You must agree on the terms of employment when hiring new staff. But what do you do when those terms aren’t met, and the contract is breached?
Employment contracts are almost always legally binding. So, it’s important to know how to manage a contract breach. And what your legal rights are, as well as anyone else’s.
One wrong move and you could find yourself facing losing your employees. Which could have negative effects on employee retention, and lead to tribunal claims and business disruptions.
Read about what counts as a breach of contract, how to prove a breach, and how to deal with the aftermath of such breaches when they happen.
What is a breach of contract?
A breach of employment contract happens when the terms of an agreement are broken. Both the employer and employee can be responsible for breaching the contract terms.
The most common forms of contract breaches are:
- When contract terms are partially fulfilled but not to a high enough standard.
- When duties aren’t completed in the agreed timeframe.
- When the agreed terms aren’t performed at all.
Terms of an employment contract
There are two types of terms used in employment contracts.
- Express terms: these are overtly agreed to by both parties; like salary pay, or work location.
- Implied terms: these are not included in contracts but are assumed to be included; like equal right to pay, or duty of care.
Most contract terms like these will be documented, but they don’t always have to be. You can also have verbal agreements or implied contracts – both of which can be breached.
Breach of contract in UK law
The Limitation Act (1980) states the limitation period for breach of contract is six years from the time of the breach. Therefore it’s recommended to keep all contractual documentation for at least six years.
But if the terms are reasonable, under the Unfair Contract Terms Act (1977), it’s often altered to a shorter limitation period.
When an employee raises a claim for a breach of contract, an employment tribunal will assess and make a judgement on the case.
What are the consequences of a breach of contract?
Employment tribunals award remedies for breach of contracts. These can include financial losses and award damages to the claimant. Some consequences and remedies can include:
If a term fundamental to the contract has been breached, you could start a process to terminate the contract. This is known as a repudiatory breach of contract and can be followed by compensation awards for any loss suffered.
Damages for breach of contracts, more commonly referred to as financial losses, are used to put the suffering party back into the position they would be in if the contract terms were met.
Here, you could be awarded liquidation damages. This happens when a contract states a certain amount must be paid if a term is breached. These types of clauses are normally found in manufacturing and building contracts. And often include penalties, for things like lateness of work completion.
There are two types of damages:
- Special damages: awarded for quantifiable losses, like revenue.
- General damages: awarded for unqualifiable losses, like business disruption.
Breach of employment contract by the employer
If you have breached the terms of a contract, you should aim to resolve the problem within your workplace. Mediation is commonly used for resolving workplace disputes.
However, if the employee is unsatisfied with the result, they could still seek further legal action. This can be done by taking their grievance to an employment tribunal.
Some ways employers can break employment contracts are:
- Breaching basic contract terms, like payment, notice periods, sick pay.
- Failing to comply with the company policies and procedures.
- Unfair or wrongful dismissal.
- Not following health & safety regulations.
Breach of employment contract by the employee
If an employee breaches their contract terms, try to resolve the matter informally. You should only resort to taking legal action as a last resort.
But if the situation calls for it, you can raise the issue to the courts. Here, damages can be awarded for any financial loss the employee may have caused, like lost business revenue or production.
Some of the most common employee contract breaches are:
- Quitting work without proper notice.
- Leaving to work for a competitor if your contract disallows it.
- Gross misconduct resulting in a quantifiable company loss.
- Failing to carry out duties.
How to prove a breach of contract
Before a breach of contract claim is raised, you need to prove that a valid contract was made in the first place. It can be made verbally or written, but you need to make sure:
- The contract (with its terms) exists and is legally binding.
- The other party has not followed the terms of the contract.
- The company has suffered a loss due to breaching these terms.
Employers should take reasonable steps when mitigating losses, so the impact of the breach doesn’t create further implications. This is known as a duty of mitigation. There losses can’t be recovered if they could have been avoided within reason.
How to write a breach of contract clause
A breach of contract clause shows you how to deal with breaches after they happen. Whatever the current situation might be, both parties need to oblige to the clause to determine the next step for resolution.
These clauses can be general or specific, depending on your company needs. When handling breaches, you could state whether you will deal with them internally or raise them through court action.
It’s a good idea to review samples clauses to see which one will work best for different contract breach incidents.
Get expert advice on breach of employment contracts
You should have a solid procedure of implementing terms and have reasonable procedures for breaches. That way you’ll significantly reduce disruption to your business productivity. And your employees also benefit from having clear guidance on your contract regulations.
Without fair terms or clear conditions, you could face serious legal issues. Remember to only action changes to employment contracts after discussions and agreement is met.
Our expert HR consultants ensure you comply with UK employment law and can offer help creating contracts that fit your business needs.
Book in a free demo today to see just how easy it is to manage HR with our app. Give us a call on 0800 783 2806.