What to do if an employee or subcontractor breaches their contract

Whether you choose to hire employees, subcontractors, or both, you’ll want to make sure that the people you recruit are skilled and knowledgeable enough for the task at hand and reliable enough to follow through on their promises. But what if they let you down?

In this article, we’ll look at what happens if an employee or contractor breaches a contract.

What happens if there is a breach of contract?

In a previous article, we took a detailed look at what a breach of contract means, exploring the four main types of breaches that can occur: minor, material, fundamental and anticipatory.

Indeed, there are many ways in which employees and contractors can fail to fulfil their contractual obligations and when this happens it can have serious knock-on effects for your business.

For example, you might hire a construction contractor with a proven track record of success only to find that their work is not performed in accordance with the timescales set out in their contract. This could lead to significant financial, legal and reputational damage for your business.

Similarly, a highly skilled employee may resign without giving the proper notice as set out in their employment contract, leaving you in the lurch and scrambling to recruit someone to replace them at short notice. Not only could this create logistical problems for you, but it could also result in additional costs associated with hiring short term  workers and loss of business, both in the short and long term.

So what are your options when one of your workers breaches their contract?

It’s important to point out that most good employees and contractors won’t breach their contract deliberately. They might unintentionally let their employer or client down due to a misunderstanding or miscommunication, or they might fail to honour their contract due to circumstances beyond their control.

Before jumping to the worst conclusion, it’s important to communicate with your employee or subcontractor and try to resolve the matter informally in the first place.

However, it’s equally important that employees and contractors are aware that breaching a contract can have serious consequences for them. It’s a worker’s responsibility to study the terms and conditions of their contract carefully before deciding whether or not to sign. If they have any questions or would like to make any amendments to their contract, they should speak to you before committing.

If they sign without making sure they understand and agree to the terms and conditions, they should know that they risk inadvertently breaching their contract and they could end up with legal action being taken against them.

What to do if a subcontractor breaches their contract?

As a contractor, you may sometimes need to hire sub-contractors when working on bigger projects. If you work with subcontractors, you’re entrusting them to complete work on behalf of your business to an adequate standard and in a timely manner. When subcontractors do not fulfil their contractual duties, it can leave you in a difficult situation.

If you think a contractor has breached their contract, speaking to them directly. Try to settle the issue informally and make every effort to work out a satisfactory resolution. If you cannot come to an agreement, you may decide to take legal action, however this should be a last resort.

To make a claim for a breach of contract, you’ll need to be able to prove that a legally binding contract existed, that the other party did not honour the contract and that your business suffered a financial loss as a consequence of the breach. Before you take legal action, you should also have made an effort to mitigate your losses.

No matter how conscientious a self-employed worker you are, it’s important to understand that your business may risk having legal action taken against it if the client believes you haven’t carried out the work correctly and therefore a breach of contract has occurred.

Even if the client is in the wrong, both your business and the sub-contractor could end having to pay legal fees and potentially damages owed to the client. That’s why it's important to understand what limitation of liability is and ensure both you and the subcontractor are covered by taking out insurance policies such as professional indemnity insurance.

Can an employer sue an employee for breach of contract?

If you believe an employee has breached their contract, you should try to resolve the matter with them directly. This may take the form of an informal chat or you may need to launch disciplinary proceedings. In many cases, it will be possible to settle the matter without the need for litigation, especially where the breach of contract is minor.

You should bear in mind that in some circumstances, disciplinary action won’t be suitable. For example, if an employee has breached a non-competition clause in their contract by leaving the business to work for a competitor.

Instead, an employer should request that the employee ceases work for the competitor. If the request is refused or ignored, an employer should revoke access to any sensitive or confidential information the former employee has and they may decide to take out an injunction to prevent the employee from working with the competitor.

If an employer cannot come to an adequate resolution through informal means, they may decide to sue an employee for damages. Breach of contract claims are usually heard in the country courts.

Damages can only be awarded for financial loss and employers must have evidence that financial loss has occurred as a result of the employee’s breach of contract. Employers should carefully consider whether pursuing a claim is reasonable and worthwhile.

Covering the cost of a contractual dispute

If ever you find yourself facing a dispute with another party, such an employee, subcontractor, client or supplier, having protection through legal expenses insurance could be valuable to your business. Legal expenses insurance will cover the cost of pursuing or defending against certain legal actions, like a contract dispute.

Markel offers legal protection insurance from as little as £5 a month. It enables you to access 24-hour legal advice via our helpline and will cover unexpected legal costs that come with a dispute.

Get an online quote now for legal expenses insurance to protect your business.