Because a contract of employment creates legal rights, there are legal consequences if the employer or the employee does not respect its terms, or, to use the legal terminology, acts 'in breach of contract'. The potential consequences are:
If the employer breaches the contract, the employee can claim compensation, or 'sue for damages', for the loss he or she has been caused by that breach. This type of claim can be made to a civil court, which will usually be the local county court in England and Wales or the local sheriff court in Scotland. In certain cases where the employee's employment has ended, he or she can bring a claim for damages for breach of contract to an employment tribunal (tribunal claim). Whether the employee brings the claim in a court or a tribunal, the employer is entitled to make a counter-claim for damages for any breach of contract by the employee.
When deciding the amount of damages to award, the court or tribunal will aim to put the employee in the position he or she would have been in had the contract terms been followed. For example, if the employer has failed to pay the employee a contractual bonus, the damages will be equivalent to the bonus that the employee should have received, net of tax and National Insurance contributions.
Where it is the employee who has breached the contract it is, in theory at least, possible for an employer to sue the employee for damages. But these types of action are rarely brought, because it will usually be difficult to identify and quantify in financial terms the loss that the employer has been caused by the employee's breach of contract. Even if an award of damages is made against the employee, he or she may not be able to pay it.
Another option for the employee whose employer is in breach of contract is to apply to a civil court for an order requiring the employer to comply with the terms of the contract. This type of order is usually known as an 'injunction' in England and Wales and an 'interdict' in Scotland.
Applications for an injunction are much rarer than claims for damages, and the court has discretion as to whether to grant an injunction. In particular, it will not grant an injunction if it considers that an award of damages would provide adequate compensation. It has no power to grant an injunction compelling the employee to work or to attend at a particular place for the purpose of working.
An employee is most likely to apply for an injunction if the employer has indicated that it intends to breach the contract but has not yet done so, or where the breach of contract will not cause the employee any quantifiable financial loss. An example might be where the employer has indicated that it will be moving the employee's place of work, even though there is no relocation clause in the employee's contract, but the employee's travel-to-work expenses will be the same.
An employer can also apply for an injunction to require the employee to meet his or her obligations under the contract. This is commonly done to keep an employee to his or her contractual obligations during his or her period of notice of resignation. This is also done to ensure that the employee abides by any restrictive covenants (restrictions on departing employees) in his or her contract after employment has ended, often with the aim of preventing the employee going to work for a competitor. In other circumstances, an employer is more likely to discipline or even dismiss an employee who fails to meet his or her contractual obligations, rather than apply for an injunction.
Where an employer's breach of contract involves a failure to pay the employee some sum that is properly payable under his or her contract of employment, then the employee has the option of bringing a claim that the employer has made an unlawful deduction from his or her wages (deductions from pay). Unlike a claim for breach of contract, this type of claim can only be brought to an employment tribunal, and can be heard by the tribunal even if the employee is still in the employer's employment.
If the employer is in very serious breach of contract, the employee may choose to resign and claim that he or she has been constructively dismissed (constructive dismissal). The employee can then allege that the dismissal is unfair (unfair dismissal) and wrongful (wrongful dismissal).
Where it is the employee who is in breach of contract, the employer may decide to dismiss. If the breach is very serious, the employer is legally entitled to dismiss without having to meet its usual obligation to give notice of termination. This is known as a 'summary dismissal'. Although a summary dismissal is not in breach of the employee's contract in these circumstances, it may still be challenged as unfair.