Employment breach of contract
It’s relatively rare for employers to take legal action against employees, except in 2 contexts :-
The latter is often a matter of principle, the former is usually action taken against senior employees who are alleged to be trying to poach customers or co-workers when moving to a competitor or setting up in competition.
But should employers take action more often? If so, why?
One good reason for employers to ensure that employment contracts are reviewed or tightened up is the changing legal risk environment. Three major risks have evolved very fast in the last decade, which apply to almost all businesses. The first is data and intellectual property, which is now key for almost all businesses. Aside from the case of an employee deliberately seeking to steal data, there are significant risks of careless or negligently putting the employers data at risk. The second new threat relates to reputation – based on the fact that a comment or action which is potentially extremely damaging to a business can spread virally extremely quickly, causing immense damage to an employer. The third risk emanates from the legislation relating to bribery and corruption. Employers must be extremely vigilant against this and liability can arise even where an employer does not allow or encourage corrupt conduct.
In short, whilst employees have a duty of good faith and fidelity to employers, without express contractual provisions, this isn’t likely to be enough.
Beware penalty clauses in employment contracts and understand the need for proportionality
On the basis, as an employer, you believe there is a case for getting tough with employees in terms of contract clauses and enforcement, you do also need to understand the importance of care in drafting any clauses. Employment contracts are commonly interfered with by courts or tribunals on the basis that clauses are unfair on the employee. There are many instances where restrictive covenant clauses have been struck down or watered down because they are considered excessive. Care needs to be taken to ensure clarity and proportionality.
Where there is a breach of contract by an employee what action can or should be taken?
When considering suing for breach of contract with any contract, it is important to bear strongly in mind what the objective is – in most commercial contexts it is to recover losses. On that basis, it follows that there is no point, commercially, in suing if the defendant definitely doesn’t have resources to pay or is unlikely to have the resources. This is perhaps one reason why employers rarely pursue employees. Damage caused by an employee breach, of the types described above, could cost a business many thousands if not more. However, in some cases, aside form the strict commercialities of the situation, principle may also come into play and also setting a precedent. If other employees know that you may pursue them, they may be more careful about their conduct. As against this, employees may not be so keen to work for an employer that adopts such an approach and staff morale is also a big factor- see more generally here about legal aspects of a breach of contract.
What about a fine or other form of deduction of wages?
Fining staff for breaches of contract is a difficult area – in order to have the right to do this, the contract must be clear. There are some industries where fines are regularly imposed and rarely challenged. Professional football is one such area – there are many instances where fines are imposed, with this recent example just being one of many.
The potential advantage to including a fining policy in employment contracts is simple – rather than have to pursue an employee the employer has the ability to hit the employee where it hurts – directly in the pocket.
The main problem with the above is the prospect of such action being considered as a penalty – any deduction or fine would need to be proportionate to damage to be lawful and that’s a difficult area. In the case of footballers, in many respects, while they are employees, it’s hard to draw comparisons. Most footballers don’t challenge fines (however instances where it seems a challenge may have been started but then dropped include the issues surrounding Carlos Tevez), even though they probably could in many instances. Many earn so much money that a deduction of 1 or 2 weeks wages doesn’t materially impact them.
Under Part II of the Employment Rights Act 1996 it is unlawful for an employer to deduct sums from an employee’s wages unless the deduction is required or authorised by statute or a provision in their contract. With retail workers, specific rules exist pertaining to deductions due to stock or till shortages.
Overlap with employee disciplinary process – right to appeal against fine?
As payment of wages is such a fundamental aspect of the employment contract, even where the employer has the contractual right to deduct, in so doing without also following a disciplinary process and offering a right of appeal, the employer opens themselves up to a bigger issue – where the employee has the appropriate length of employment, the employee might consider resigning and claiming unfair constructive dismissal.
If you need advice on any issues raised in this article or on employment law generally, please do get in touch with us.
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