We often help employers dealing with unfair dismissal claims. Employees with more than two years’ service have unfair dismissal rights and if they deem their dismissal unfair, can bring a claim in an Employment Tribunal against your business. So how do you ensure that a dismissal is ‘fair’?
In order to be fair, firstly the reason for dismissal has to be one of a list of potentially legitimate fair reasons and secondly, you, as the employer, must act reasonably in treating the reason as a sufficient reason for dismissal and follow a fair procedure.
Unfair dismissal compensation can be up to £104,659 from 6 April 2020 and there are not currently any tribunal fees for bringing a claim.
In this guide, our expert employment solicitors explain what is a ‘fair’ dismissal in employment law terms.
- When is the reason for dismissal ‘fair’?
- When is a dismissal automatically unfair?
- What’s the test for reasonableness?
- How do I dismiss fairly for misconduct?
- How do I dismiss fairly for capability?
- Can an employer dismiss without giving notice?
- How much does a fair dismissal cost?
- Who can claim unfair dismissal?
- Can an employee claim unfair dismissal if they resign?
- What about when a fixed-term contract ends?
- What’s the difference between unfair dismissal and wrongful dismissal?
- What are the remedies for an employee who is unfairly dismissed?
- Can you settle unfair dismissal claims?
- How to minimise the risk of an unfair dismissal claim: top tips for employers
When is the reason for dismissal ‘fair’?
The five potentially fair reasons under the Employment Rights Act 1996 (ERA) are:
- Misconduct – whether one serious act deemed to be gross misconduct, or several less serious acts
- Capability or qualifications – typically poor performance or ill health
- Redundancy – where there is closure of a business or a particular workplace or less of a requirement for an employee’s role
- Contravention of a statutory restriction – where an employee and/or employer would be breaching statute to allow the employee to continue to perform their job. For example if an employee is a driver and has lost their driving licence or if an employee does not have the right to work in the UK, for example)
- ‘Some other substantial reason’ (SOSR) – designed to catch potentially fair dismissals that don’t fall into the other categories, such as when an employee refuses to agree to changes to terms and conditions.
Employees with two years’ service are entitled, on request, to written reasons for dismissal.
In a tribunal, it will be up to the employer to show the reason. If a fair reason to dismiss is established by an employer, the actual decision to dismiss is then considered in terms of reasonableness. Was it reasonable for the employee to be dismissed in that particular situation in the manner in which they were?
Identifying the reason for dismissal isn’t always straightforward:
- There might be more than one reason – if so, the employer needs to identify the main one
- A tribunal might decide that the reason given isn’t the right one – the dismissal was for an ulterior motive. It is possible, but rare, for a tribunal to find that the reason wasn’t the one put forward by the employer but that it’s still a fair dismissal
- In respect of redundancy –even if there’s a genuine redundancy, the selection might be for a ‘protected’ reason that’s automatically unfair (whistleblowing, for example) which would then make that dismissal unfair
- SOSR is narrowly construed – employers can’t use it to mask the real reason for dismissal
- Retirement is no longer a fair reason for dismissal. If you dismiss an employee on grounds of age it is a SOSR dismissal and you will have to show that your retirement age is justifiable.
When is a dismissal automatically unfair?
Sometimes the reason for a dismissal is automatically unfair, despite falling within one of the potentially fair reasons. There are around 60 different grounds for claiming automatically unfair dismissal, but the main examples are:
- Family reasons – pregnancy, childbirth, exercising rights to family leave such as maternity, paternity or parental leave and so on
- Certain health and safety reasons
- Exercising rights to time off work or refusing to work in excess of an average of 48 hours per week
- Asserting minimum pay rights under the National Minimum Wage or National Living Wage
- Trade union activities or taking part in protected industrial action - see our advice post on Workers on strike – what you need to know for more on this
Unlike for unfair dismissal protection generally, there’s no two-year qualifying period for the above automatically unfair dismissals – these are ‘day one’ rights. Plus there’s no upper limit on the compensatory award for dismissal for whistleblowing or for carrying out health and safety activities.
Dismissal on a TUPE business transfer unless it is for an ‘ETO’ reason (economic, technical or organisational change entailing changes in the workforce) or dismissal for a spent conviction are also automatically unfair, but the two year qualifying period applies to these grounds. As the ACAS Code of Practice on Disciplinary and Grievance Procedures makes clear, just because an employee is charged with or convicted of a criminal offence, it doesn’t automatically lead to fair grounds for dismissal. The employer will need to consider what effect the charge or conviction will have on the employee’s suitability to do their job and their relationship with the company, colleagues and customers.
What’s the test for reasonableness?
Once the potentially fair reason is identified, a tribunal has to decide if the employer acted reasonably. There are two parts to this:
- Did the employer act reasonably in treating the reason as sufficient to dismiss?
Was the employer‘s decision to dismiss within the ‘range of reasonable responses’? Was this a decision that a reasonable employer would take in the particular circumstances of the case, including the employer’s size and administrative resources?
- Did the employer follow a fair procedure?
In respect of conduct and performance dismissals this involves following the Acas Code of Practice on Disciplinary and Grievance Procedures (the ACAS Code). There is some debate as to whether it applies to SOSR dismissals – it’s best to assume it does. A tribunal can increase an unfair dismissal award by up to 25% for failure to comply with the Code. Even where the ACAS Code does not explicitly apply there is an expectation of a minimum standard where fair procedure is concerned and this should include:
- the employee knowing they are at risk of dismissal and the reason(s) why;
- thorough investigation of the issues;
- reasons for any decisions made in relation to dismissal should be given to the employee without unreasonable delay, in writing;
- the employee being allowed to make representations (usually at a meeting or hearing accompanied by a colleague or Trade Union Representative) and having a fair chance to state their case and to prepare for such meetings and to make suggestions as to how their dismissal could be avoided. In relation to poor performance, the employee must be given a reasonable period to improve;
- in some cases employees should also be allowed the right of appeal against the decision to dismiss.
The ‘range of reasonable responses’ applies to procedure as well. Size and admin resources will be relevant – a large employer will be expected to carry out a more thorough procedure than an employer who has only a handful of employees.
Employers can’t argue that, even if a fair procedure had been followed, it wouldn’t have made any difference – the employee would still have been dismissed. But a tribunal can reduce the amount of compensation to reflect the possibility that the dismissal could have been fair – this is known as a ‘Polkey deduction’.
For further detail on dismissal on the grounds of redundancy, see our redundancy page. The company’s own procedures must also be followed – including the notice period. Having well drafted policies, particularly a precise but comprehensive disciplinary procedure can assist with staying on track. Our specialist employment solicitors are experienced at drafting or reviewing disciplinary and other employment policies and procedures.
The other factor a tribunal must consider is the ‘equity’ of the case. This is most commonly demonstrated by the need to treat employees even-handedly. Misconduct dismissals where previous (or simultaneous) examples of similar behaviour have been condoned or treated less harshly are likely to be a problem, particularly if discrimination relating to a protected characteristic is suspected.
What the tribunal itself thinks is irrelevant; it mustn’t substitute its view for that of the employer – many tribunal decisions have been successfully appealed because this rule hasn’t been followed. The key question is – would no reasonable employer have dismissed in those circumstances? If the answer is yes, then the dismissal will be unfair.
How do I dismiss fairly for misconduct?
Dismissals on the ground of misconduct can cover matters inside work, such as a failure to follow lawful instructions or conduct outside work that damages the employment relationship.
To dismiss fairly for misconduct you will need to:
- Prove that at the time of dismissal you genuinely believed the employee to be guilty of misconduct, even if this is not eventually found to be correct;
- at the time of dismissal, you had reasonable grounds for believing that the employee was guilty of that misconduct – this again uses the reasonbale range of responses test and whether the reasonable employer in those circumstances might dismiss that employee for the particular misconduct; and
- you formed that belief on those grounds, after you had carried out as much investigation as was reasonable in the circumstances.
Conduct dismissals tend to be for a single act of serious misconduct involving deliberate wrongdoing or gross negligence (‘gross misconduct’). But the misconduct doesn’t have to amount to gross misconduct – it could be a further instance of misconduct after the employee has been given a final written warning.
There are two main differences between gross misconduct and misconduct:
- Gross misconduct will usually allow an employer to dismiss without notice (known as ‘summary dismissal’)
- An ‘ordinary’ misconduct dismissal will generally only be fair if the employee has been given previous warnings which have not expired and have not been heeded by the employee.
Note that even if certain behaviour is categorised as gross misconduct (in the employment contract or staff handbook, for example), this is not necessarily decisive – there will still be the question of whether it was sufficiently serious to justify dismissal in the precise circumstances and so if you are in doubt, our experienced employment solicitors can help.
Conduct outside work can be misconduct, as long as it affects the wrongdoer as an employee – damaging the company’s reputation, for example.
The ‘range of reasonable responses’ plays a large part in misconduct dismissals. Examples from the case law where the tribunals have found that the employer was outside the range of reasonable responses include:
- Where an employer dismissing for fighting at work hadn’t taken into account the fact that the employee had apologised; the matter had been dealt with by the line manager the next day and the employee had a long and exemplary disciplinary record.
- The dismissal of an employee for a serious breach of health and safety rules where the particular rule was new and he hadn’t been made aware of its significance. In addition, a colleague had been treated much less harshly.
How do I dismiss fairly for capability?
The ERA says that capability must be assessed by reference to skill, aptitude, health, or any other physical or mental qualities. Generally capability dismissals fall into three categories:
- Poor performance – this must relate to the work the employee was employed to do. It’s unlikely that a single instance of poor performance will warrant dismissal. The employee should be given a reasonable period to improve – this could be up to six months, depending on the role
- Ill-health - Ill-health dismissals are fraught with danger. Even though a dismissal for ill-health might be fair in terms of the ERA, if the illness is a disability under the Equality Act 2010, the dismissal could be unlawful disability discrimination. Ill-health dismissals will always take a long time – medical opinions and frequent consultation with the employee will be essential
- Qualifications – these tend to come up where the employee loses the necessary qualifications for the job (such as a driving licence) or the job is offered on the basis that the employee will get certain qualifications and they fail to do so.
Depending on which are the above issues the dismissal relates to, when assessing reasonableness and so fairness of a capability dismissal, the tribunal will need to consider factors such as:
- Whether the employee knew what was required
- Whether a proper appraisal of the employee’s work took place and the problem was explained to the employee
- Whether the employer tried to minimise the risk of poor performance
- In some cases, whether the employer considered alternative employment if the improvements expected of the employee were unlikely
- Whether the employer gave the employee a reasonable chance / length of time to improve
- Whether the employer provided reasonable levels of training, supervision and encouragement to help with any improvement required by an employee
- Whether the employer warned the employee about what would happen if the employee failed to improve
Generally, in the case of poor performance it will take more than one incident to justify a dismissal, but there may be roles such as a pilot where one mistake could lead to dire consequences and warrant dismissal for a single offence.
Can an employer dismiss without giving notice?
Employees are entitled to notice unless they have committed an act of gross misconduct. A dismissal without the proper notice will be a wrongful dismissal – see our section What’s the difference between unfair dismissal and wrongful dismissal? below. The employee will be entitled to damages to reflect the salary and other contractual benefits to which they would have been entitled had they been allowed to work out their notice.
The employee’s notice period will normally be set out in the contract of employment. There are statutory minimum notice periods, based on length of service, and contractual notice can’t be less than this:
- One month to two years’ service – at least a week’s notice
- Two years to 12 years – a week for each complete year employed
- 12 or more years – 12 weeks
How much does a fair dismissal cost?
Any contractual payments, such as notice pay and benefits, have to be made, unless the dismissal is for gross misconduct.
If the dismissal is for redundancy, and the employee has two years’ service, they will also be entitled to a statutory redundancy payment, based on age, pay and length of service.
Who can claim unfair dismissal?
There are a number of requirements:
- The individual must be an employee (whether permanent, full-time, fixed term or part-time) working under a contract of employment – not a worker or contractor. Employment status is notoriously complex, if you are in doubt please seek expert advice from our employment solicitors on your business’ specific circumstances. It’s possible that unfair dismissal protection could be extended to cover some workers and self-employed people in the near future. In any event, they may be able to bring claims under discrimination law if they are dismissed for a discriminatory reason
- The employee must have completed two years’ service. Employees don’t need this qualifying period where the dismissal is automatically unfair – see our section above, When is a dismissal automatically unfair?
- The employee must work in the United Kingdom. Employees based abroad can sometimes make unfair dismissal claims if their employment has a stronger relationship with the UK than the country where they are working
- The employee must have been dismissed by the employer. Normally, a resignation will not be a dismissal, unless it counts as a constructive dismissal – see our section below, Can an employee claim unfair dismissal if they resign?
- The employee has to go through the ACAS Early Conciliation Procedure before lodging their claim with the employment tribunal. ACAS refers the matter to a conciliation officer who will attempt to encourage a settlement.
- The claim must be brought within three months of dismissal. The timing rules can be complex and the three months can sometimes be extended. If you require specific advice on time limits contact our employment lawyers.
Can an employee claim unfair dismissal if they resign?
Yes, if the employee has been ‘constructively’ dismissed.
Constructive dismissal is where the employee resigns in circumstances where he or she could have ended their employment without notice because the employer behaved in fundamental breach of the terms of the employment contract. An example might be where the employer unilaterally cuts the employee’s pay or changes their duties. Even the failure to deal with a grievance properly could be a constructive dismissal. The employee mustn’t delay unreasonably before resigning; otherwise they may be treated as having given up their right to resign.
There’s no rule that a constructive dismissal is necessarily unfair – the test is actually the same as for an ordinary dismissal. It will clearly be difficult for an employer to show they have acted within the range of reasonable responses where they’ve breached the employment contract. But there have been cases where a constructive dismissal has been found to be fair – for example, where an employer unilaterally reduced an employee’s hours because of a business downturn. The EAT decided that the employer had legitimate reasons for the action they took.
What about when a fixed-term contract ends?
If you don’t renew a fixed-term contract this will be a dismissal. You will need to find a fair reason (such as redundancy, or possibly SOSR where the contract was to cover a specific task) and follow a fair procedure.
What’s the difference between unfair dismissal and wrongful dismissal?
Claims for unfair and wrongful dismissal are often brought at the same time but they are very different. Wrongful dismissal is a claim for breach of contract – the fairness of the dismissal is irrelevant. Common examples are breaches of the employee’s notice period or of contractual disciplinary or redundancy procedures.
Damages for wrongful dismissal are usually based on the wages and fringe benefits falling within the notice period – putting the employee in the position they would have been in if the contract had been properly performed. If it’s a case where a contractual procedure hasn’t been followed, the claim will be for wages for the time the procedure would have taken if it had been properly followed.
Wrongful dismissal claims can be substantial if there’s a long notice period or there’s a contractual bonus that falls due in the notice period.
What are the remedies for an employee who is unfairly dismissed?
In theory a tribunal can order the re-engagement of an employee on a successful unfair dismissal claim, but the usual remedy is an award of compensation.
There’s a basic award based on length of service, capped weekly pay and age, plus a compensatory award, based on future loss of earnings. The caps are adjusted every 6 April. From 29 July 2013, the maximum compensatory award is the lower of the statutory cap or 52 weeks' actual gross pay. There’s an additional individual cap of 12 months’ gross pay, so the total award can’t be more than that.
The tribunal can award whatever compensatory award (up to the statutory maximum) that it considers ‘just and equitable’ in light of the loss suffered by the employee as a result of the dismissal, provided
the loss is attributable to the employer. Mostly it will be loss of earnings, bonuses or commission. Loss of pension rights can also come into the equation. The Tribunal can also choose to order that an additional award be paid in unfair dismissal cases if an employer does not comply with a reinstatement order or re-engagement order.
Can you settle unfair dismissal claims?
Yes, statutory unfair dismissal claims can be settled by employer and employee signing a settlement agreement or through the ACAS early conciliation scheme. Under a settlement agreement, the employee agrees to waive the right to bring any legal claim arising out of employment or dismissal in exchange for the payment. There are some formalities that have to be followed, so it is worth getting advice from our employment experts on this.
How to minimise the risk of an unfair dismissal claim: top tips for employers
Set out the rules – have a clear disciplinary policy in employees’ contracts and/or the staff handbook. Make it clear what constitutes gross misconduct (but also state that the examples aren’t exhaustive). Make sure employees know about the policies and where to find them;
Apply them to all your workers – don’t assume they won’t be able to claim unfair dismissal because technically they aren’t employees;
Fixed-term contracts – make sure you know the dates when these end so you have plenty of time to follow the correct dismissal procedure;
Poor performance – give the employee a proper chance to improve, but explain the consequences of a failure to do so;
Misconduct – consider whether an informal approach might be better than formal proceedings. Use informal warnings in the first instance for relatively minor issues;
Investigation – do this thoroughly before any disciplinary action, even if the employee admits guilt. It may reveal mitigating circumstances. You may need to go outside the workplace, to get evidence from third parties. Be careful to keep things confidential, however. The more serious the allegation, the more thorough the investigation needs to be. Take particular care where the employee’s professional reputation or career is at stake;
Suspension – be cautious, it could be a breach of your duty of trust and confidence if it’s seen as a ‘knee-jerk’ reaction, it is usually better to suspend on full pay whilst you are carrying out an investigation, if you require for an employee not to be present;
Disciplinary proceedings – check the requirements of your policy carefully. Keep accurate, contemporaneous records. Ideally have different people (of ascending seniority) running the proceedings at the investigation, meeting and appeal stage. Make sure the employee knows the allegations they face and the various steps in the procedure and what is coming next;
Negotiations – think about termination by mutual agreement rather than going through a disciplinary procedure. ‘Without prejudice’ discussions can’t be referred to in an ‘ordinary’ unfair dismissal case unless there’s been ‘improper behaviour’;
Sanctions – Be consistent in the way you treat different employees for the same or similar misconduct or poor performance. But, equally important, consider the individual circumstances, especially for misconduct. Long service, particularly where the disciplinary record is also good, is still regarded as relevant;
HR – don’t let HR advice stray into the area of culpability. There have been cases where the tribunal has found that dismissal was unfair because the investigation was significantly influenced by HR;
Dismissal –make sure the reason you give for dismissal is clear and correct (avoid SOSR if you can) and that there’s a proper appeal process. If there is any suggestion of whistleblowing, take advice; and
Ill-health – you’ll need advice. Dismissal will be extremely hard to justify and there may well be a disability discrimination element. Even if you think it’s a misconduct dismissal, consider any ill-health issues – it might affect culpability or mitigation.
It can be difficult to navigate dismissals and ensure that you do not fall foul of employment law and be required to defend an unfair and/ or wrongful dismissal claim. If you would like advice on whether a reason for dismissal is fair or assistance in running a fair and reasonable procedure to dismiss, our expert employment lawyers can help Similarly, if you would like to settle an employment claim being made against your business by way of a settlement agreement or COT3 agreement, we can draft these documents and help negotiate them on your behalf. For more specific advice on the best course of action for your business, contact us to discuss your individual requirements.