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Breach of employment contract | What employers need to know to avoid Tribunal claims
Written on 15 January 2026
Breach of contract is a common concern for employers, particularly during resignations, dismissals, or disputes over pay, notice, or changes to working arrangements. Many employers worry they may have breached a contract without realising – or are unsure what to do when an employee claims they have.
WorkNest’s Employment Law specialists are experts in helping employers avoid these sticky situations. In this guide, we explain what counts as a breach of employment contract, the mistakes that often lead to claims, and how employers can prevent costly disputes.
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What is a breach of contract in employment law?
A breach of contract occurs when one party fails to comply with the terms of a legally-binding agreement. In an employment context, this usually means the employer or employee has not done something they were contractually required to do – or has done something the contract doesn’t allow.
Importantly, an employment contract isn’t limited to the written contract alone. It can also include:
- Contractual policies or handbook provisions
- Terms implied by law, such as mutual trust and confidence
- Terms implied through custom and practice
This is where employers can sometimes find themselves exposed to risk unintentionally.
Breach of contract examples
Some of the most common situations where employers may face breach of contract allegations include:
- Failing to give contractual notice, or dismissing without notice where there is no gross misconduct
- Not paying wages, holiday pay, bonuses, or overtime correctly
- Changing hours, pay, or duties without agreement
- Suspending an employee without pay where there is no contractual right
- Failing to follow a contractual disciplinary or redundancy process
Even where there’s a genuine business reason, a failure to follow the contract would still amount to a breach.
What is a breach of contract claim in the Employment Tribunal?
A breach of contract claim is made when an employee believes their employment contract has not been honoured. Employees can bring this claim in the Employment Tribunal, usually after their employment ends, though it can sometimes arise during employment if financial loss occurs.
- Tribunals focus on the actual financial loss suffered because of the breach. This might include unpaid wages, holiday pay, notice pay, bonuses, pension contributions, or other contractual benefits.
- Unlike unfair dismissal claims, an employee does not need two years’ service to bring a claim for beach of contract.
- The breach of contract claim time limit is currently three months of the breach occurring – though this is set to double to six months under the Employment Rights Act 2025.
Breach of employment contract compensation
Compensation for breach of contract is intended to put the employee in the position they would have been in had the contract been honoured. It is not designed to punish the employer.
Employment Tribunals can only award compensation for financial loss, and there is a statutory cap of £25,000 on breach of contract awards.
In practice, awards are often much lower than the maximum. Because compensation is based on proven loss, many breach of contract awards fall into the hundreds or low thousands of pounds, for example where an employee is owed notice pay or a shortfall in wages. Tribunals do not usually award compensation for distress or injury to feelings in breach of contract claims.
Still, even relatively modest claims can hit small businesses hard – especially if multiple claims arise or they come out of the blue – making robust contracts and employment practices essential. This is where WorkNest’s Employment Law and HR experts can help – we provide fully compliant contracts that are appropriate to your business and guide you through HR processes and decisions to prevent costly breaches.
Can employers bring a counter claim?
Employers cannot bring a free-standing breach of contract claim against a former employee in the Employment Tribunal. However, where an employee brings a breach of contract claim, the employer may be able to issue a counter-claim (often referred to as an employer’s contract claim) – for example, to recover overpaid wages, unpaid training fees, or other contractual sums owed by the employee.
Importantly, employers do not always need to bring a separate employer’s contract claim in order to defend themselves. Where both parties owe each other money under the contract, the Tribunal may allow the sums to be set off against each other, meaning the employer may have nothing to pay. That said, where the employee owes more than the employer, bringing a counter-claim may still be the more appropriate route.
Can a breach of work contract lead to constructive dismissal?
Yes. A serious breach of work contract – such as failing to pay wages, unilaterally cutting pay, or fundamentally changing working hours – may entitle an employee to resign and claim constructive dismissal.
If the employee resigns in response to the breach and has sufficient service, they may pursue both constructive dismissal and breach of contract claims. This is why alleged breaches should always be taken seriously, even where the sums involved appear modest.
Can employers change contracts without breaching them?
Only in limited circumstances. Employers can lawfully change contractual terms where:
- The contract allows the change (for example, through a flexibility clause)
- The employee agrees to the change
- A fair and lawful process is followed, potentially including dismissal and re-engagement as a last resort
Imposing changes without agreement or contractual authority is one of the most common causes of breach of contract disputes.
What should employers do if an employee alleges breach of contract?
If an employee raises concerns, employers should:
- Review the contract and relevant policies carefully
- Check whether there is a contractual right to what has been done
- Address the issue promptly before it escalates
- Seek advice before taking further action, particularly where dismissal or pay is involved
Relying on informal arrangements or “how it’s always been done” can significantly increase legal risk.
How can employers reduce the risk of breach of contract claims?
Keep contracts and policies up to date and clear
Clearly state which policies are contractual and which are not
Ensure managers understand what the contract does and doesn’t allow
Avoid making informal promises that could become contractual
Take advice before withholding pay or dismissing without notice
Need advice on breach of contract?
Breach of contract issues can quickly escalate into Tribunal claims or constructive dismissal allegations if not handled carefully. The key to reducing risk is having robust contracts and policies in place and managing employment matters correctly so you don’t inadvertently breach them.
WorkNest’s Employment Law and HR specialists can help by ensuring your contracts and handbooks are watertight, advising on employee issues such as pay, notice, or contract changes, and guiding you on the best course of action when disputes arise.
Be proactive and protect your business from costly mistakes. To find out more about our unlimited, fixed-fee support, call 0345 226 8393 or request your free consultation using the button below.
