismissal.
Breach of contract by a former employee
If the contract of employment has already been brought to an end, this can generally leaves the employer with more limited options than if the employee is still working for them. This could be, for example, where the employee has failed to provide the employer with adequate notice on resignation or has gone to work for a competitor in breach of express post-termination restrictions. If the employment relationship is no longer continuing, the employer is likely to have less leverage to negotiate, and the employee less incentive to remedy the breach.
In many cases, this may mean threatening court proceedings, where the employer is looking to claim damages to recover any financial losses flowing from an employee’s breach and/or injunctive relief to prevent the breach from continuing. Damages could be claimed, for example, for the cost of a temporary replacement where the employee has left without notice, whilst injunctive relief is typically sought in breach of restrictive covenant claims, where the contract prohibits the employee from going to work for a competitor for a prescribed period.
However, if the threat of litigation and any attempts to negotiate prove futile, the employer may feel they have no option but to issue proceedings — although alternative dispute resolution, such as mediation, should always first be considered before issuing a complex and costly claim. The onus will be on the employer, as the claimant, to prove any financial loss in a claim for damages, including what steps they’ve taken to mitigate that loss. Equally, high court claims for injunctive relief can present all sorts of evidential and legal hurdles, not least where the scope of any restrictive covenant is brought under scrutiny.
Given the potential costs consequences of bringing a claim for employee breach of contract, expert legal advice should always be sought prior to issue.
Dismissal due to fundamental breach of contract
Even where an employee is allegedly guilty of a fundamental breach of contract, the matter must first be investigated before treating the contract as coming to an end. This is because, for any dismissal not to be deemed unfair, the employer must follow a full and fair disciplinary procedure, giving the employee the chance to defend or explain their conduct.
Equally, even in the context of more minor beaches of contract, these must be fully and fairly investigated, following the Acas Code of Practice on disciplinary and grievance procedures, otherwise risk irreparably damaging the working relationship. For an employee wrongly accused of breach of contract, this could leave the employer in breach of the contract themselves, for breach of the implied duty of mutual trust and confidence. In these circumstances, the employee could feel forced to resign and claim constrictive dismissal.
Under the Acas Code of Practice, employers must:
- Investigate the employee breach of contract without unreasonable delay: the employee should be interviewed, along with any witnesses, and all other evidence reviewed.
- Decide if there’s any case to answer: if there’s sufficient evidence to support an allegation of employee breach of contract, the matter can then proceed to a disciplinary hearing.
- Notify the employee in writing of the hearing: the employee should be provided with written notice of the date, time and place of the disciplinary hearing.
- Provide evidence of the alleged employee breach of contract: the employee should be given a clear explanation of the case against them and a copy of the evidence in support, with sufficient time to prepare any argument in response.
- Explain the employee’s right to be accompanied: the employee must be told of their right to be accompanied by a work colleague or a trade union representative at the disciplinary hearing, where any reasonable request made by them must be accommodated.
- Allow the employee to put their case: at the hearing, the employee should be allowed to defend the alleged employee breach of contract, including cross-examining any witnesses and adducing their own evidence in rebuttal, and to advance any mitigating factors.
- Make a decision as to any disciplinary action: where the employer is satisfied that the employee is in breach of contract, a decision must be made as to what, if any, disciplinary action should be taken. This could include either a first or final written warning, demotion or even dismissal. If the breach is especially serious, where the employee has been found guilty of gross misconduct, the employer may decide to dismiss without notice or pay in lieu.
- Provide the employee with written notification of the outcome: the employee must be informed of the disciplinary findings and decision in writing. The employee should also be told of their right to appeal, including any decision to dismiss, with the date on which their employment will end and whether notice pay is to be given, where applicable.
DavidsonMorris provides specialist advice to employers on all types of workplace disputes, including breaches of contract. If an employee has breached the terms of their employment contract, we can advise on the remedies open to you, taking into account legal risk and ensuring your best interests are protected.
For advice on a specific issue, contact us.
Employee breach of contract FAQs
What happens if an employee breaches their contract?
Much will depend on the nature and severity of the breach. If the breach is so serious that the working relationship cannot continue, the employer may be able to treat the contract as coming to an end.
Can I sue an employee for breach of contract?
An employer can sue an employee for any financial losses arising from a breach of contract, for example, where the employee has failed to provide adequate notice on resignation, leaving the employer with the cost of a temporary replacement.
What is an employee breach?
Employee breach is where an employee has breached an express or implied term of their employment contract. For example, acts of gross misconduct, such as theft, are often classed as breach of the implied term of mutual trust and confidence.
Last updated: 15 October 2023