Breach of employment contract / Wrongful dismissal
'Wrongful dismissal' describes the situation where an employer
(or employee) has purported to terminate an employment otherwise
than in accordance with its terms, ie. breach of the employment
contract. The three most common examples of wrongful dismissal
occur where:
- an employment contract is terminated without the employer
giving the required notice, or complying with a clause dealing with
how the contract is to be terminated, or
- a fixed term contract is terminated before the end of the
agreed term (for example, where a two year contract is terminated
after six months), or
- an employer purports to terminate the contract for serious
misconduct, without reasonable grounds.
Wrongful dismissal is not the same as unfair dismissal.
Wrongful dismissal is based on the common law. 'Unfair
dismissal' describes a right of action that employees may have
under the Fair Work Act 2009 (Cth) or similar state
legislation. Wrongful dismissal claims are usually only made
where the plaintiff is not eligible to bring an unfair dismissal
application. Click here for more information on unfair dismissal.
The effect of wrongful dismissal on the employment
contract
If an employer purports to terminate an employment contract
without having the power to do so, the purported termination does
not bring the contract of employment to an end. Rather, it
gives the employee a right to terminate the contract.
However, if the employer refuses to accept the employee's
labour, the employee will generally have no entitlement to
wages. For this reason, employees often have to accept the
termination as bringing the employment contract to an end, though
they retain the right to recover any damages or seek other
remedies.
Remedies for wrongful dismissal
There are two major remedies for wrongful dismissal - specific
performance of the contract (which requires the parties to abide by
the contract) or compensation for loss and damage.
Specific performance of an employment contract is rarely awarded
by the courts. First, a substantial period of time has
usually elapsed between the purported termination and the decision
of the court. Second, the courts are reluctant to force
unwilling parties to continue an employment relationship.
Compensation is the most common remedy for wrongful
dismissal. The purpose of compensation is to put the injured
party in the same position as if the contract had been performed
according to its terms.
Damages can be awarded for loss of the following:
- wages and other remuneration
- superannuation, and
- 'injuries' suffered because of the purported termination,
including psychiatric illnesses.
Damages for wages and remuneration will generally include the
value of other benefits that the employee was entitled to as of
right under the contract, such as allowances, motor vehicles and
mobile telephones. It will not generally include any amounts
that were at the discretion of the employer, such as bonuses.
For wages and other remuneration, the period for which the loss
can be claimed will generally extend only to the earliest date on
which the employer could lawfully have terminated the
contract. For example, if a contract provides for
termination on one months' notice, the maximum period of lost wages
that can be claimed will be one month. In the case of a fixed
term contract that does not otherwise provide for termination, the
period will run from the date of the termination through to the end
of the fixed term. There are some limited exceptions.
The duty to mitigate
An employee who has been wrongfully dismissed has an obligation
to mitigate their loss. This means they must take reasonable
steps to reduce or avoid loss. In the case of an employment
contract, the duty to mitigate will generally require the innocent
party to make reasonable efforts to obtain alternative
employment.
Any income earned from alternative employment may be offset
against the loss or damage caused by the wrongful termination.
If the employee fails to make reasonable efforts to mitigate
their loss, the court may reduce their damages by the amount that
the court considers they could have earned had they made reasonable
efforts to mitigate their loss. However, an employee is not
generally required to accept less favourable employment.
Breach of employment contract and redundancy
In some circumstances, an employee may be able to successfully
obtain redundancy pay relying upon the employment contract.
Click here for further information regarding redundancy and
redundancy pay.
Many employment contracts contain provisions seeking to
prevent their employees going into competition after the employment
ceases. The critical issue is whether your restraint clause is
reasonable. Our employment contract lawyers have experience in
advising you about the reasonableness and enforceability of such
clauses.
Determining what is a reasonable restraint is notoriously
difficult and technical. Of particular importance is the duration
of any restraint and its geographical spread. The longer the
restraint and the more geographically wide-ranging, the less likely
that it will be enforceable.
Click here for further information about Restraint of trade
clauses.
Want to know more?
Maurice Blackburn can advise you about other legal avenues which
would allow you to challenge a dismissal or bad treatment. Contact
us on 1800 810 856.