Wrongful dismissal
Encyclopedia
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:
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.
In California, most employers designate their employees as “at-will,” which means that they can terminate or demote their employees whether there is cause to do so or not. However, there are numerous exceptions. For example, if an employee is fired or demoted due to unlawful discrimination or in retaliation against uncovering the employer’s illegal activities or the existence of unsafe work conditions, the employee may have a case for wrongful termination.
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.
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:
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.
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.
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.
The employee can only apply to the tribunal during the three months following termination, and once the employers internal complaints procedure has been exhausted.
For wrongful dismissal, it is only possible to claim for lost earnings and damage to reputation, not for the manner of dismissal.
Share options will often be excluded by small print.
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.
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.
If the employee had one 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.
Idiom
Idiom is an expression, word, or phrase that has a figurative meaning that is comprehended in regard to a common use of that expression that is separate from the literal meaning or definition of the words of which it is made...
and legal phrase, describing a situation in which an employee's contract of employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
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
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
. 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
Employee handbook
An employee handbook, sometimes also known as an employee manual or staff handbook, is a book given to employees by an employer. Usually, the employee handbook contains information about company policies and procedures...
.
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 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
Constructive dismissal
In employment law, constructive dismissal, also called constructive discharge, occurs when employees resign because their employer's behaviour has become so intolerable or heinous or made life so difficult that the employee has no choice but to resign. Because the resignation was not truly...
, 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
Probation (workplace)
In a workplace setting, probation is a status given to new employees of a company or business.It is widely termed as Probation Period of an employee...
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.
United States and California
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.In California, most employers designate their employees as “at-will,” which means that they can terminate or demote their employees whether there is cause to do so or not. However, there are numerous exceptions. For example, if an employee is fired or demoted due to unlawful discrimination or in retaliation against uncovering the employer’s illegal activities or the existence of unsafe work conditions, the employee may have a case for wrongful termination.
Canada
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.
Definitions
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
Unfair dismissal
Unfair dismissal is the term used in UK labour law to describe an employer's action when terminating an employee's employment contrary to the requirements of the Employment Rights Act 1996...
" 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
Constructive dismissal
In employment law, constructive dismissal, also called constructive discharge, occurs when employees resign because their employer's behaviour has become so intolerable or heinous or made life so difficult that the employee has no choice but to resign. Because the resignation was not truly...
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.
Notice period
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. He is often also entitled to work, so requiring him to spend the time in leisure to get him out the way can be a breach, even though it may be usually considered a benefit.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.
Remedies
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.
Losses
For the notice period the employer must pay wages (including any anticipated pay rise) and benefits except holiday.For wrongful dismissal, it is only possible to claim for lost earnings and damage to reputation, not for the manner of dismissal.
Benefits
Benefits include:- pension,
- commission accrued and owed,
- bonus,
- overtime,
- 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.
Bonuses
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 got 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.Deductions
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.
Mitigation
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.Examples
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.
Losses
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).
Defenses
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 one 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.