Legal Update: Employer’s Counterclaims

Thursday, July 11th, 2019

Legal Update: Employer Counterclaims can continue even if employee withdraws a breach of contract claim

Following the EAT case of Cortel Telecom Ltd v Shah, an employer’s counterclaim can continue even if the employee has withdrawn their breach of contract claim.

Wrongful Dismissal

The employee will have a claim in damages if the employer, in dismissing them, breached the contract, thereby causing them loss.

The following types of breach are often involved in claims for wrongful dismissal:

  • Breach of a notice term, whether express or implied;
  • Breach of a contractual disciplinary or redundancy procedure;
  • Termination of a fixed-term contract or a “specific task” contract before its expiry.

The most common type of claim is for breach of the notice period.

The time limit for bringing a claim for wrongful dismissal is 3 months less one day (subject to ACAS) at the Employment Tribunal and 6 years from the date of breach at the Civil Courts. There is no qualifying period of continuous employment for contract claims.

Employer’s Counterclaim

Employers may, in some cases, bring counterclaims where a contract claim has been brought against them in a tribunal. Although employers have no free-standing right to bring contract claims against employees or former employees in the employment tribunals they may be able to do so by bringing counterclaim when a contract claim is brought against them in a tribunal.

Case

In the above case, the employee brought a umber of claims following his dismissal, including unfair and wrongful dismissal, arrears of pay, and claims for other payments. The employer brought a contractual claim for overpaid salary and the value of lost business.

The employee withdrew the breach of contract claim and the tribunal held that the employer was not permitted to continue with its counterclaim.

The EAT disagreed with the tribunal and held that the employer was still entitled to have its contractual claim heard, whether or not the employee withdrew or abandoned his claim.

This case therefore acts as a very useful reminder to employees to think carefully before bringing a contractual claim. This is because the breach of contract claim value may be very limited but result in the employee  as once the door is opened to a counterclaim it won’t be closed if that initial claim doesn’t proceed.

By Justina Ricci, Solicitor, Employment Department

Justina is a solicitor in the Employment and Commercial department at Hanne & Co. She acts for businesses and individuals and advises on a range of employment and commercial matters. When acting for businesses she advises clients on general commercial agreements, terms of business and data protection policies (GDPR). She also deals with employment matters and advises on the drafting of employment contracts and policies, settlement agreements, dismissals, redundancies, TUPE and other employment aspects of business transfers. When acting for individuals she specialises in contentious matters and handles disputes involving unfair and wrongful dismissals, breach of contract, discrimination and whistleblowing claims as well as negotiating exit packages. Justina is known for her tenacity, her pragmatic approach and for going above and beyond so that her clients achieve the resolution they seek.