#3649 - Wrongful Dismissal - Labour Law

Wrongful dismissal

Law relating to termination of employment

Common law

Damages for wrongful dismissal compensate the employee for losses suffered as a result of the wrongful termination of the contract of employment by the employer.

In principle, the level of compensation payable by these means could be substantial but all depends on the terms of the contract (both express and implied) and on the application of the general rules by which contract damages are calculated.

In practice, damages for wrongful dismissal are very rarely substantial, essentially for two reasons:

(i) either as a result of express agreement or by way of an implied term, the employer will almost invariably possess the right at common law to terminate the contract simply by giving notice, without needing to have a good reason, or any reason, for doing so (the notice rule).

(ii) any damages payable to the employee for the employer’s failure to give notice will be limited by the principle of mitigation as well as by the principle that the victim of breach of contract may only claim, by way of compensation, damages for those losses which he can show derive from a clear contractual entitlement, as opposed to a bare or unprotected expectation.

Since in most cases the employee is not entitled to remain in employment for longer than the minimum period of notice contained in the contract, damages will be limited to a sum representing net salary for the notice period only, and will not normally include an amount for harm done to reputation or for loss of earning capacity.

= for most employees, the protection offered by the common law of dismissal is inadequate and why it was felt necessary for the legislature to intervene by introducing the principle of statutory unfair dismissal.

The diversity of approaches to be found elsewhere in the common law world suggests that the English law rule of minimal compensation for wrongful dismissal is not immutable.

Two relatively recent developments in the English common law indicate that some reassessment of the traditional rule is needed:

(i) the courts have granted more extensive damages in cases where employers have failed to observe contractual disciplinary procedures (Gunton, Dietman, Boyo).

(ii) the courts have shown themselves to be prepared to grant specific relief in equity in order to restrain certain breaches of contract by the employer (Powell, Jones v Gwent CC).

In both instances, the normal notice rule is effectively undermined: as a result of the court’s intervention, the employer can no longer rely on the power of the notice term to dispense with the need for procedural fairness or for adequate substantive grounds for an act of discipline or dismissal.

BUT these new lines of authority are somewhat fragile: they have no received the clear endorsement of the HoL and a number of doctrinal issues concerning the relationship between the notice term and other terms of the contract, and the remedies available to the employee, remain unresolved. It is also doubtful whether these rights and remedies will be available to more than a minority of high-status employees.

Notice and duration

Where a contract of employment is silent on the question of termination it will normally be construed as being of an indeterminate duration. If so, a term will normally be implied at common law to make provision for notice. The principal function of this notice rule is to give both sides the option of escaping from the arrangement at low cost. However, the length of notice may be set so as to grant one or both of the parties some degree of warning of, and monetary compensation for, the ending of the relationship.

The development of the common law notice rule

Either party can terminate the contract by giving the other reasonable notice (Baxter; Lord Oaksey in McClelland, Lord Millett in Reda – the rule is confined to contracts that contain no provision for determination and does not apply to fixed term contracts).

In the absence of an express clause, what was reasonable tended to be determined by one or two rival criteria – the period by which the wage or salary was calculated, and the custom in the relevant trade. An employee whose wage was calculated by the week might, for that reason, be entitled to receive at least a week’s notice of termination (Baxter, per Coltman J); otherwise “general usages tacitly annexed to all contracts relating to the business with reference to which they are made, unless the terms of such contracts expressly or impliedly exclude them” (Metzner per Parke B).

The courts construed the contracts of hourly-paid industrial workers as terminable by an hour’s notice on either side. One effect of this was to reduce the contractual security of the hourly paid worker practically to nothing.

Clark v Clark – Elias P (in EAT): although where there is no express term the court must imply an appropriate term from all the circumstances, “an extremely significant circumstance will be the parties’ own assessment of the appropriate period”. This is very likely to be a matter of dispute.

Statutory minimum notice periods

Minimum periods of notice are now inserted into the contracts of employment of all employees with continuity of employment of at least one month. The relevant legislation is now contained in s86 ff of ERA 1996.

The employee is entitled, after one month’s continuous employment, to receive a minimum of one week’s notice of dismissal.

After two years this rises to two weeks

Goes on rising by one week for each additional year of continuous employment up to a limit of 2 weeks’ minimum notice.

Where an employee has been continuously employed for 3 months or more under a “contract for a term certain of one month or less the contract has effect as if it were for an indefinite period and the statutory minimum periods of notice of termination apply: ERA 1996, s 86.

In the event of breach by the employer, the employee has available the common law action for damages for breach of contract. For this purposes the Act provides that its provisions prevail over any shorter period of notice in the contract (s86; they do not affect the right of either party to terminate the contract without notice by reason of the conduct of the other though (s86), and that the employer’s failure to comply with these provisions is to be taken into account in assessing its liability for breach of contract (s91(5)).

= damages will be based, at least, on the minimum notice period provided for by statute.

The courts have also inferred that in claiming damages for breach of the statutory provisions, the employee must mitigate his loss according to normal contract law principles (SoS for employment v Wilson (per Phillips J).

Conversely, after one month of continuous employment the employee is obliged to give the employer at least one week’s notice of termination of the contract (s86).

The Act is silent on the question of the employee’s liability for breach of contract for failure to give the minimum statutory notice.

The Act does not rule out the parties themselves agreeing to longer minimum periods on either side, nor does it prevent either party from waiving their right to notice on any occasion or from accepting a payment in lieu of notice (s86).

Once either party gives notice, s 87 – 91 of the Act govern the rights and liabilities of the parties during the period of notice (these provisions do not apply if the contractual notice to be given by the employer to terminate the contract is at least one week more than the statutory minimum (s87 as interpreted in Budd where the EAT accepted that this was a “curious result”).

In particular, the employee is entitled to receive wages based on his normal working hours even if no work is done by reason of lay-off, incapability through sickness or injury, absence by virtue of pregnancy, childbirth, adoption, parental or paternity leave, or absence on holiday; however, if the employee receives any other contractual or statutory payments from the employer in respect of his absence, such as statutory sick pay or contractual holiday pay, these will go to discharge this liability (s88, and s89 where the employee has no normal working hours).

The implication of the notice rule

Notwithstanding the minimum periods imposed by the Act, the reciprocal right to give notice to terminate the contract means that the employer has only a limited right to the future services of the employee. The employee normally has an unfettered right to resign by giving the notice required by the contract. In giving notice, the employee is exercising a contractual power to bring the contract to an end; it follows that the employee cannot unilaterally revoke the notice once it is given (Riordan).

The converse to this is that the employee only has a limited right to job security, at least at common law. the employee has “no right to any particular employment if it depends on the will of another” (Allen v Flood per Lord Davey).

Reda – Privy council held that where a contract expressly gives the employer the power to dismiss the employee without cause this power cannot be made subject to any implied qualification, such as the implied term of trust and confidence.

However, there are cases where the contract itself expressly or impliedly places restrictions on the employer’s right to give notice, such as those which may be inferred from the existence of disciplinary procedures.

The implications of no provision for notice

Contracts containing neither an express nor an implied notice term are, by their nature, rare. In a contract of...