Where the termination of an employment contract is in breach of contract, the termination will be “wrongful” and the innocent party may seek a remedy at common law. When the employer is the party terminating, this is known as “wrongful dismissal”.

The two main remedies in wrongful dismissal cases are specific performance of the contract (similar in effect to reinstatement), and more commonly compensation. Compared to unfair dismissal claims under the Fair Work Act 2009 (Cth) (FW Act), there is no cap on the amount of compensation available to a successful claimant in a wrongful dismissal action.

Common law wrongful dismissal claims are usually the province of more senior employees who are not covered by the unfair dismissal regime, and for whom the potential to recover more money than they could under the FW Act provisions justifies the time and resources involved in pursuing the matter, as well as the risk of adverse costs orders if a claim is unsuccessful. Common law claims often augment other claims made by more senior employees, for example claims alleging misleading and deceptive conduct under the Competition and Consumer Act 2010 (Cth).

See Common law action for wrongful dismissal.

Where an employee wrongfully terminates a contract, most commonly by providing insufficient notice of resignation, an employer may take action to recover damages associated with that breach of contract.

However, given that the courts are highly unlikely to ever order specific performance of the contract by the employee, employers rarely bother with suing the employer for loss occasioned by their unlawful termination of the contract. Such claims will usually only be pursued in the context of disputes concerning restraint of trade provisions or where there are other special circumstances or claims to be pursued (ie claims related to diverting business or breaching the duty of fidelity and good faith).

See Common law action for wrongful termination by employee.