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Detailed Practice Notes written by our Professional Support Lawyers, guiding you through the key issues in each topic.
Wrongful dismissal - overviewWhat you can claim
Wrongful dismissal is dismissal in breach of contract. If someone is wrongfully dismissed they may claim compensation for all financial and other benefits that would have been received had they been dismissed in compliance with the contract (ie had they remained employed until the end of their notice period, or until the end of the contract's fixed term). Some contracts may specify a precise sum (or a precise means of calculating it) that must be paid to end the contract lawfully, either as an alternative to giving notice or as the only means of termination. Other contracts state a specific sum that is to be paid in compensation in the event of dismissal in breach of contract. For further information, see Wrongful dismissal heads of claim - The general rule
It is not generally possible to claim damages for the manner in which the dismissal is carried out, but if an employee has already acquired a cause of action (in contract or negligence) at common law prior to dismissal, that cause of action remains independent of the dismissal. An employee may also claim for financial loss flowing from 'stigma' caused by a pre-dismissal contractual breach.
An employee cannot, generally, claim damages for the loss of a chance to remain employed had a contractual disciplinary procedure been followed properly, but may be able to claim for losses during the period it would have taken to complete the procedure. However, this area of law is in flux and (subject to satisfying issues of causation and remoteness) it may be possible for an employee to recover career-long losses if an employer fails to follow the terms of a contractual disciplinary procedure and the employee is able to allege as a result that, had the employer complied with the procedure, the employee would not have been dismissed. For further information, see Wrongful dismissal heads of claim - Loss of a chance to remain employed.
An employee may not claim for loss of a chance to qualify for a statutory claim of unfair dismissal (although if are dismissed with less than the minimum statutory notice period, continuous service will be counted up until the end of what that period should have been, if that would allow qualification to claim unfair dismissal). For further information, see Wrongful dismissal heads of claim - Loss of a chance to claim unfair dismissal.
Liquidated damages and penalties
Contracts for very senior staff sometimes include clauses which specify a set sum to be paid in order to end the contract, either as an alternative to or instead of giving notice. These clauses usually only apply on termination by the employer. In special situations (eg following a hostile takeover), similar clauses will apply on termination by the employee ('golden parachutes'). These liquidated damages clauses can increase certainty for employer and employee surrounding termination, and decrease disputes.
Any liquidated damages clause must provide for a payment which is a genuine pre-estimate of the true likely losses. If they instead provide for an extravagant sum to be paid, they will be an unenforceable penalty since they seek to penalise the contract breaker rather than compensate the wronged party.
For further information, see Liquidated damages clauses and penalties.
The duty to mitigate
Any wrongfully dismissed employee is under a duty to mitigate his loss and give credit for sums earned during the notice period or during the remainder of the contract's fixed term. If they fail to comply with this duty, the court will consider that their losses arise from that failure rather than the original contractual breach, and reduce the damages recoverable accordingly. However, the employee need only do what is reasonable to mitigate - they need not take the first job that comes along, however lowly, and they may continue to search for the right job for a reasonable period. If an employee is offered his old job back, they will fail to mitigate if they turn down that offer where it would have been objectively reasonable to accept.
No deductions for mitigation may be made from a payment made pursuant to an express contractual right to pay in lieu of notice, or where the contract entitles the employee to liquidated damages in the event of a dismissal in breach of contract. The burden is on the employer to prove a failure to mitigate, which must be raised as an express defence, and proved with evidence.
For further information, see Wrongful dismissal and mitigation.
Benefits in kind
Wrongfully dismissed employees are entitled to compensation for non-cash benefits as well as money remuneration. Such benefits (eg insurance, cars, travel, share options) are more difficult to value but, in general, the proper measure is the cost to the employee of replacing the lost benefit for the relevant period. Common insurance schemes include medical expenses insurance, permanent health insurance and death-in-service life assurance. It may cost an employee more to replace such cover than the original cover cost the employer.
With car and other travel benefits the important distinction is between work and personal use: if only business use of a car was allowed, no benefit was provided to the dismissed employee, whereas a contractual right to personal use of a car must be compensated. AA tables are helpful for valuing such use. Subsidised personal rail or air travel can be even harder to value.
Share options that the employee would have been able to exercise had he not been dismissed may be recoverable depending upon the terms of the share scheme and perhaps of the employment contract. A term in the share scheme excluding any claim for lost share options on termination may well be effective. Terms preventing post-termination recovery in the employment contract are less likely to succeed.
For further information, see Valuing benefits in kind.
When damages are awarded for wrongful dismissal, they will be compensating the employee for some sums which would normally have been received earlier had the contract not been breached (eg lost instalments of salary for a notice period in the past).
Interest is applied to compensate for late receipt.
Tribunals can award 8% interest on damages for breach of contract. By contrast, tribunals have no general power to award interest on unfair dismissal compensation, but have awarded a premium for 'decelerated payment' where it was also appropriate to apply a discount for accelerated payment (see below). This is interest by another name. Civil Court wrongful dismissal claims attract interest in the same way as any other breach of contract.
For further information, see Interest in wrongful dismissal claims.
Damages awarded for wrongful dismissal will also be compensating the employee for some sums that would normally have been received later (eg lost share options that would have been exercisable at some future date).
Deductions for accelerated receipt must be made where sums are received early.
Such deductions are achieved by subtracting the interest a sum would have earned between the date on which it is in fact received, and the date it would normally have been received under the contract. A large sum can be divided up into smaller periodic parts, with different periods of interest subtracted from each.
The appropriate rate of deduction for accelerated receipt is 2.5%.
For further information, see Accelerated receipt in wrongful dismissal claims.
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