Breaches of Employment Contracts: What Employees and Employers Need to Know

Employment contracts may seem like an ‘everyday’ contract. The employer pays x for the employee to do y, and the rest is governed by legislation like the Employment Rights Act 1996 or the Equality Act 2010.

In part, that is true. Those laws, and others like them, are a key part of the employer/employee relationship. But what is often not considered are the terms of the contract itself. We often get questions from clients such as ‘can an employer require that I come into the office?’ or ‘what happens if I get paid late?’ In most cases, the first port of call is the employment contract.

In this blog, we will be discussing breaches of employment contracts and the key points that both employers and employees need to know.

It is important that both parties understand the point of employment contracts. It is a misconception that these are template documents, being the same for everyone. A significant number of disputes between employees and employers can be addressed by reference to the original employment contract (or agreed variations of it), rather than pursuing disputes based on assumptions of the different rights each party has.

Contract types

In law, there are three types of service relationships: employee, ‘worker’, and self-employed contractor. Whether one fits into one type or another is a fact specific exercise, and will often not depend on what is in the contract. As a basic rules, the employer’s obligations to an employee are more onerous than a worker, and in turn a self-employed contractor (we have covered the differences here).

The difference is relevant here because the different types of relationship mean different things for the terms that may be implied (i.e not stated in a contract but enforced by the Court) – for example the implied duty of fidelity. We deal with express (written) terms below, but it is important to keep the basic differences in mind when there is a dispute between an employer and an employee/worker/self-employed contractor.

The main types of service contracts are as follows:

1. Fixed term contracts (employment for a limited time).
2. Full-time and part-time contracts (ongoing employment for a set number of hours).
3. Agency contracts (where one is hired by one company but performs services for another on a flexible basis).
4. Zero hours contracts (where an employer is not obligated, nor is the employee obliged, to make available or take offers of work for a set number of hours).
5. Consultancy/freelancer contracts (as discussed above, a contract to perform a fixed set of services where the individual may or may not (as a worker) be acting on their own behalf.

In terms of what one might expect to see in a specific type of contract, the differences are hard to generalise, but there are certain core terms that are to be expected. For example, all of these contracts will set out the method of compensation, and most will prescribe a set number of works or work product expected of the individual. As a basic rule, however, it would be expected that an employment contract (either fixed term or ongoing) would cover the terms of the working relationship in detail, and govern the most typical areas in which a dispute could arise. But, as discussed below, the different types may mean that where there is likely to be a breach in respect of one type of contract, there may not be in another.

Further, it is important to remember that although employees have stronger rights in relation to termination, any employer can dismiss any employee with less than two years’ service for any reason. Aside from concerns around discrimination etc., usually, the only relevant contractual provision in these circumstances is whether the employer has complied with the express notice provisions contained in the employment contract.

Common breaches of employment contracts

Set out below are the breaches we most typically deal with at EM Law, including both employee and employer breach of contract:

Non-payment

Non-payment (or underpayment) of wages or fees is very common. But, from an individual’s perspective, the following is very important to keep in mind:

1. Is your salary due to be paid out on a set or approximate date? If your employment contract states that salary is due on the 28^th of each month, payment on the 29^th is an employer breach of contract. But if it states that salary is due on or around the 28^th of each month, payment on the 29^th is almost certainly not going to be a breach – but a significant delay might be.
2. Do you have to do anything before monies are paid out to you? For example, in a zero hours or agency context, do you have to log the number of hours you have worked before you are paid out? If you do not do everything you are obliged to do before receiving payment, non-payment is probably not a breach.
3. Does your employer have any right to deduct wages? For example, if your employment contract states that any lunch taken at the canteen can be deducted, then doing so is not a breach.

Reviewing your contractual terms around payment is crucial to ascertain whether an employer has breached an employment contract for non-payment. We often advise clients on disputes for non-payment, only to note that the non-payment was contractually valid.

Overtime and national minimum wage

It is a common misconception that overtime is automatically payable as part of an individual’s salary. It is not. Only if an employment contract states that an individual would be entitled to entitled to overtime if worked would it be payable, and the method of calculation is usually set out in the employment contract. If an individual is entitled to overtime, and works that overtime, non-payment is an employer breach of contract.

Conversely, any pay per hour must not fall below the national minimum wage applicable to that specific individual. But, depending on an individual’s status, they may not be entitled to minimum wage. A common example is renumeration for company directors – they are in fact not entitled to any minimum wage in that capacity, but they may be separately under their status of an employee (the concepts are distinct).

Hours worked and sick pay

Another common misconception are the limits on the number of hours an employee or worker may be directed to work by a business.

The Working Times Regulations 1998 sets the limit at 48 hours in a week (Sunday – Saturday). But an employee/worker can voluntary opt-out of this limit. An employment contract typically has provisions to this effect. If it does not, it would be a breach of contract to require that employee to work longer than 48 hours – actionable as unfair dismissal (more on this below).

An important point to remember is that the opt-out must be in writing. So oral contracts for services would not, naturally, comply with this requirement.

Regarding sick pay, an employer is only obligated to pay employees statutory sick pay. Further payments would be governed by the employment contract. For example, many people expect that if you do not turn up for work one day because you are sick, you do not lose any money. But often disputes may arise around this alleged breach because if an employee’s contract is silent, then salary can be withheld without it constituting an employer’s breach of contract.

Changes to terms of an employment contract

Like any contract, unless specifically provided for in the employment contract, its express terms cannot be varied without consent of both parties.

 This may seem obvious, but it has many relevant implications. For example, the employment contract should usually specify a specific place of work (i.e an office address). Allowing for, and then rescinding, a ‘work from home’ policy is not typically going to be an employer’s breach of contract. In addition, a well drafted contract should provide scope for an employer to vary the location of work to suit its own needs. This would be subject to a general requirement of reasonableness (i.e an employer would unlikely to be able to change from an office in Scotland to one in London – and in such circumstances would likely have to make non-transferable employees redundant).

Unfair dismissal

Elsewhere, we have discussed an employee’s rights in relation to fair and unfair dismissal. But, in law, unfair dismissal is a breach of the employment contract of the way in which an individual was dismissed. It forms part of the employee’s contractual rights not to be dismissed unfairly.

Withdrawal of offers

We also receive complaints from individuals who have received an offer an employment which has been taken back.

Depending on the facts, an offer on which an individual relied (i.e and quit their existing job to take up the offer) that was not seen through by a potential employer may give rise to another contractual remedy – promissory estoppel. This is a contractual mechanism that stops parties from going back on their word, even if there was not a substantive contract of employment entered into between the parties. This is a complex area of law, and a legally conscious employer would state that offers are subject to certain conditions that may be changed at will.

If an employment contract was in fact entered into (i.e it was more than an offer), then the standard terms around notice would apply. Very often, employees are under a ‘probationary period’ which gives an employer a contractual right to dismiss a new employee quickly. As long as this notice is complied with, there is no breach of the employment contract.

Remedies for breach of an employment contract

From the employer’s perspective, a claim for a breach of an employment contract would be litigated in the same manner as a business to business or other type of contract – at the County Court (for lower value claims) or High Court (for higher value claims); both part of the civil courts.

Individuals have this right, but in some circumstances their claim may be dealt with by the Employment Tribunal as an employment tribunal claim. The Employment Tribunal has the power only to hear certain cases, as a general rule centring around an employer’s potential unlawfulness. Any individual who is in a dispute with an employer should seek legal advice on the best forum to hear a claim. For example, there are stricter time requirements at the Employment Tribunal, and there is usually an obligation on the employee to refer the matter to ACAS first so the dispute can be resolved out of the civil courts.

Avoiding breaches

Beyond advising both employers and employees to read their employment contracts and comply with the relevant provisions, there are steps that can be taken by either side to avoid potential breaches of employment contracts and the associated costs of doing so:

• Maintain an open and informal dialogue – employers should be in constant communication with employees to both ensure that employees are not perceiving potential issues as breaches, and providing a mechanism for employees to raise breaches before matters go to litigation.

• Grievance procedures – employers should, and employees should require, that there is in place clear grievance producers so that issues can be resolved by (ideally) a neutral party within the business.

• Comprehensive employment contracts – employment contracts should cover every aspect of the relationship between the parties. The more that is left unsaid, the easier it is for parties to enter into a dispute that cannot be resolved informally.

At EM Law, we are experts in guiding both individuals and businesses through the employment process. We always want to avoid the cost and stress of an formal dispute wherever possible. If you have any questions, please do contact Marc Jones or Imogen Finnegan directly or via our website here.