What Is a Breach of Contract in Employment Law?

A breach of contract in employment law occurs when either the employer or the employee fails to comply with the terms of an employment contract without a lawful justification. Employment contracts are legally binding agreements governed by general contract law principles and employment legislation in England and Wales, including the Employment Rights Act 1996 and common law.

Breaches can give rise to claims in the Employment Tribunal or the civil courts, depending on the nature and value of the claim. They are a common source of workplace disputes, particularly in relation to pay, dismissal, working conditions, and notice periods.

Legal Meaning of Breach of Contract in Employment

A breach of contract occurs when one party fails to perform their contractual obligations, either:

• Express terms (clearly written or agreed terms), or
• Implied terms (terms not written but recognised by law or necessary for business effectiveness)

In employment relationships, both employers and employees are bound by contractual duties. A breach arises when those duties are not fulfilled without legal excuse.

Common Types of Employer Breach of Contract

1. Failure to pay wages or salary

One of the most common breaches involves:

• non-payment of wages
• late payment
• unlawful deductions from wages

These issues often overlap with statutory claims under the Employment Rights Act 1996.

2. Unlawful deduction from wages

Employers must only deduct pay where:

• permitted by statute
• authorised by the contract
• agreed in writing

Unauthorised deductions are treated as a breach of contract and may be claimed in tribunal proceedings.

3. Breach of notice period obligations

Employment contracts typically require notice before termination. A breach occurs when:

• an employer dismisses without proper notice
• an employee resigns without serving notice (in some cases)

Wrongful dismissal claims are closely linked to breach of contract.

4. Failure to provide contractual benefits

Employers may breach contract by failing to provide:

• contractual bonuses
• commission payments
• pension contributions
• holiday entitlement beyond statutory minimums

5. Unilateral changes to contract terms

Employers cannot normally change key terms without consent. Breaches occur when they:

• reduce pay unilaterally
• change working hours or location without agreement
• alter job duties significantly

Common Types of Employee Breach of Contract

Employees can also breach their employment contract, for example by:

1. Failure to work contracted hours

Refusing or repeatedly failing to attend work without lawful excuse.

2. Misconduct or gross misconduct

Serious breaches of implied duties such as:

• dishonesty
• theft
• insubordination
• serious negligence

These may justify disciplinary action or summary dismissal.

3. Breach of confidentiality or restrictive covenants

Employees may breach contract by:

• disclosing confidential business information
• competing with their employer during employment
• breaching non-compete clauses after leaving employment

4. Failure to serve notice

Leaving employment without contractual notice may result in:

• damages claims by the employer
• recovery of replacement recruitment costs in some cases

Implied Terms in Employment Contracts

Even where not written, contracts include implied obligations such as:

Employer obligations:

• duty of mutual trust and confidence
• duty to provide a safe workplace
• duty not to act in a discriminatory or arbitrary manner

Employee obligations:

• duty of fidelity and loyalty
• duty to obey lawful and reasonable instructions
• duty to act in good faith

Breach of implied terms can be as significant as breach of written terms.

Legal Remedies for Breach of Employment Contract

1. Damages (compensation)

The main remedy is financial compensation intended to place the injured party in the position they would have been in if the contract had been properly performed.

Typical claims include:

• unpaid wages
• notice pay (wrongful dismissal claims)
• loss of benefits

2. Employment Tribunal claims

Tribunals can hear certain breach of contract claims, including:

• unlawful deduction from wages
• breach connected to termination of employment

However, tribunals have jurisdictional limits on standalone contractual disputes.

3. Civil court claims

The County Court or High Court may hear:

• higher-value breach of contract claims
• complex disputes involving restrictive covenants
• claims exceeding tribunal limits

4. Constructive dismissal

Where an employer's breach is serious, an employee may resign and claim constructive dismissal. This typically involves a fundamental breach such as:

• severe mistreatment
• failure to pay wages
• unilateral reduction in pay

Time Limits for Breach of Contract Claims

Time limits depend on the forum:

Employment Tribunal:

• generally 3 months less one day from termination (for related claims)

Civil courts:

• usually 6 years from the date of breach

Selecting the correct forum is critical due to differing limitation rules.

How Tribunals Assess Breach of Contract

Tribunals and courts consider:

• written contract terms
• conduct of the parties
• correspondence and internal communications
• industry practice
• whether the breach is fundamental or minor

A fundamental breach is one that goes to the root of the contract and may justify termination.

Employer Defences in Breach of Contract Claims

Employers commonly argue:

• the contract allowed the action taken
• employee consent was given
• the term relied on is not contractual
• the breach was justified due to misconduct or necessity
• procedural steps were followed correctly

The burden is generally on the claimant to prove breach occurred.

Practical Examples of Employment Breach

Common real-world scenarios include:

• employer reduces salary without agreement
• employee is dismissed without notice or pay in lieu
• bonus is withheld despite contractual entitlement
• employee leaves without serving notice period
• employer fails to pay final wages after resignation

Key Takeaways

A breach of contract in employment law occurs when either employer or employee fails to comply with contractual obligations, including express and implied terms. Common breaches include non-payment of wages, wrongful dismissal, unilateral contract changes, and failure to serve notice. Remedies may include damages, tribunal claims, or civil court proceedings, depending on the circumstances. The seriousness of the breach determines whether it leads to termination, compensation, or further legal action.