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When can an employer make a counterclaim?

A counterclaim is a case brought by a Respondent as part of their reply to a claim.

So, for example, A sues B for unfair dismissal. B replies, denying the unfair dismissal, but also suing B for breach of contract. B’s breach of contract claim is a counterclaim.

Counterclaims are rare in employment tribunals, because the tribunal has a very limited jurisdiction to deal with them. The only type of counterclaim an employer can bring is a breach of contract claim (see s3 Employment Tribunals Act 1996 and reg4 Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994).

In addition, the employer can only bring a counterclaim if the employee has already brought a claim for breach of contract under the Extension of Jurisdiction Order (reg 4(d)).

This sometimes causes confusion, because there is a difference between bringing a breach of contract claim and relying on a breach of contract as part of the factual basis of another type of claim. For example, an unfair dismissal claim that rests on constructive dismissal will inevitably involve an allegation that the employer has committed a repudiatory breach of contract. But that does not make it a breach of contract claim — it remains an unfair dismissal claim (technically a statutory tort).

Similarly, most unlawful deduction of wages claims rely on proving that the employer breached a contractual term about pay, but they are not breach of contract claims (again, they are statutory torts).

This means that, if you suspect that your employer might present a counterclaim, you should think carefully about whether to bring your own breach of contract claim. In practice, the most common breach of contract claim is a wrongful dismissal claim for notice pay. Sometimes it will be well worth bringing such a claim, despite the counterclaim risk — either because the contract claim is valuable or because the risk of counterclaim is low. But it is worth thinking about the risk — and the extent to which the contract claim adds anything significant to any other claims you are bringing.

Unfortunately, once you’ve brought a breach of contract claim, the tribunal has jurisdiction to consider a counterclaim, even if your claim is dismissed or withdrawn. So you cannot counter a counterclaim with a canny withdrawal.

It’s also important to note that employers can sue their employees in the civil courts in the normal way. So avoiding a counterclaim doesn’t mean you avoid any risk of a claim against you. A separate claim, in a different jurisdiction, however, is far more labour intensive (and expensive) than a counterclaim. Many employers will not bother.

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