||The examples and perspective in this article deal primarily with the United Kingdom and do not represent a worldwide view of the subject. (January 2012)|
Wrongful dismissal, also called wrongful termination or wrongful discharge, is an idiom and legal phrase, describing a situation in which an employee's contract of employment has been terminated by the employer in circumstances where the termination breaches one or more terms of the contract of employment, or a statute provision in employment law. It follows that the scope for wrongful dismissal varies according to the terms of the employment contract, and varies by jurisdiction. Note that the absence of a formal contract of employment does not preclude wrongful dismissal in jurisdictions in which a de facto contract is taken to exist by virtue of the employment relationship. Terms of such a contract may include obligations and rights outlined in an employee handbook. Being terminated for any of the items listed below may constitute wrongful termination:
- Discrimination: The employer cannot terminate employment because the employee is a certain race, nationality, religion, sex, age, or in some jurisdictions, sexual orientation.
- Retaliation: An employer cannot fire an employee because the employee filed a claim of discrimination or is participating in an investigation for discrimination. In the United States, this "retaliation" is forbidden under civil rights law.
- Employee's refusal to commit an illegal act: An employer is not permitted to fire an employee because the employee refuses to commit an act that is illegal.
- Employer is not following own termination procedures: Often, the employee handbook or company policy outlines a procedure that must be followed before an employee is terminated. If the employer fires an employee without following this procedure, the employee may have a claim for wrongful termination.
Wrongful dismissal will tend to arise first as a claim by the employee so dismissed. Many jurisdictions provide tribunals or courts which will hear actions for wrongful dismissal. A proven wrongful dismissal will tend to lead to two main remedies: reinstatement of the dismissed employee, and/or monetary compensation for the wrongfully dismissed.
A related situation is constructive dismissal, in which an employee feels no choice but to resign from employment for reasons imposed by the employer.
One way to avoid potential liability for wrongful dismissal is to institute an employment probation period after which a new employee is automatically terminated unless there is sufficient justification not to do so. The dismissed employee may still assert a claim, but proof will be more difficult, as the employer may have broad discretion with retaining such a temporary employee.
- 1 United States
- 2 Canada
- 3 UK
- 4 Risks
- 5 Defenses
- 6 Relation to unfair dismissal
- 7 Relation to constructive dismissal
- 8 See also
- 9 Notes
- 10 References
In the United States, there is no single “wrongful termination” law. Rather there are several state and federal laws and court decisions that define this concept. Employers typically designate their employees to be "employees at will." Even in these cases, however, it is usually "wrongful termination" to dismiss an employee on a legally prohibited basis.
In California if a termination was based on your membership in a group protected from discrimination by law, it would not be legal. An employer may not discriminate or terminate a person because of race, religion, national origin, gender, sexual orientation, disability, medical condition, pregnancy, or age, pursuant to the California’s Fair Employment and Housing Act (FEHA) and Title VII of the Civil Rights Act of 1964.
In Canadian law, absent a written contract which addresses how to end the employment relationship, the law implies into the employment relationship a term that it will not be ended without "reasonable notice" of its termination. The length of reasonable notice depends on a number of factors, best described by the Ontario Court in the 1960 decision of Bardal v. Globe & Mail:
There could be no catalogue laid down as to what was reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case, having regard to the character of the employment, the length of the service of the servant, the age of the servant and the availability of similar employment, having regard to the experience, training and qualifications of the servant.
An employer is entitled to dismiss an employee according to the terms of the employment contract. There are oral employment contracts, and written employment contracts, and combinations of oral and written employment contracts. In Canadian common law, there is a basic distinction as to dismissals. There are dismissals with cause, and dismissals without cause. Cause is employee behaviour that constitutes a fundamental breach of the terms of the employment contract. Where cause exists, the employer can dismiss the employee without providing any notice. If no cause exists yet the employer dismisses without providing lawful notice, then the dismissal is a wrongful dismissal. A wrongful dismissal will allow the employee to claim monetary damages in an amount that compensates the employee for the wages, commissions, bonuses, profit sharing and other such emoluments the employee would have earned or received during the lawful notice period, minus earnings from new employment obtained during the lawful notice period. In Canadian employment law, it has long been the rule that reinstatement is not a remedy available to either the employer or the employee - damages must be paid instead.
Although Canadian employment law provides some of the above remedies, each jurisdiction or country may treat employment law differently. It is important to determine which jurisdiction the employment occurs in or is regulated by, then seek appropriate legal advice relevant to that jurisdiction and its particular employment laws.
In United Kingdom law, the concept of "wrongful dismissal" refers exclusively to dismissal contrary to the contract of employment, which effectively means premature termination, either due to insufficient notice or lack of grounds. Although wrongful dismissal is usually associated with lack of notice sometimes it can also be caused by arbitrary dismissal where no notice was required but certain grounds were specified in the contract as being the only ones available but none existed.
Wrongful dismissal does not terminate the contract - it is a repudiatory breach, i.e. one entitling the employee to consider himself no longer bound on the basis of the employer no longer considering itself bound. The employer's repudiatory breach (wrongful dismissal) forces the employee to accept it as he is prevented from earning from the employer and required to mitigate by working for someone else, thus terminating the contract. This does not follow contract law and is an invention by judges, disliked by others, designed to reflect the reality of employment, using the dual fictions that because the right to wages depends on the obligation to work, there is no right to wages if the employer tells the employee not to work (forgetting that the employer is not able to terminate the obligation to work other than in accordance with the contract) and that the employee has accepted the repudiation by not working for the employer even though he is willing and able. Otherwise the employee would be entitled to stay at home at the employer's request yet sue for unpaid wages as a debt.
An employer is only entitled to dismiss an employee without notice:
- in the first month,
- if the contract says so, or
- if the employee conducts himself so as to undermine the trust and confidence such that the employer should no longer be required to retain the employee in his employment.
The last example, trust and confidence, is commonly known as "gross misconduct", but employment law only distinguishes between misconduct that justifies dismissal and misconduct that does not. Conduct entitling the employer to terminate the contract is conduct indicating the employee no longer considers himself bound by it and so is technically accepting the termination caused by the employee. Gross misconduct is really just a vague list of offences that could most easily justify summary dismissal for a first offence.
An employee could seriously annoy an employer without indicating that he no longer intends to be bound by the contract.
Dismissal for a reason contrary to statute or contrary to a statutory procedure is described as "unfair dismissal" but not all wrongful dismissals are unfair dismissals, and dismissal by forcing somebody to resign through serious breach of contract is known as constructive dismissal and constructive dismissal is usually a wrongful dismissal due to lack of notice.
Employer loses restrictive covenants
If an employer dismisses an employee without legally required notice then the employee is usually not bound by restrictive covenants (increasingly though courts treat pay in lieu of notice as curing lack of notice). This means the employer of a senior employee privy to company secrets should be careful not to unjustifiably summarily dismiss him, or put him on garden leave or pay him in lieu of notice without a contractual provision allowing it, or even miscalculate his notice period making it a day short.
Sometimes an employer can restore such covenants in a compromise agreement by paying a nominal sum of, say, £500 for them. The employer cannot circumvent the risk of a summary dismissal turning out to have been unlawful by giving notice, as that would imply the employee's breach of contract was insufficient to justify summary dismissal.
The notice period will usually be in the written agreement, otherwise there are statutory minimums but a court can imply a reasonable period and often will if it thinks the employee has been treated shabbily - for example, one week can turn into a month, and one month can turn into three months. The statutory minima are one week for one month to two years' service then one extra week per year of service from two to twelve years up to a maximum of 12 weeks. Common law notice, used by courts where the contract is silent, depends on the work, seniority, length of service and payment intervals, but not on what the employer can afford; senior specialists can be given six or even up to twelve months.
Right to work
The employee is always entitled to be paid during his employment and the required notice period. They are often also entitled to work. Requiring the employee to spend the time in leisure (IE at home, on vacation, etc.) in order to "get them out of the way" can be considered illegal, even though it may be usually considered a benefit to the employee.
If an employer wants an exiting employee out of the way and does not have the right to put him on garden leave or pay him in lieu of notice then the only options are to encourage use of holiday and offer a compromise agreement to waive his right to sue in return for the intentional breach of contract. Sometimes the breach turns the termination payment into compensation rather than wages, making it tax-free, so the employee may be only too happy to go along with the ruse.
In a tribunal the remedy would be compensation. In court the remedy would be damages but rarely an injunction. An injunction could be awarded to enforce a contractual disciplinary procedure, but because compensation is usually an adequate remedy for premature termination an injunction is generally not available to keep a job going, even in a redundancy situation where the selection process has been circumvented.
The employee can only apply to the tribunal during the three months following termination, and once the employers internal complaints procedure has been exhausted.
- commission accrued and owed,
- accrued holiday on unpaid sick leave,
- income protection benefit and personal use of company car (usually running cost or hire car).
Share options will often be excluded by small print.
To avoid arguments about whether these would have been earned it may make sense to compromise by paying the usual sort of overtime or bonus he would have gotten if working. Courts are astute to employers trying to wriggle out of commission with arguments like "it was not triggered because we dismissed him before pay day". The employer is under a duty to act in good faith, not to excerise discretion spitefully or in bad faith and not to act perversely, irrationally or capriciously.
The deductions that can be made from compensation are:
- replacement earnings or what the employee should have earned had he bothered to try (failure to mitigate),
- social security actually received or which could have been had he bothered to apply and
- compensation already awarded for unfair dismissal under the same heading.
Because it is a contract claim, the employee has a duty to mitigate his loss by seeking employment as soon as possible for as high a wage as possible. So the tribunal or court would deduct earnings from a new job during the correct notice period from compensation due, but if the employer attempts to do this unilaterally, it may simply trigger a claim that would not otherwise have happened had it turned a blind eye to the employee making a couple of weeks' wages out of the situation. Due to the disproportionate cost of employment litigation it is usually sensible for an employer to err on the side of generosity to try to ensure the parting of ways is amicable rather than showing off how many loopholes it can find. Pensions cannot be deducted.
It is possible for a contract to be worded so as to make the pay in lieu of notice a debt to which the employee is entitled even if he gets a new job the next day.
Breaches of contract
Wrongful dismissal is the lesser type of unlawful dismissal, costing only what it would have done to keep the employee during the notice period, but it can be slightly dangerous for the employer due to the potential loss of restrictive covenants and due to the employee being able to start alleging all sorts of breaches of contract to try to use up the £25,000 breach of contract allowance in a tribunal, and if he takes the employer to court instead there is no limit and it could end up paying significant costs.
Breaches of contract by the employer serious enough to create a wrongful dismissal are also a constructive dismissal. Wrongful dismissals not caused by insufficient notice will have been caused by another breach such as of the duty not to destroy the mutual bond of trust, and have included failure to inform of pension rights.
The employer has no duty to act what would normally be called in good faith but must not act in bad faith or insufficiently in good faith that it breaks the mutual bond of trust. The obligation is usually not to do anything bad as opposed to doing something good.
The employee could allege extra breaches of contract and losses including:
- loss of earnings and psychiatrist fees for psychiatric injury caused by wrongful dismissal,
- loss of earnings for the time it would have taken to follow the correct disciplinary procedure,
- loss of earnings for unpaid sick leave caused by bullying,
- loss of earnings caused by demotion,
- loss of earnings caused by stigma of association with a corrupt employer affecting many employees (as opposed to an incident of dishonesty),
- redundancy pay lost due to being terminated just before he would have qualified for two years' service,
- loss of health insurance and
- loss of chance to claim unfair dismissal if wrongfully dismissed so that the statutory notice period would have run over into the second year of service (so employers can defeat the contractual notice period for the purposes of preventing unfair dismissal rights arising).
Successful defenses have been:
- the employer discovers the employee was in such serious breach that he could have been summarily dismissed,
- contract allowed dismissal a without disciplinary procedure as long as notice give or paid in lieu.
Relation to unfair dismissal
A wrongful dismissal can be a fair or unfair dismissal, just as an unfair dismissal may or may not be a wrongful dismissal in terms of whether the correct notice was given.
If the employee had two year's service he could claim unfair dismissal if there was something wrong with the decision to dismiss as opposed to the length of notice. If the wrongfulness was the lack of grounds then is it pretty certain to also be an unfair dismissal.
The unfair dismissal claim would, if he is well advised, be in respect of the post-termination period and sue in court for wrongful dismissal in respect of the notice period, thus stretching out the statutory limits by making the unfair dismissal limit only start running from a later date to allow perhaps more loss of earnings and ignoring the breach of contract limit by using the court instead of tribunal to deal with wrongful dismissal. The burden of proving double recovery is on the employer and tribunal awards for unfair dismissal can be vague as to what and when they are for.
Relation to constructive dismissal
A wrongful dismissal can be actual or constructive, but a constructive dismissal is almost certain to be a wrongful dismissal since the correct notice will not have been given if the dismissal was caused by a resignation itself caused by the employer's serious breach of contract. An employee who was constructively dismissed, as well as possibly having a claim for breach of the duty not to destroy the bond of mutual trust, will usually have a claim for wrongful dismissal. As only economic loss can be claimed for breach of contract, the main loss will be earnings due to the lost notice period as opposed to any disgruntlement about the manner or reason for dismissal, so the constructive nature of the dismissal tends to disappear into the claim for lost notice period.
- Wrongful Termination
- Wrongful Termination in California Harrison & Bodell LLP
- (1960), 24 D.L.R. (2d) 140
- Boyo v Lambeth London Borough Council  ICR 727
- Gunton v Richmond upon Thames LBC  ICR 755
- General Billposting Co Ltd v Atkinson  AC 118
- Abrahams v Performing Rights Society Ltd  ICR 1028
- Employment Rights Act 1996 s86
- Clark v Fahrenheit 451 (Communications) Ltd EAT/591/99
- Barros D'sa v University Hospital Coventry and Warwickshire NHS Trust  EWCA Civ 983
- Marsh v National Autistic Society  ICR 453
- Clarke v BET plc  IRLR 348
- Fosca Services (UK) Ltd v Birkett  IRLR 325
- Addis v Gramophone Co Ltd 
- Malik v Bank of Credit & Commerce International SA  ICR 606
- Dunnachie v Kingston upon Hull CC  EWCA Civ 84, CA
- M De Luca v Longbridge International plc 2002 LTL 2 September 2002
- Brown v Kigass Aero Components Ltd  IRLR 312
- Shove v Downs Surgical plc  1 All ER 7
- Brand v Compro Computer Services Ltd  IDS Brief 754
- Horkulak v Cantor Fitzgerald  IRLR 765
- Midland Bank plc v McCann, EAT 1041/97
- Manor House Healthcare v Hayes, EAT 1196/99
- Yetton v Eastwoods Froy Ltd  1 WLR 104
- Hardy v Polk (Leeds) Ltd  IRLR 420
- Secretary of State for Employment v Stewart  IRLR 334
- Westwood v Secretary of State for Employment  ICR 209
- O'Laoire v Jackel International Ltd
- Parry v Cleaver  AC 1, HL
- Gregory v Wallace  IRLR 387
- Scally v Southern Health and Social Services Board  ICR 771
- Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd  ICR 524
- Gogay v Hertfordshire CC  IRLR 703
- Virgin Net Ltd v Sally Harper EWCA Civ 271
- Boston Deep Sea Fishing and Ice Co Ltd v Ansell (1888) 39 ChD 339
- Bridgen v American Express Bank Ltd  IRLR 94
- O'Laoire v Jackel International Ltd (No 2)  ICR 718