What Happens If an Employee Breaches Their Contract?

April 15, 2025

News

If an employee signs a contract for employment, the employee and employer are entered into a legally binding contract. It’s important to know your options as an employer if the employee breaches their contract, whether it’s failing to work their notice period or leaking confidential information.

What is a Breach of Contract?

When one party fails to fulfil the obligations set out in the agreement, this is called a breach of contract. This breach could include not working the required notice period when resigning, refusing to carry out reasonable and lawful duties, persistent unauthorised absence, and the misuse of confidential information.

Examples of employee breaches of contract include failing to carry out the duties for which they were employed to do, or daily responsibilities as part of the job role. Another example is resigning to work for a direct competitor or producing a business of their own which is also in direct competition with the employer. A final example is failing to provide appropriate notice when resigning.

What’s The Difference Between Expressed Terms and Implied Terms?

Expressed terms are clearly written and agreed upon in an employment contract such as working hours, dress code, and notice periods. Whereas implied terms are not written but are still legally binding, such as the expectation of mutual trust, not stealing, or maintaining a safe workplace. Breaching either type of term can lead to legal action.

What to Do If an Employee Breaches Their Contract?

Here are four steps on how to handle an employee breach of contract.

1. Identify the Breach

Ensure that you are clear about what part of the contract has been breached before taking any action. Gather any evidence of the alleged breach as you carefully review the employment contract and consider whether the breach is serious enough to justify dismissal or legal action.

2. Address the Breach Internally

Consider your internal processes and whether the matter can be resolved through this if the employee still works for you. Also, discuss the issue with the employee to understand their perspective. However, if the breach is more serious, you may need to go straight to formal disciplinary action or dismissal.

3. Consider Legal Remedies

If the breach has caused your business financial loss or competitive harm, you may be entitled to pursue legal remedies. These include damages where you can claim compensation for any financial losses directly resulting from the breach, injunctions where you can apply for a court order to prevent the employee from taking certain actions, and specific performance which is where a court may require the employee to fulfil their contractual obligations.

4. Protect Your Business

Take some time to review your contracts and policies once the situation is under control or over. Having well-drafted contracts sets expectations but also gives you more leverage if problems arise later down the line.

Can You Sue an Employee for Breach of Contract?

If an employee breaches their contract, employers can take legal action against them, however it is always best to explore informal resolution first.

In order to claim compensation, you will need to show that your business experienced financial harm as a direct result of the employee’s actions.

For cases where an employee breaks restrictive covenants, like joining a direct competitor, you may be able to seek a court injunction to prevent further damage to your business.

Can You Withhold Wages if an Employee Breaches Contract?

Usually, you cannot legally withhold wages if an employee has breached their contract. Employees are entitled to their pay for the work they have performed, despite any contract violations. If an employer withholds an employee’s wages, they are violating labour laws and regulations also.

How to Avoid an Employment Tribunal

In order to avoid legal disputes, like employment tribunals, try to prevent contract violations before they occur. If a staff member raises a grievance or files a complaint, it’s important to respond promptly and within the law.

For a more structured level, you can reduce the risk of reaching a tribunal by taking a combination of the following steps:

Grievance Procedures

Ensure that you have a solid grievance procedure in place. Usually, employees would expect to find this as part of their employment contract.

Dispute Resolution

If a claim is to be raised in the employment tribunal by one of your employees, they need to use early conciliation first.

Handling breaches of contract by employees can be tricky to navigate, especially when you are trying to protect your business interests. Premier Legal can help you safeguard your business against potential risks and help you plan when coming up against breaches of contract. Get in touch with us today to see how we can help you.