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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 businesses, particularly during resignations, dismissals, or disputes over pay, notice, or changes to working arrangements. You may worry about breaching 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 you 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 you can prevent costly disputes.
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What is a breach of contract in UK law?
It 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 that isn’t permitted.
Importantly, an employment contract isn’t limited to the written contract alone. It can also include:
- Policies or handbook provisions
- Terms implied by law, such as mutual trust and confidence
- Terms implied through custom and practice
This is where you the employer can sometimes, unintentionally, find yourself exposed to risk.
Breach of contract examples
Some of the most common situations where you may face these 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’s no right
- Failing to follow a contractual disciplinary or redundancy process
Even where there’s a genuine business reason, a failure to follow the terms would still amount to a breach.
What is a breach of contract claim?
This is is made when an employee believes their employment contract has not been honoured. They can bring this claim in an 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.
- 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.
The potential breach of employment contract compensation
Compensation 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 your business.
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. As compensation is based on proven loss, many 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 these sorts of 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 documentation and employment practices essential.
Keep in mind, you can’t bring a free-standing breach of contract claim against a former employee in an Employment Tribunal. However, where an employee brings a claim, you 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 sums owed by the employee.
Importantly, you do not always need to bring a separate employer’s contract claim to defend your business. Where both parties owe each other money under the contract, the Tribunal may allow the sums to be set off against each other, meaning you may have nothing to pay. That said, where the employee owes more than the you, bringing a counter-claim may still be the more appropriate route.
How to prevent breach of contract
There are several ways to reduce the risk of terms breaches. It’s good business practice to follow the below five steps to maintain positive employee relations:
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 documentation 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 business contracts and handbooks are watertight, advising on employee issues such as pay, notice, or 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.
FAQs
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 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. You can lawfully change terms where:
- The terms allow 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 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, you 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.
