The difference between wrongful dismissal and unfair dismissal are a common source of confusion for employers.

A wrongful dismissal occurs when an employee is dismissed in any way which is in breach of the employee’s contract of employment. Unlike unfair dismissal questions of fairness and reasonableness are not are not crucial to a claim of wrongful dismissal, whereas these are essential issues in claims of unfair dismissal. An employer may behave unreasonably in dismissing an employee even though it has adhered to the wording of the contract of employment, while a decision to dismiss may actually be reasonable even if it involves a breach of the contract. The wrongful termination of any normal contract of employment will give rise to a possible claim for wrongful dismissal.

Obviously for there to be a claim of wrongful dismissal there must in fact have been a dismissal. Therefore no claim arises if the employee genuinely resigned, or the employment ended by mutual agreement. A claim of wrongful dismissal can arise if the employee’s contract ended due to “constructive dismissal”.

If an employer gives the full notice to terminate the employment specified in the contract of employment, it will not have wrongly dismisses that employee. However, if no notice period is given, or the employer gives a shorter notice period than required under the contract of employment, it will be liable to a claim of wrongful dismissal.

Risks to employers arise if they terminate the employment without notice on the basis of alleged gross-misconduct by the employee. In the event of genuine gross misconduct by the employee the law allows the employer to dismiss the employee without notice. If the former employee brings a claim of wrongful dismissal, and the employment tribunal conclude that the alleged gross misconduct either, did not occur, or was not so bad as to be “gross”, then the employer will be held to have wrongly dismissed the employee if no notice was given.

A way of reducing the risks of an employment tribunal ruling that a particular act or omission did not constitute gross misconduct is for an employer to specifically list types of behaviour or events that would lead to summary dismissal. These will need to be clear. However, the employer should still make sure it can rely on other traditional examples of gross misconduct to justify summary dismissal.

In the case of the fixed term contract (see link PAYG fixed term contract) of employment there will be a wrongful dismissal if the employer terminates the contract before the designated date before the end of the fixed term. However, an employer may want to have the opportunity to terminate the employment on an earlier date if problems arise. A fixed-term contract can include a provision that enables either party to give notice to take effect on an earlier date, so avoiding liability for wrongful dismissal.

If an employer has a contractually binding disciplinary and dismissal procedure, a failure to follow that procedure in actually dismissing an employee will constitute a wrongful dismissal. The same problem will arise if there is a contractual redundancy procedure which is not followed when choosing to terminate an employee’s contract on the grounds of redundancy.

An employer may want to terminate an employee’s contract without notice, and still hope to rely on restrictive covenants in the contract of employment – such as preventing the employee working in competition and restricting the use of confidential information. A way of achieving this would be for the contract of employment to include a right for the employer to make the employee a payment in lieu of notice (see PAYG contract of employment clauses), and the employer then terminate the employment on making such a payment.

Claims for wrongful dismissal are basically claims for breach of contract. The compensation for wrongful dismissal is limited to the loss suffered due to the failure to give the notice required under the contract of employment. Future losses beyond the notice period cannot be recovered in this type of claim, contrasting the position of compensation for unfair dismissal. The claim may be brought in the County Court or High Court, or in the Employment Tribunal. However the employment tribunal can only make an award of compensation of up to £25,000 for this type of claim. There is no limit on the amount of compensation that the County Court or High Court  can award, - subject to the fact that they will only award the actual losses incurred in not having been given proper notice to terminate the contract.