Fines Caused by Managers Inadvertently Breaching Employment Contracts

breaching employment contractsAll too commonly, we see managers either accidentally or, in a few cases, deliberately breaching an employee’s contract of employment. Sometimes the employees don’t notice or do notice but choose to accept the breach without complaint. However often what can seem like a minor infringement can quickly escalate into an employment dispute and Tribunal claim.  All of which can costs tens of thousands in legal fees to sort out if you don’t properly act on the grievance when its first raised!

How familiar are your managers with what constitutes a breach of contract? And what compensation might be awarded by a Tribunal for not giving appropriate rest breaks, holidays, notice, sick pay, pensions, notification of a TUPE transfer etc? Failure to consult, discrimination, unlawful deductions from pay, breach of a statutory right…so many of these things are entirely avoidable if only managers are given a bit of employment law training.

If you have inexperienced or first-time managers making mistakes, read: The 10 things first-time managers need to know about.

But to give you a heads up on what to look out for, without having to book us in to train your managers in essential employment law, here are the 10 most common contractual breaches we see:

  1. Custom and practice

Sometimes managers will informally agree to changes to working practices, often just to be helpful and supportive to the employee, but fail to confirm them in writing (e.g. changes to working patterns, location, job duties etc). As a result, although the manager might have only agreed to the change temporarily, in reality (assuming there’s nothing in writing setting out the timescales for the changes and when they will cease) if the employee continues to work according to the changed working practice for a reasonable length of time, then through custom and practice their new working practice can become contractual.

Top Tip: If you are agreeing any changes to working practices, make sure you agree them in writing, making it clear whether the change is permanent or temporary and when it will end or be reviewed.

  1. Failing to issue contracts/offer letters/or confirming changes to terms and conditions in writing

The law says that employees must be provided with the written statement of terms within 2 months of starting work. However, it is best practice to ensure that all documentation is signed and returned before the employee starts work, and our recommendation would be that a comprehensive contract is used rather than a simplistic written statement of terms, to give you proper protection.

If you don’t get documentation signed and returned before the employee starts work, it can be much more difficult to do later on and leaves lots of opportunity for misunderstandings and employees re-negotiating.

Please don’t be our next client that phones asking what can be done when a new starter resigns just days after starting, taking all your confidential information to your competitor as you hadn’t got around to issuing their contract yet – that contract containing the critical confidentiality clauses that would have protected your business.

  1. Failing to pay holiday correctly

This is a common issue due to changes in legislation, which employers have not kept up with. Make sure that:

  • When you pay holiday pay, you include within their pay any payments that they would normally receive if they were in work e.g. commission, bonus, regular overtime etc.
  • When someone is off sick whilst on holiday, that you allow them to re-book their holiday (assuming that they have followed your absence notification procedures).
  • When someone is on long term sick or leave such as maternity leave, if they are unable to take their leave by the end of the holiday year that you allow them to carry it over.
  • That you ensure staff don’t carry over more than 8 days per year, and that they take at least 20 days holiday (or pro-rata for part time employees) to ensure that they are taking the minimum holiday required under the Working Time Directive.
  1. Working time

We frequently see employees working in contravention of the Working Time Regulations e.g. working more than 48 hours a week averaged out over 17 weeks, or not having enough of a break between shifts, or not receiving the correct breaks.

Top Tip: Make sure you are aware of the rules stipulated in the Working Time Regulations and if your employee is at risk of working more than 48 hours, you ensure that they sign an opt out form.

If this is a grey area for managers, we can help out by delivering some short sessions on key topics such as working time, data protection, immigration etc. Get in touch for more information.

  1. Changing terms and conditions of employment without agreement

If you want to change an employee’s contractual terms and conditions of employment, you need to go through consultation before implementing the changes. Otherwise you risk a breach of contract or constructive dismissal claim. Depending on the changes you want to make, consultation doesn’t have to be time consuming or onerous, but failing to do it can be very risky!

And make sure you have some written record of what you have done when consulting so if ever you are challenged, you have some evidence on file that discussions have taken place!

  1. Not dealing with discrimination/bullying/harassment issues early enough

All too frequently we see managers failing to deal with small issues and allowing things to continue unchecked until the issue becomes much bigger, often due to a variety of factors, including a lack of ability/experience, time, inclination and so on. This is an incredibly risky strategy though, when issues are still small they are usually relatively easy and quick to resolve, but when left to build, they get much harder to resolve, become much more time consuming and most critically get risk gets exponentially bigger for the business.

Top Tip: Make sure your managers are trained and have the confidence to deal with discrimination/bullying and harassment issues as soon as they arise. We’d love to deliver some diversity training for you so why not ask if we can give you a special rate?

  1. Failing to pay sick pay correctly

This is a big issue for many clients – we commonly see clients wanting to have an enhanced sick pay policy to reward loyalty and commitment. They say that the sick pay policy is discretionary, but in reality, never actually use their discretion and always pay enhanced sick pay according to the policy.  Then, when they encounter employees who have excessive levels of absence, they want to stop paying the enhanced sick pay and only pay statutory sick pay. However, through custom and practice they have lost the right to use their discretion as they didn’t ever exercise it.

Top Tip: If you have enhanced sick pay that’s discretionary, make sure that you use your discretion. Better yet, make sure that you have a clear short term absence policy with triggers that will not only ensure that you are formally managing absence but also stop enhanced sick payments.

And in any event, make sure you don’t end up paying full timers full pay whilst inadvertently relegating your part time workers to second class citizens by paying them SSP only.

  1. Payroll errors

We see a couple of contentious issues in relation to payroll come up again and again; overtime and paying back training fees come up most frequently. If you pay overtime, you need to make sure that you have a clear policy stating when it is applicable and how it needs to be authorised. Alternatively, if you have employees who regularly work extra hours and are not paid for those extra hours, make sure that you are clear about what’s expected.

If you expect employees to pay back training costs over a set period of time, make sure that the employee has signed a training feedback form for each piece of training they undertake (just a mention in a handbook isn’t enough) making it clear what they will need to pay back and over what period.  If there isn’t a signed form in place, it will be very difficult to recoup any training costs if they leave within the set period.

  1. Breach of data protection obligations

With the implementation of GDPR (General Data Protection Regulation) in 2018, Data Protection is a hot topic and employees know it, consequently there seems to be an ever increasing number of subject access requests and employees threatening to report organisations to the Information Commissioner’s Office (ICO).

If you haven’t got your house in order given the GDPR, you need to get this underway as soon as possible. Moreover, we know that far too many organisations weren’t even in line with the Data Protection Act, which means that they have even more work to do.  Don’t let this be you and allow a breach to happen or an employee to report you to the ICO, and be the subject of an investigation.

  1. Restrictive Covenants

Very commonly employees are given contracts with restrictive covenants in, which are designed to protect the business. We strongly recommend that you include these types of clauses for key employees (e.g. very senior employees or employees in critical roles such as sales), however in order for them to be enforceable, it’s absolutely critical that they are drafted in the right way and the wording of the clause restricts the employee only sufficiently to protect the business, e.g. rather than preventing the employee from getting new job.

Unfortunately, though, often we don’t see enough time being given to consider these clauses before drafting and far too commonly we see them being included as generic clauses for all employees regardless of role or position, which is highly likely to make them unenforceable.

Top Tip: Make sure that you give time and research before deciding on the restrictions within your restrictive covenants and that you very carefully include specific clauses in only some, key employees.

Risks of breaching a contract of employment 

If the employee has less than 2 years’ service, then they can make a breach of contract claim, known as wrongful dismissal. This is a relatively small type of claim, and the compensation awarded is solely what would have been owed to them if their contract hadn’t been breached i.e. if an employee didn’t receive notice pay, then the compensation would just be the notice pay owed.

If the employee has more than 2 years’ service, then in addition to a wrongful dismissal claim, they can also make a constructive dismissal claim, which is a much bigger claim, in which they need to demonstrate that a fundamental breach of contract has occurred. For an employee to stand a chance of winning a constructive dismissal claim:

  • There must be a fundamental breach of contract by the employer;
  • That breach must be sufficiently important to justify the employee resigning;
  • The employee must leave in response to the breach;
  • The employee must not delay too long in terminating the contract in response to the employer’s breach.

Head in your hands?

There is no need. You can reduce your risk of being successfully sued at Tribunal by taking some sensible steps: train your line managers and whole HR team in Essential Employment Law and you can ensure you use good, up to date, professional documents that are fit for purpose for today’s environment. Life has changed a lot in the past few years so don’t get caught out using out of date or inaccurate documents or by not training managers in what they can and cannot do. Jaluch can support with all of this in a cost effective way so do get in touch.

The information contained within this article is for general guidance only and represents our understanding of employment and associated law and employee relations issues as at the date of publication. Jaluch Limited, or any of its directors or employees, cannot be held responsible for any action or inaction taken in reliance upon the contents. Specific advice should be sought on all individual matters.

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