Wrongful dismissal is a common law claim and Isle of Man law is essentially the same as English law in this area. (This means that the principles applicable to wrongful dismissal are substantially equivalent across the two jurisdictions and English case law is potentially relevant for the purposes of deciding cases in the Isle of Man)[1].
An employee is “wrongfully dismissed” if such dismissal is in breach of their contract of employment. Fairness is not an issue when considering wrongful dismissal; the question is whether the terms of the contract, express or implied, have been breached. An employee will have a claim in damages if the employer has breached the contract and caused loss to the employee.
The right arises as soon as the contract is formed – i.e. there is no qualifying period for an employee to claim wrongful dismissal.
Two conditions must usually be established in order to claim successfully for wrongful dismissal:
- the employee must have been engaged for a fixed period, or for a period terminable by notice, and dismissed either before the expiry of the fixed period or without the requisite notice; and
- the employer must not have been entitled to dismiss summarily.
It is worth noting that a dismissal can be wrongful but not unfair. For example, an employee may be dismissed for redundancy following a fair procedure but without due notice or pay in lieu.
The following types of breach of contract are often involved in claims for wrongful dismissal:
- breach of the right to minimum notice, whether express or implied
- termination of a fixed term contract before its expiry
- breach of a contractual disciplinary or redundancy procedure
Inadequate notice
The most common claim is for failing to give adequate notice pursuant to the terms of the contract. There are three ways in which the notice period can be determined:
- by statute
- by an express term in the contract – section 8 of the Employment Act 2006 (the “Act”) requires the written particulars to state the period of notice which must be given by either party when terminating employment
- by an implied term of the contract
Where a notice period is stated in the contract, it will operate subject to the statutory minimum notice entitlement of the employee contained in section 106 of the Act. If, on the other hand, there is no notice period stated in the contract, section 106 of the Act implies minimum notice into the employment contract (this ranges from one week up to a maximum of twelve weeks, depending on the employee’s length of service).
This means that, where an employer fails to give notice (in circumstances where the employee is not guilty of conduct entitling the employer to dismiss with immediate effect), the employee’s remedy is to claim for breach of contract.
In the absence of an express notice period, the common law provides that “reasonable” notice should be given. The courts may imply a longer notice period than that required by statute[2] by considering all the circumstances of the case, including (but not limited to) the nature of the employment, the seniority of the individual and their length of service.
Termination of fixed-term contract
Where a fixed-term contract is terminated before its expiry, this may amount to wrongful dismissal unless the employer can point to a term of the contract which entitles them to dismiss. If the employer is in breach, the damages will be based on earnings for the remainder of the term of the contract, unless there is a provision within the contract which expressly provides for early termination (ie on notice).
Breach of a contractual procedure
If there is a contractual obligation to follow a disciplinary or redundancy procedure and the employer fails to follow it, the employee may claim for the loss of earnings for the period of time that the procedure would have taken had it been followed correctly.
What if the employer makes a payment in lieu of notice (PILON)?
The contract of employment may contain a discretion for the employer to dismiss an employee without notice by making a payment in lieu (also known as a “PILON”). This is essentially a lump sum paid “up front” corresponding to the pay (and sometimes also the benefits) an employee would have received during their notice period.
Where the employer does exercise this option, any dismissal would not be “wrongful” as the contract will have been lawfully terminated by the employer. Once the employer has elected to make a PILON, the are obliged to make the payment even if it transpires that the employee has committed a repudiatory breach of contract which would have justified summary dismissal. (For this reason, settlement or compromise agreements on termination of employment should contain appropriate warranties by the employee that they have not breached their obligations or done anything that would entitle the employer to dismiss them without notice.)
Wrongful dismissal compensation
The remedy for wrongful dismissal is to put the employee in the position they would have been in had the contract been lawfully terminated by the employer. The employee is therefore entitled to compensation for all the benefits that they would have received had they remained employed until the end of their notice period or, in the case of a fixed-term contract, until the contract’s expiry.
An employee who is wrongfully dismissed is under a duty to take steps to mitigate their loss, i.e. they should make reasonable efforts to final alternative employment. If the employee succeeds in finding another job, the employee must give credit to the former employer for the salary and benefits the employee received from the new job during what would have been their notice period. The duty to mitigate requires the employee to act as if they will not recover any compensation, i.e. the employee cannot just sit and do nothing in expectation that they will be compensated later.
If an employee fails to mitigate their loss, then any damages that the employee receives for wrongful dismissal will be reduced to reflect the prospect that they would (with reasonable efforts) have found alternative employment.
Note: Where an employee is dismissed in breach of their entitlement to notice, damages may be assessed on the basis that the employer would have terminated the contract in the way that is most beneficial to the employer. This may mean that the employee is compensated as if the employer made a PILON instead of requiring them to work their notice (or placing them on garden leave). This can have an impact on benefits, such as pension contributions, that the employee would have received during the notice period.
Tribunal or High Court?
Claims for wrongful dismissal may be brought in the Employment and Equality Tribunal (“EET”) or the High Court. The EET has jurisdiction to hear claims which arise or are outstanding on the termination of an employee’s employment. An employee can therefore choose in which forum to bring their claim, with each forum having different advantages and disadvantages.
The key difference between the EET and the High Court is that the High Court does not have a cap on compensatory damages. However, depending on which division of the High Court the employee chooses to bring a claim in, they may be exposed to costs consequences (NB for comparison, the usual position is that each party bears its own costs in the EET save in limited circumstances).
High earning employees may therefore seek to bring claims in both the High Court and EET if they have been dismissed from their job. It will usually be advisable for the employer to take legal advice in order that they can defend or deal with the cases effectively to ensure a consistent strategy and minimise costs.
________________________________________________________________________________
References:-
[1] Under an established principle of Isle of Man law, the decisions of the superior courts of England and Wales have persuasive authority in the Isle of Man and will generally be followed unless there is a provision in an Isle of Man statute, a decision of the Isle of Man courts, or a local condition which gives good reason for not doing so
[2] Hill v Parsons [1972] Ch 305
