An employer or an employee can terminate a contract for breach of the contract, provided the breach is of sufficient gravity or relates to a major term of the contract.

An employer sometimes penalises an employee’s misconduct or inefficiency by withholding bonuses, denying promotion or putting the employee on a short list in case of redundancy. If such a sanction reduces the employee’s contractual rights, the employer is liable for breach of contract. For instance, being suspended for a period without pay derogates from an employee’s contractual right to be paid and, unless it is authorised by the contract itself, is in breach of the contract. However, a provision in a contract that provides for a deduction from, or forfeiture of, wages is also invalid under the general law, unless the amount is a genuine pre-estimate of certain damage that might result from some future breach by the employee.

Sometimes, an employer may attempt to alter an employee’s working conditions, classification or grading, rate of pay or other employment terms. The effect of this on the contract of employment varies according to the circumstances, but the most likely results are:

  • where the change is made by the employer after giving the employee lawful notice to terminate the existing contract, this is an offer of new employment which the employee may accept or reject
  • where the change is made by the employer without any notice to terminate the existing contract, the employee can accept the change as an offer of re-engagement or terminate the employment because of the employer’s repudiation. In either case the employer is liable to pay damages for the breach of contract. It may be hard for the employee to refuse the change – as failure to accept reasonable alternative employment may mean the employee is accused of failing to mitigate (lessen) the damage suffered and, where damages are claimed, the courts always require the wronged party to limit the damage as much as possible. If the reduced offer of work is accepted only in order to mitigate, the employee must make it clear he or she does so under protest
  • where the change is made by mutual agreement but without notice to terminate the existing contract, the contract is varied, but only if the variation is supported by some form of benefit to the employee, or the employee by his or her conduct, is stopped from challenging the result (that is, has led the employer to believe it is acceptable to the employee that this should occur).

In practice it is hard to distinguish between these situations but, since both the unfair dismissal legislation and claims for wrongful dismissal at common law require proof of dismissal as a condition for proceeding, the question is important. Although minor changes can always be enforced (and some variations, such as improvements in working conditions or increases in wages to keep in line with inflation are obviously not breaches of contract), major changes will probably be categorised by the courts as a repudiation by the employer, giving the employee the right to accept the repudiation and be classed as dismissed.

The courts are generally reluctant to assume that a variation is made with an employee’s consent (that is, by mutual agreement) as they are aware that employers sometimes make use of their employees’ need to work to persuade them to accept lower wages or conditions as a means of avoiding the consequences of dismissal. This makes up a significant part of the doctrine of constructive dismissal – the other part being where an employer forces an employee out – for example by saying ‘resign or I’ll sack you‘.