When an employment relationship ends badly, disputes over pay, notice or other contractual entitlements often result in breach of contract claims. This is an issue that affects both employees seeking money they believe they are owed and employers who want to understand their potential liability, as well as the options available for recovering losses. This guide explains the rules from both perspectives.

What Is a Contract Claim in the Employment Tribunal?

A contract claim is a dispute about the terms of an employment contract. Examples include unpaid wages, holiday pay, payment in lieu of notice, or commission that became payable before employment ended. This differs from a statutory claim, such as unfair dismissal, which is based on legislation rather than contractual terms.

Employment Tribunals were not originally intended to deal with contractual disputes. Traditionally, these matters were dealt with by the civil courts. Since 1994, however, Tribunals have been given limited powers to hear certain breach of contract claims alongside other Employment Tribunal claims, allowing many disputes to be resolved in one forum.

For employees

This route is often quicker and more cost effective than bringing proceedings in the civil courts, particularly where you are already pursuing another Employment Tribunal claim, such as unfair dismissal.

For employers

If an employee brings a breach of contract claim in the Employment Tribunal, you may also have the opportunity to bring a counterclaim within the same proceedings, provided the legal requirements are met.

Who Can Bring a Contract Claim?

Only employees, rather than the wider category of workers, can bring this type of claim in the Employment Tribunal. There is no minimum qualifying period of service, and the claim can only be brought against the employer, not a related company or another third party.

For employees

If you are unsure whether you are legally classed as an employee or a worker, it is important to establish this at an early stage, as it determines whether this Tribunal route is available.

For employers

Individuals who are genuinely workers, rather than employees, cannot usually bring this type of claim in the Employment Tribunal. This distinction can be important when assessing potential liability.

The £25,000 Compensation Cap

The Employment Tribunal cannot award more than £25,000 in total for breach of contract claims arising from the same employment. Where the value of a claim exceeds this amount, the claimant must choose between:

• Accepting the Tribunal's £25,000 limit.

• Bringing the claim in the civil courts, where no compensation cap applies.

A claim cannot be divided between the Tribunal and the civil courts to recover more than £25,000. Once the Tribunal has determined the claim, the legal cause of action is exhausted and any remaining balance cannot later be pursued elsewhere.

For employees

If your losses may exceed £25,000, carefully consider whether the speed and lower cost of the Employment Tribunal outweigh the higher compensation available through the civil courts.

For employers

The Tribunal cap limits your financial exposure within Employment Tribunal proceedings. However, it does not prevent an employee from pursuing a higher value claim through the civil courts.

Time Limits

Employees generally have three months from their effective date of termination to bring a breach of contract claim. This period may be extended through Acas Early Conciliation or where the Tribunal accepts that it was not reasonably practicable to bring the claim sooner. For dismissals taking effect on or after 1 October 2026, this time limit is expected to increase to six months.

A claim submitted before employment has ended will generally fall outside the Tribunal's jurisdiction because the Tribunal can only hear these claims once the employment relationship has ended.

For employees

Do not delay while negotiations continue. The limitation period usually begins on your last day of employment, and missing the deadline could prevent you from bringing a claim.

For employers

The same deadline applies if you intend to bring a counterclaim. Do not assume there is less urgency simply because you are responding rather than bringing the original claim.

Claims the Tribunal Cannot Hear

Certain contractual disputes fall outside the Employment Tribunal's jurisdiction and must instead be dealt with by the civil courts. These include:

• Personal injury claims

• Disputes relating to employer provided accommodation

• Intellectual property disputes

• Breach of confidentiality claims

• Enforcement of restrictive covenants or non compete clauses

By comparison, claims involving the implied duty of mutual trust and confidence are generally not excluded because they concern a broader contractual obligation.

For employees

If your dispute involves confidential information or a restrictive covenant, the civil courts will usually be the appropriate forum.

For employers

These exclusions mean that disputes involving intellectual property, confidentiality or restrictive covenants remain within the jurisdiction of the civil courts, where remedies such as injunctions are also available.

Can Employers Bring Their Own Contract Claims?

Employers cannot begin a standalone breach of contract claim in the Employment Tribunal. Their only option is to bring a counterclaim after an employee has already started a breach of contract claim. The counterclaim is not restricted to the value of the employee's claim and may continue even if the employee later withdraws or settles their case, provided it was properly brought.

For employers

If you believe a former employee owes your business money, perhaps because they failed to work their notice or did not return company property, the civil courts are usually your only option unless the employee first brings a breach of contract claim in the Employment Tribunal.

For employees

Starting a breach of contract claim may expose you to a counterclaim from your employer. It is sensible to consider this possibility before beginning proceedings, particularly if there are unresolved issues between both parties.

Where both parties' claims exceed the Tribunal's financial limit, calculating the overall position can become legally complex and professional advice should be obtained.

Employment Tribunal or Civil Court?

Both employees and employers may have a choice of forum. Factors to consider include:

• The £25,000 compensation cap applies only in the Employment Tribunal.

• Civil courts do not impose a compensation limit.

• Employment Tribunal proceedings are generally quicker, less formal and more cost effective.

• Only the civil courts can grant remedies such as injunctions.

• Employment Tribunal claims are subject to strict limitation periods, whereas civil court claims generally have longer time limits.

Where a dispute has an international element, such as an employer based outside the United Kingdom, specialist advice should be obtained before deciding where proceedings should be issued.

Practical Steps

For employees

• Confirm your effective date of termination as soon as possible because it determines your limitation period.

• Consider whether an unlawful deduction from wages claim may be more appropriate, as these claims are not subject to the £25,000 compensation cap and do not allow an employer counterclaim.

• Seek advice promptly if your losses are close to or exceed £25,000.

For employers

• Keep accurate records of any money owed by former employees in case a counterclaim becomes available.

• Respond to Tribunal proceedings within the applicable deadline, as a late response may prevent you from bringing a counterclaim.

• Remember that disputes involving confidentiality, intellectual property or restrictive covenants will generally need to be dealt with in the civil courts.

Frequently Asked Questions

What is the maximum amount an Employment Tribunal can award for breach of contract?

The maximum award is £25,000 for all breach of contract claims arising from the same employment. This applies whether the claim is brought by the employee or by way of an employer counterclaim.

How long do I have to bring a breach of contract claim?

In most cases, you have three months from the effective date of termination. This is expected to increase to six months for dismissals taking effect from 1 October 2026. The time limit may also be extended through Acas Early Conciliation or in limited circumstances where the Tribunal exercises its discretion.

Can a worker bring a breach of contract claim in the Employment Tribunal?

No. This route is generally available only to employees. Workers who are not employees will usually need to pursue their claim in the civil courts.

Can an employer bring a breach of contract claim against an employee in the Employment Tribunal?

Only by way of a counterclaim after the employee has first brought a breach of contract claim. Employers cannot begin a standalone breach of contract claim in the Employment Tribunal.

Can disputes involving restrictive covenants or confidentiality be heard in the Employment Tribunal?

No. These matters fall outside the Tribunal's jurisdiction and must normally be dealt with by the civil courts.

This guide provides general information only and is not legal advice. Anyone considering a specific contract claim or counterclaim, whether an employer or an employee, contact us here contact@gec-law.co.uk for official advice.