Employment Tax

Wrongful dismissal and damages

Produced by Tolley in association with Andy Williams at Charles Russell Speechlys LLP
  • 22 Mar 2022 12:16

The following Employment Tax guidance note Produced by Tolley in association with Andy Williams at Charles Russell Speechlys LLP provides comprehensive and up to date tax information covering:

  • Wrongful dismissal and damages
  • Damages
  • Damages for the manner of dismissal
  • Duty to mitigate damages
  • Failure to mitigate
  • Discount for accelerated receipt
  • Interest
  • Liquidated damages clauses and penalties
  • Valuing benefits in kind
  • Insurance
  • More...

Wrongful dismissal and damages


The employee suffering breach of contract by way of a wrongful dismissal is to be put into the position that they would have been in had the contract been properly performed. Damages are assessed on the assumption that the employee would have performed the contract in the way least burdensome to themselves and that the employer would have given notice at the earliest opportunity.

If an employee is deemed to be wrongfully dismissed, they will be entitled to compensation for all the benefits to which they would have been contractually entitled had they remained employed until:

  1. the end of their notice period

  2. in the case of a fixed or limited-term contract that cannot be terminated on notice, the expiration of that contract

The benefits that will be considered in assessing damages include:

  1. salary

  2. pension contributions

  3. any other financial benefits the employee is contractually entitled to

  4. health and life insurance

  5. company car

  6. any other fringe benefits the employee is contractually entitled to

Silvey v Pendragon [2001] IRLR 685

The basic principles ― that compensation for wrongful dismissal is limited to the loss of benefits to which the employee is contractually entitled and that the employer is assumed to have chosen the contractual options most favourable to itself ― have been qualified over the years, particularly in relation to bonuses. The courts have held that those assumptions are subject to the employer’s duty to exercise a discretion rationally. So, where an employee is entitled to participate in a discretionary bonus scheme,

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