Reform Between Wrongful and Unfair Dismissal

In order to be able to effectively examine the role between wrongful and unfair dismissal, it is necessary to appreciate how each concept operates within employment law. This work shall thoroughly review each concept, the way they interact with one another and then a conclusion shall be drawn as to whether this is an area of the law that requires reform. It needs to be understood that there is a certain degree of overlap between these concepts, namely both rights are solely in respect of employees and they both relate to claims which can be raised by the employee subsequent to their dismissal by the employer. The main difference is that wrongful dismissal is a claim based in contract law and it essentially the common law action for breach of contract, and unfair dismissal is a statutory construction which aims to ensure that employers do not dismiss employees without a demonstrable reason and utilize a fair procedure in any dismissals.

Wrongful Dismissal “occurs when an employer dismisses an employee in a way that is in breach of the employee’s contract of employment.” [1] This occurs most commonly when an employer dismisses the employee summarily, namely, without any notice whatsoever, and it is later proven he does not possess sufficient objective justification. One commentator has emphasised that inadequate notice periods are only one aspect of wrongful dismissals, “for example if the employer terminates the employment contract without following some procedure proscribed by the contract.” [2] The case of Gunton v Richmond-upon-Thames London Borough Council [1980] ICR 755 analysed this point and established, “if the contract of employment stipulates that a particular procedure must be followed before an employee is dismissed, then a dismissal which is carried out without that procedure having been followed is necessarily wrongful” [3] . However, if such a procedural policy is not incorporated into the contract of employment, then the failure to use a fair procedure when dismissing an employee, will attract only unfair dismissal liability.

If an employer wishes to dismiss his employee in such a way as to avoid a claim for wrongful dismissal, he simply must abide by the terms of the contract, may behave profoundly unreasonably in doing so and still not attract any contractual liability. This is the essential difference between wrongful and unfair dismissal, one looks to the letter of the employment contract and the other looks at the manner of the dismissal. In most contracts of employment there are notice clauses and provision for dismissal procedures and providing thee are adhered to liability will be avoided.

The employer in a situation where he is faced with an indolent employee and wishes to rid him of them can do so summarily providing they are guilty of repudiatory breach of contract; there is a certain similarity with the ‘conduct’ reason to avoid liability for unfair dismissal which will be discussed below. Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 1 WLR 698 demonstrated that such a breach is required to be “sufficiently fundamental” [4] in order to justify dismissal. The majority of employment contracts will contain a number of clauses relating to the permissible reasons and according to one commentator, “the most frequent example of a repudiatory breach of contract by the employee is misconduct sufficiently serious to be regarded as gross misconduct.” [5] Therefore, if a breach of contract is sufficiently serious, the employer can utilize it to escape liability for both wrongful and unfair dismissal.

We must now concentrate on the issue of remedy, as this is an important aspect of both wrongful and unfair dismissal claims. It has long been established, “the primary remedy for an employee who is wrongfully dismissed is an action for damages for breach of contract.” [6] There is a good deal of similarity between both actions in terms of the damages awarded, fundamentally when considering the level of damages payable for a Wrongful Dismissal, the principles established in Hadley v Baxendale (1854) 9 Exch 342, must be followed. If one applies the ratio of this case to an employment scenario, “the employee must be put into the same position as if the employer had properly performed the contract.” [7] Laverack v Woods of Colchester Ltd [1967] 1 QB 278, has established that “it is to be assumed for these purposes that the employer would have performed the contract in the way least burdensome to him or herself, and would have minimised his or her obligations to the employee by giving due notice to terminate the contract at the earliest opportunity.” [8] Therefore, in terms of the damages for wrongful dismissal, the main head is the notice period, however, the damages for unfair dismissal are viewed on a more general way and once liability is established, the loss of earnings from the point of dismissal and including the day of the hearing are included in the schedule of loss and are claimable up to the statutory maximum of £67,500.

Unfair Dismissal

This is a statutory construct, governed by Part X of the Employment Rights Act 1996 (ERA), in addition to a number of other statutory provisions. Section 94 of the ERA provides the basic right, namely, “an employee has a right not to be unfairly dismissed.” The similarity with unfair dismissal can be seen if one looks at the qualifying criteria, according to one commentator, the aggrieved party must, “be employed under a valid contract of service, or apprenticeship or belong to a class designated by the Secretary of State as having been conferred with unfair dismissal rights; he must have sufficient continuous employment under a contract of service to qualify to make a claim; he must have been dismissed.” [9] However, unlike claims for wrongful dismissal, which can be presented to the courts within a period of 6 years from the date of the contractual breach, as determined by the Limitation Act 1980, according to section 111(1), of the ERA, a claim for unfair dismissal “must be presented to the tribunal within a three-month period beginning with the effective date of termination”. In the same way as for wrongful dismissal, employees are required to demonstrate they were in fact dismissed to be assured of having an opportunity to lodge a claim

Whereas in wrongful dismissal, the consideration relating to the circumstances of the breach of contract is relatively minor, for unfair dismissal, “the fairness or otherwise of a dismissal involves a two-stage inquiry: first, the employer must show what the reason or principal reason for the dismissal was and that it was for one of the reasons set out in the ERA 1996, s 98(1)(2) and, second, that the dismissal was fair in all the circumstances of the case (the burden here being neutral).” [10] It is therefore a much more complex operation to prove unfair dismissal and requires an in-depth look into a multitude of aspects of the employment relationship. The employer can justify a dismissal on a number of grounds and avoid unfair dismissal liability, these grounds are much more extensive than in the case of wrongful dismissal, where the primary ground is repudiatory breach of contract by the employee. For the employer to establish the fairness of a dismissal they must demonstrate according to section 98(1), “…the reason (or, if more than one, the principal reason) for the dismissal, and that it is either a reason falling within the ERA or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.” Unlike the case with wrongful dismissal, the burden of proof is with the employee in cases involving unfair dismissal. Some of the most common reasons allowable by the ERA will now be discussed below.

Section 98(2)(b) of the ERA states that one of the fair reasons to account for a dismissal, “relates to the conduct of the employee” and this is very similar to the repudiatory breach concept in wrongful dismissal. The case of Tesco Ltd v Hill [1977] IRLR 63 has outlined that to avoid unfair dismissal liability, “in theft dismissals, the employer will be expected to follow fair procedures including giving the employee a proper opportunity to give his or her side of the story.” Failure to follow such a fair procedure, even if liability for the theft is ultimately proved will result in a successful claim in unfair dismissal. The reason to account for this is that the courts look towards the procedural aspects of a dismissal with this type of claim and are interested only in the knowledge of the employer at the time of the dismissal itself. Section 98(2)(a) of the ERA, provides that one of the permitted reasons for a dismissal, “relates to the capability and qualifications of the employee”. If such incapability can be proved, then a dismissal will be found to be substantively fair providing it was carried out in a reasonable manner. Taylor v Alidair Ltd [1978] ICR 445 established that an employer, “does not have to prove the employee’s incapability to the tribunal…the employer must simply show that he or she honestly and reasonably believes that the employee is incompetent and unsuitable for the job and that the grounds for that belief are reasonable.” [11] This demonstrates another important difference between wrongful and unfair dismissal, namely that an employer can effectively act however they want in wrongful dismissal cases, providing they adhere to the terms of the contract, however in unfair dismissal, care must be taken to ensure both substantive grounds for the dismissal are present and also that a reasonable procedure was followed in dealing with the disciplinary action and eventually the dismissal itself.

Conclusion

The operation and purpose of both concepts has now been thoroughly reviewed and now a decision is required, relating to whether this relationship is in need of modification. It is certainly true that there is a good deal of overlap between the two causes of action and there are procedural difficulties caused by relationship between wrongful dismissal and employment tribunal proceedings. It needs to be remembered that £25,000 is the limit for wrongful dismissal cases in the tribunal and so it is commonly the case that separate proceedings shall be commenced in both the civil courts and the employment tribunal simultaneously. This has the effect of creating many jurisdictional as well as damages issues. In most cases, the later application will be stayed in order for the first case to be dealt with. Reform would be warranted in this area, perhaps increasing the wrongful dismissal damages limit, to ensure that the employment tribunal was the venue for both aspects of the claim. In addition to this point, there is little scope for meaningful synergy between the two concepts, given their prominent positions within employment law and the fact they cover different legal rights.