What it means
Most employees can be dismissed for legitimate reasons such as poor performance, misconduct or genuine redundancy, provided a fair process is followed. Wrongful termination is different, because the reason or the way the dismissal was handled is unlawful.
Rules differ greatly between countries and even regions, so what counts as wrongful depends on local law and the contract. Common grounds include discrimination based on protected characteristics, retaliation against someone who reported a safety or legal issue, and dismissal that breaches a written contract or company policy.
Some jurisdictions also protect employees from dismissal without proper notice or a fair procedure. Others allow dismissal for almost any reason unless a specific exception applies.
The money at stake can be large. A successful claim may include back pay (the wages lost between dismissal and judgment or new employment), the value of lost benefits, and sometimes front pay (compensation for future earnings lost).
In some cases, a reinstatement order or additional damages may be available. Employees are expected to mitigate their losses, which means making reasonable efforts to find new work.
Any earnings from a replacement job normally reduce the amount awarded. Courts and tribunals look at what the person would have earned and what they actually did earn.
For managers and founders, the practical lesson is process. Clear documentation of performance concerns, consistent treatment across the team, written warnings and advice from HR or a lawyer before a dismissal reduce risk significantly.
Many employers also carry employment practices liability insurance for this kind of claim.
In practice
Real-world examples.
Example
A sales manager is dismissed two weeks after reporting that her director was misstating revenue to investors. She claims the dismissal was retaliation. The company's own emails showing a sudden change in her performance reviews become key evidence.
Example
A warehouse employee is let go with no notice, even though his written contract requires 30 days. He sues for the notice pay and any other contractual entitlements he was denied. The employer settles to avoid a hearing.
Example
A technology company dismisses a developer shortly after she announces a pregnancy. She claims discrimination, and the company has no record of earlier performance concerns. The firm reviews its HR practices after the claim.
Formula
Calculation
Back pay award = (Lost salary + Lost benefits) - Interim earnings
Worked example: an employee earning $72,000 a year (which is $6,000 a month) is dismissed unlawfully and takes six months to find a new job. Benefits are valued at $1,200 a month. During the gap she earns $9,000 from temporary freelance work.
Lost salary = $6,000 x 6 = $36,000.
Lost benefits = $1,200 x 6 = $7,200.
Back pay award = $36,000 + $7,200 - $9,000 = $34,200.
A real award might also include interest, front pay, compensation for distress and legal costs, which would add to this figure.Case study
Seen in the real world.
This is an illustrative story about a fictional company. Orchard Peak Software is an invented 80-person firm that dismisses its finance manager, Dana, three weeks after she raises concerns about unpaid payroll taxes. The company says the role was made redundant, but it hires a replacement with a similar job title within two months.
Dana brings a wrongful termination claim. Her salary was $96,000 a year, and she was out of work for seven months. Back pay for that period is $96,000 divided by 12 months, giving $8,000 a month, multiplied by 7, which is $56,000, before benefits and any interim earnings.
The company settles for a sum close to that figure, plus legal costs, and also has to fix the payroll tax problem. The illustrative lesson is that retaliation claims often succeed because timing and the replacement hire are easy to prove.
Watch out
Common mistakes.
- Believing any unfair dismissal is wrongful. In many places, a dismissal that is merely harsh is not unlawful unless it breaches a specific law, contract or policy.
- Skipping documentation. Employers who cannot show a genuine, consistent reason for dismissal often lose, even when they had a good one.
- Assuming a written termination reason ends the matter. Courts look at the real reason, and a stated reason that does not match the facts can make things worse.
Questions
People also ask.
Does a dismissed employee have to look for work?
Generally yes, they are expected to make reasonable efforts to find a new job. Earnings from that job usually reduce the award.
What is front pay?
It is compensation for future lost earnings, awarded when returning to the job is not practical. It is estimated by looking at how long it should reasonably take to find comparable work.
Can an employer insure against this?
Many carry employment practices liability insurance, which can cover legal costs and settlements. Policies have exclusions, so the terms should be read carefully.
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