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Dismissal


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What is dismissal?

A number of key employment law rights arise when a ‘dismissal’ takes place.  

Dismissal is an act of the employer that occasions a termination of the employment relationship.  

For a dismissal to be lawful, an employer must have a reason allowed by law, follow the correct procedure and, if necessary, give adequate notice. If this is not done, it is likely to lead to a claim for unfair and/or wrongful dismissal. 

A resignation – although an act of the employee, not the employer – can also constitute a ‘constructive dismissal’ where it is in response to a fundamental breach of contract by the employer.

Dismissal can also include the expiry and non-renewal of a fixed-term contract.  

Employees have the right to be provided with a written statement setting out the reasons for their dismissal under Section 92(1) of the Employment Rights Act 1996 (ERA), and this document may be used in evidence in any subsequent Tribunal proceedings.

 

Notice

Dismissal by an employer can be with or without notice. The amount of notice required will usually be set out in the employment contract. A contract of employment can be for a fixed term or for an indefinite period. If the contract is for an indefinite period, the contract should also contain provisions relating to the period of notice to be given by the employer or the employee. If the contract of employment is silent about the notice period, ‘reasonable’ notice must be given, the length of which will vary depending on the employee’s circumstances and industry norms.

In any event, the following statutory minimum notice must be given by an employer:   

  • An employee who has been continuously employed for one month or more but less than two years is entitled to not less than one week’s notice.
  • An employee who has been continuously employed for two years or more but less than 12 years is entitled to one week’s notice for each year of continuous employment.
  • An employee who has been employed for 12 years or more is entitled to not less than 12 weeks’ notice.  

These minima will override any agreement to a shorter notice period. However, the parties may agree to notice periods longer than the statutory minimum.  

Generally, once notice has been given it cannot be withdrawn, save by mutual consent.

The employer may make a payment in lieu of notice if it wishes to do so and if the contract provides for it. Payment in lieu of notice clauses (commonly referred to as ‘PILON’ clauses) are attractive for employers as they provide for a swift termination of the employment relationship, given that the employer will often not wish to have the employee serve out a notice period for reasons related to the protection of goodwill. PILON clauses work on the principle that an employee will be content to agree to early termination, provided that the employee receives the remuneration to which the employee would otherwise be entitled.
 

Failure by an employer to give notice in accordance with the terms of the contract will leave the employer liable to pay damages for wrongful dismissal to the employee in respect of salary and other benefits that would have fallen due in the notice period. If there is a PILON clause in the employee’s contract, there will be no breach of contract if notice money is paid instead of the employee working out his notice.

Serious or gross misconduct can justify summary dismissal of an employee, i.e. immediate dismissal of an employee without notice. What constitutes gross misconduct may vary according to the particular circumstances of the employer and the work the employee is carrying out. Most employers will include examples of unacceptable misconduct in their employment contracts, disciplinary policies or staff handbooks. In doing so they should ensure that they make it clear that any such examples are not exhaustive.

Unfair dismissal

For a dismissal to be lawful an employer must have a reason allowed by law, follow the correct procedure and, if necessary, give adequate notice. If this is not done, it is likely to lead to a claim for unfair or wrongful dismissal. 

Employees can only bring a claim for ordinary unfair dismissal if they have the necessary period of continuous employment (at the date the dismissal takes effect). Those employees whose employment commenced before 6 April 2012 must have at least one year's service to bring a claim for ordinary unfair dismissal. For those whose employment commenced on or after that date, the period of continuous service required is two years. A fair dismissal has two elements:  

  1. The employer’s reason to dismiss must be one of a list of potentially fair reasons (Section 98(1), ERA).
  2. Even if a fair reason exists, it must have been reasonable in all the circumstances for the employer to dismiss the employee (Section 94(4) ERA). In other words, the employer must follow a fair procedure.
Potentially fair reasons for dismissal
  • Lack of capability or qualifications. Capability is skill and ability to do the job. This is most often relevant for poor performance or physical incapability such as injury or sickness. Lack of qualifications could involve a practical qualification necessary to do the job, which may be lost during employment (e.g. a driver losing a driving licence).
  • Conduct. In other words, misconduct on the part of the employee.
  • Redundancy. For the purposes of the ERA, an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to the fact that his employer has ceased or intends to cease to carry on the business for the purposes of which the employee was employed by him, or to carry on that business in the place where the employee was so employed, or where the requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where the employee was employed by the employer, have ceased or diminished or are expected to cease or diminish.
  • Continued employment would breach legislation. For example where, if the employment continued, either the employer or the employee would be in breach of health and safety laws.
  • 'Some other substantial reason'. In some ways this is a catch-all to allow Tribunals to respond to the circumstances of individual cases. It can cover a multitude of cases including dismissals by reason of a reorganisation, and dismissals in order to effect changes in terms and conditions of employment.

 Having determined that a potentially fair reason exists for the dismissal, the employer must be able to show that it has acted reasonably in all the circumstances in dismissing the employee for that reason. Has the employer followed a fair and proper procedure? This involves taking into consideration different factors depending on the reason for the dismissal (see below).

Tribunals will take account of the size and administrative resources of the employer when determining whether the employer acted reasonably. The question of fairness is closely linked to disciplinary procedures and the need to follow a fair procedure in disciplining and dismissing the employee.  

What is appropriate in terms of procedure will vary, depending on the reason for the dismissal. The employer must follow a fair and reasonable procedure and the Tribunal will look at whether the decision to dismiss the employee and the procedures followed fell within the band of reasonable responses expected of reasonable employers.

Some key procedural points that workplace managers should follow for the most common dismissals are as follows.
 

Capability  

  • Consider the use of probationary periods and regular appraisals.
  • Make the employee aware of why his performance is poor and what is needed to improve it.
  • Give the employee a reasonable opportunity to improve within a realistic timescale.
  • Ensure that the employee has been provided with appropriate support/training.
  • Review the employee’s progress during a set review period.
  • Provide the employee with the right of appeal against dismissal.
  • The ACAS Code of Practice on Disciplinary and Grievance Procedures (see Sources of further information) must be complied with.  

Long-term sickness  

  • Investigate the true medical position and prognosis for recovery (usually through a medical/occupational health report).
  • Consult with the employee.
  • Regard should be had to the prognosis for a return to work and the impact of the absence on the business.
  • Employers should consider whether the absence is related to a disability and whether there are any reasonable adjustments to the job or work environment could be made.
  • If dismissal is considered appropriate a fair procedure should be followed and the employee should be given the opportunity to state his case before a decision is made.
  • Consideration should be given as to whether the employee may be eligible for permanent health insurance or ill-health retirement. 

Conduct  

  • The key question is whether the employer has reasonable grounds to believe the employee is guilty of misconduct.
  • A full investigation should take place.
  • The employee should be informed of all the allegations in advance of disciplinary meetings.
  • Put all the evidence of misconduct to the employee.
  • The employee must have an opportunity to put forward their case on the evidence.
  • Consider dismissal based only on evidence put to the employee.
  • Consider whether further investigation is necessary.
  • Take into account all the circumstances including for example the employee’s length of service, prior disciplinary record, whether the employee admitted the offence or showed remorse.
  • Provide the employee with a right of appeal against dismissal.
  • The ACAS Code of Practice on Disciplinary and Grievance Procedures must be complied with. 

Individual redundancy

Although a potentially fair reason for dismissal, redundancy can give rise to unfair dismissals where there is a failure to follow a fair procedure. Fair and proper procedures are based on:  

  • giving the employee advance warning of the potential redundancy situation;
  • if selection is necessary, using selection criteria that are as objective as possible and ensuring any selection process is carried out fairly in accordance with the criteria and that the criteria are fairly and consistently applied. Employees must understand how the criteria have been applied to them and be allowed to make representations about their selection.
  • considering alternative employment and taking reasonable steps to investigate alternative employment opportunities for employees at risk of dismissal;
  • the employer taking a decision to dismiss for reasons of redundancy only after proper consultation has taken place;
  • allowing the employee time off to look for alternative jobs;
  • continuing to look for alternative jobs for the employee within the organisation;
  • giving employees the right of appeal against dismissal (in appropriate cases). 

For collective redundancies see ‘Redundancy’.

Unfair dismissal remedies

Employees have three months after the date of dismissal in which to bring a claim before an Employment Tribunal. 

Since 29 July 2013, claimants in employment tribunal cases are now required to pay an issue fee on submitting their claim and a hearing fee at a later stage. The fees are based on a two tier structure, with more straightforward claims attracting a £160 issue fee and a £230 hearing fee and more complicated claims, including unfair dismissal, incurring a £250 issue fee and a £950 hearing fee. A subsequent appeal will incur an issue fee of £400 and a hearing fee of £1,200. These fees increase where there are two or more claimants. 

Alternatively, employers and employees can decide to place the dispute before an ACAS-appointed arbitrator under the ACAS Arbitration Scheme. The scheme is devised to provide a quicker, cheaper and, where possible, more amicable resolution to this type of dispute. From 6 April 2014 anyone who wants to make an Employment Tribunal claim will have to contact ACAS first. ACAS will then take steps to resolve the dispute before a claim is submitted. A claim may only be presented to the tribunal after a certificate has been issued by ACAS to confirm that contact has been made with them. This process will be known as “early conciliation”. 

Remedies available to both the Tribunal and an ACAS arbitrator include re-engagement or reinstatement, both of which are imposed only rarely. Employers cannot be compelled to re-engage or reinstate an employee, however if an employer fails to comply with an order for reinstatement or re-engagement the Tribunal may make an additional punitive award of between 26 and 52 weeks' pay.

More usually, compensation is awarded.

This falls under two heads:  

  1. Basic award - Calculated by reference to salary, age and length of service, subject to a maximum, which is currently set at £13,500. The cap is generally adjusted year on year, but the maximum for 2014/15 is yet to be confirmed.
  2. Compensatory award - Designed to reimburse the employee for actual losses and is at the discretion of the Tribunal, subject to a maximum (currently £74,200, but due to be revised in April 2014).

Automatically unfair reasons

Detailed provisions exist for unfair claims that do not require one year’s continuous service and where dismissal for that reason will be automatically unfair.

The most important of these are dismissals for: 
 

  • membership of a trade union or for participating in trade union activities;
  • taking part in protected industrial action;
  • taking action on specified health and safety grounds (including leaving premises due to danger);
  • asserting statutory rights against the employer;
  • pregnancy or related reasons;
  • holding the status of a part-time worker or a fixed-term employee;
  • reasons connected with rights under the Working Time Regulations 1998 or National Minimum Wage Act 1998;
  • exercising a right to be accompanied by a union representative or fellow worker at a disciplinary or grievance hearing;
  • asserting rights under the ‘whistleblowers’ legislation;
  • taking leave for family reasons;
  • making a flexible working application;
  • refusal of Sunday working by shop and betting employees;
  • performing certain functions as a trustee of an occupational pension scheme;
  • performing certain functions as an employee representative under TUPE or collective redundancy legislation; and
  • selection for redundancy for any of the above reasons.  

Dismissal for the following reasons will be automatically unfair but the employee will still need one year’s service to bring the claim: 

  • Dismissal because of a spent conviction; and
  • Certain dismissals in connection with a TUPE transfer. 
Wrongful dismissal

A wrongful dismissal occurs where the dismissal is not implemented in accordance with the terms of the contract (typically, a failure to comply with the notice period). 

A court will not generally order an employer to reinstate an employee or to take an employee back once wrongfully dismissed. In any event, such a remedy is rarely practicable. However, in rare cases an employee acting swiftly may be able to persuade a court to issue an injunction requiring the employer to perform the contract in accordance with its terms (although the employer may subsequently dismiss the employee lawfully in accordance with the terms of the contract). 

A wrongful dismissal is therefore effective, though the employer will be required to compensate the employee for loss caused, applying the principles that govern compensation for breach of contract. These seek to put the employee in the position he or she would have been in had the dismissal not been wrongful. The simple measure of compensation is notice pay plus value of benefits less remuneration earned from alternative employment during what would otherwise have been the notice period. 

Key points

  • Employers must give employees adequate notice in accordance with their contract of employment in order not to breach the contract and become liable for wrongful dismissal.
  • Regardless of whether there is a breach of contract, dismissals will be unfair unless:
    • the dismissal is for one of a list of five potentially fair reasons allowed by law;
    • the employer acts reasonably in dismissing the employee; and
    • the employer has followed a fair procedure.
  • In some circumstances, the ACAS Code of Practice on Disciplinary and Grievance Procedures must be complied with. If it is not, and an employee wins an Employment Tribunal case, Employment Tribunals have discretion to increase awards by up to 25% where the employer unreasonably fails to comply with the Code.

Legislation

  • Employment Rights Act 1996.
  • National Minimum Wage Act 1998.
  • Working Time Regulations 1998.
  • The Equality Act 2010. 

Sources of further information

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Author

Mandy Armstrong
Mandy Armstrong More information

Anderson Strathern LLP