Dismissal is a key area of UK employment law that frequently comes under scrutiny.
In this article, we set out to explore the key issues relating to fair and unfair dismissal, including what is classed as unfair dismissal, constructive dismissal, and compensation for unfair dismissal.
IMPORTANT: Some provisions detailed below may change due to the Employment Rights Bill, such as the right for employees to claim unfair dismissal from day one of employment. Always check current legal requirements or seek professional advice before taking action.
Fair Dismissal: When Is a Dismissal Lawful?
The approach and procedure leading up to dismissal will vary according to each employer and the reason for the dismissal.
For a dismissal to be fair, an employer must demonstrate one of the five statutory fair reasons for dismissal, follow a fair disciplinary or redundancy procedure, and adhere to contractual or non-contractual dismissal policies. It should be noted that following a contractual procedure will not in itself make a dismissal fair.
Employers must also comply with the ACAS Code of Practice on Disciplinary and Grievance Procedures, as failing to do so may result in increased compensation for unfair dismissal by up to 25%.
The 5 Fair Reasons for Dismissal
Capability
Generally, dismissals for lack of capability fall into three categories:
- Lack of qualifications required for the role.
- Poor performance, where the employee is unable to meet required standards despite support.
- Ill health preventing the employee from performing their job (with consideration for reasonable adjustments in cases of disability).
When considering a capability dismissal, employers should follow a fair procedure aimed at assessing performance and a process that allows for the employee to improve their performance.
Conduct
It is potentially fair to dismiss an employee for a reason that relates to an employee’s conduct.
Examples of misconduct include:
- Insubordination (disobeying reasonable instructions)
- Repeated lateness
- Unauthorised absences from work
- Repeated poor attendance
More serious examples include:
- Dishonesty
- Theft
- Fraud
- Physical violence
- Harassment
- Other discriminatory behaviour
These examples may also constitute gross misconduct, which is misconduct that is so serious it justifies the dismissal of an employee without notice or payment in lieu of notice.
Disciplinary policies should be clear as to what the employer considers to be gross misconduct.
Although labelling something as gross misconduct will not necessarily make it fair, failing to identify something as gross misconduct will make it much harder for the employer to then treat certain behaviour as gross misconduct justifying summary dismissal.
For example, if an employee is not told that a breach of the company’s IT policy is gross misconduct, it may be outside the range of reasonable responses to dismiss the employee for a first offence.
It is also worth noting that an employee’s entire performance record will be considered. Except where there has been gross misconduct, dismissals for misconduct will generally only be reasonable if the employee has committed previous acts of misconduct and there are live warnings on their file. If an employee with a previously flawless employment record is dismissed for a single minor act of misconduct, the employer risks an accusation of unfair dismissal.
To defend an unfair dismissal claim, employers must still show that a fair procedure prior to dismissal had been followed, i.e., an investigation, a disciplinary hearing at which the employee can put forward their case, and an appeal. The process should follow the ACAS Code of Practice and any internal procedures.
Redundancy
Redundancy is another potential fair reason for dismissal. This occurs when an employer ceases business operations, relocates, or reduces its workforce due to financial or structural reasons.
Redundancy can occur in one of three situations:
- The employer has ‘ceased, or intends to cease, to carry on the business for which the employee was employed.’ or,
- The employer has ‘ceased, or intends to cease, to carry on that business in the place where the employee was employed.’ or,
- The employer’s ‘requirements for employees to carry out work of a particular kind in the place where the employee was employed have ceased or diminished or are expected to cease or diminish.’
Normally the role must be disappearing for there to be a true redundancy.
Employers should consult with employees when making redundancies if they wish to avoid any dismissals being unfair. Where 20 or more redundancies are planned at one establishment within a 90-day period, employers must follow the collective consultation rules to avoid unfair dismissals and protective awards.
Employees under notice of redundancy have the right to time off to look for a new job and will be entitled to notice pay. Those with at least two years’ service will be entitled to a statutory redundancy payment based on their length of service.
The Protection from Redundancy (Pregnancy and Family Leave) Act 2023 extended the period of protection for those on Maternity, Adoption or Shared Paternity Leave in a redundancy situation.
Statutory Illegality
Another potentially fair reason for a dismissal is statutory illegality.
This occurs when an employee cannot continue to work in their job role without either the employer or the employee breaching a legal duty. For example, if the employee does not have the right to work in the UK or is banned from driving when driving is a requirement for their work.
In these cases, it is still necessary for an employer to follow a fair process before deciding to dismiss that employee, although employers will need to act immediately if they are employing a worker without the correct immigration permission.
The employer should:
- Consult with the employee,
- Consider any alternative to dismissal, such as any opportunities for re-deployment,
- Consider the length of any ban,
- Consider the size and administrative resources of the organisation,
- Assess the impact the ban has on the employee’s ability to perform their role,
- Consider any adjustments that can be made to the role. For example, would the employee be prepared to use taxis or public transport at their own cost if appropriate?
Some Other Substantial Reason (SOSR)
It may also be possible to dismiss for ‘some other substantial reason’ (SOSR) provided a fair process has been carried out.
There is no definition of what constitutes an SOSR – it will be a matter of fact in each case. This potentially fair reason for dismissal can also be hard to establish in a tribunal.
The following are some examples from case law of reasons that may fall under this category:
- Business reorganisation (changes to terms and conditions, including some ‘fire and rehire’ situations).
- Recruitment for short-term cover where that was known from the outset and a fair dismissal procedure is followed.
- Expiry of a fixed-term contract.
- The employee is receiving a prison sentence.
- A breakdown in trust and confidence.
- A conflict of interest such as an outside interest in a competing business where continued employment of the member of staff risks the business and its reputation.
- Extreme personality clashes, which have become critical to the business.
- Third-party pressure, for example from a large client (provided this was for non-discriminatory reasons).
Employers mustn’t use the defence of some other substantial reason to circumvent a longer process. For example, do not use SOSR when, in fact, there is a capability or conduct issue.
When a Dismissal Becomes Unfair
What Is Classed as Unfair Dismissal?
A dismissal is classified as unfair if the employer does not have a valid reason for dismissal, fails to follow a fair process, or dismisses an employee for discriminatory reasons or for exercising a legal right.
Employees who have worked for their employer for at least two years may be eligible to claim unfair dismissal, though certain automatic unfair dismissal cases require no qualifying period.
How Can an Employee Claim Unfair Dismissal?
To present a claim for unfair dismissal, the employee must:
- Have been dismissed.
- Be an employee and not a worker.
- Have been employed for the necessary qualifying periods:
- Employees starting employment on or after 6 April 2012 require two years of continuous service to claim unfair dismissal (except in the case of certain automatically unfair dismissals where the qualifying period does not apply.)
- Commence the claim within three calendar months of the date of dismissal, unless an extension applies.
- Not be within the excluded categories (for example, the police or the armed forces).
Employees with two years’ continuous service who started work on or after 6 April 2012 also have a right to receive a written statement of reasons for dismissal on request.
What is Automatic Unfair Dismissal?
An automatic unfair dismissal is a dismissal that is illegal for reasons set out in law.
Automatic Unfair Reasons for dismissal:
- A reason connected with pregnancy, childbirth, or taking or seeking to take leave for family reasons, including maternity, paternity, shared parental, or adoption leave or pay.
- Exercising the right to request flexible working.
- Taking leave for family emergencies or to care for dependents.
- Taking time off for jury service.
- Performing certain health and safety activities.
- Refusing Sunday working (retail and betting shop employees).
- Exercising certain rights under the Working Time Regulations 1998.
- Performing certain functions as a trustee of an occupational pension scheme.
- Performing certain functions as an employee representative under the TUPE or the collective redundancies legislation.
- Making a protected disclosure (whistleblowing).
- Asserting one of the numerous statutory rights.
- Exercising the statutory right to be accompanied at disciplinary and grievance hearings.
- Taking certain steps under the National Minimum Wage Act 1998.
- Seeking to benefit from tax credits.
- Performing functions in relation to transnational information and consultation legislation.
- Reasons relating to the European Public Limited-Liability Company Regulations 2004.
- Reasons relating to the Information and Consultation of Employees Regulations 2004.
- Holding the status of a part-time worker.
- Participating in protected industrial action lasting 12 weeks or less, or for more than 12 weeks if the employer has not taken reasonable procedural steps to resolve the dispute.
- Performing certain functions in relation to trade union recognition.
- Participation in trade union membership or activities (or refusal to participate in such membership or activities).
- Dismissal for exercising rights as a fixed-term worker.
- Dismissal for selection for redundancy for any of the reasons above.
If a dismissal is made for any one of the reasons listed above, an unfair dismissal claim can be lodged.
In all of these circumstances, it is not necessary to consider if the employer acted fairly, as the presence of the automatically unfair reason on its own is sufficient for the finding of an unfair dismissal.
Generally, there is no qualifying period for automatically unfair dismissals, except for the following:
- Failure to offer re-engagement resulting from participation in protected industrial action.
- For a transfer-related reason under TUPE (although a transfer-related dismissal can be fair if it is for an economic, technical, or organisational reason entailing changes in the workforce).
- Because of a spent conviction.
What is Constructive Dismissal?
A constructive unfair dismissal occurs when an employee who is entitled to do so terminates their employment in response to the employer’s fundamental breach of contract.
An employee must still qualify to claim constructive unfair dismissal.
To prove a constructive unfair dismissal, an employee must demonstrate that:
- The employer has breached the contract.
- This is a significant or fundamental breach of contract.
- They terminated their employment in response to that breach and did not delay resigning.
Where there has been a delay in resigning after the breach, a tribunal might conclude the employee has accepted the breach and the claim will fail, or the employee may leave in response to something other than the breach itself.
To defend a constructive unfair dismissal claim, employers must show they followed their own procedures and the ACAS Code.
Unfair Dismissal vs. Wrongful Dismissal
Unfair dismissal should not be confused with wrongful dismissal.
Wrongful dismissal is not covered by statute; rather, it is a contractual claim that arises under ‘common law’.
Wrongful dismissal occurs when an employee is dismissed by an employer in breach of the oral or written terms of an employment contract. The most common example is a failure to give the employee the correct length of contractual or statutory notice.
Cases of wrongful dismissal also occur if an employee is dismissed without adequate compensation in lieu of notice.
Unlike unfair dismissal claims, wrongful dismissal claims as claims for breach of contract can, in certain circumstances, go to the civil courts where different time limits and awards apply.
Another key difference in wrongful dismissal cases is that the employer can rely on facts that came to its attention after the employee has been dismissed.
If an employee is dismissed without notice in circumstances where they have not committed a fundamental breach of contract entitling the employer to dismiss them summarily, that employee will have a wrongful dismissal claim.
Compensation for dismissal
The extent of compensation in dismissal cases will vary according to the nature and severity of the claim.
Compensation in an unfair dismissal case normally consists of a basic award and a compensatory award.
- Basic awards compensate for loss of job security and are calculated in the same way as a redundancy payment (on the employee’s age and years of service multiplied by a maximum weekly amount). A basic award cannot be awarded in addition to a redundancy payment.
- Compensatory awards are in addition to the basic award and reflect the immediate and future loss of earnings. The compensatory award is capped at 12 months’ gross pay, or a fixed amount set by legislation, whichever is the lower.
In two cases there is no statutory cap for unfair dismissal:
- On health and safety grounds, and/or,
- Falling within the whistleblowing provisions of the Public Interest Disclosure Act 1998.
In wrongful dismissal cases, a successful claimant can claim damages for loss suffered as a result of the employer’s breach of contract.
Damages for Wrongful Dismissal and Automatic Unfair Dismissal (Discrimination)
Damages may be awarded in wrongful dismissal claims and automatic unfair dismissal claims.
Damages for wrongful dismissal claims are calculated the same way as they would be in any other breach of contract situation.
The basic rule is that the employee must be placed in the same position as if the contract had been performed. This would, for example, include:
- Full net salary for the contractual notice period,
- Compensation for the loss of other benefits for the notice period (including employer’s pension contributions, loss of a company car, private health insurance, contractual bonuses, and commissions),
- Potentially, income that would have been earned during the time the disciplinary process would have taken (in cases where the employee was dismissed without proper notice and/or proper disciplinary process),
- Damages for future earnings may be considered. This takes into account ‘future loss,’ loss of statutory rights, and loss of pension rights.
However, as with any other breach of contract claims, the employee is under a duty to mitigate his or her.
In Summary
- A dismissal is when the employer ends a contract of employment. Dismissals can be both fair and unfair. Employers have legal obligations to fulfil if they wish to conclude a fair dismissal.
- Employees who are unfairly dismissed may bring a claim in an employment tribunal. Such claims can be settled by the employer via a settlement agreement or by a conciliation process.
- To challenge an unfair dismissal, the employee generally must have worked for the employer for 2 years (on or after 6 April 2012). This is known as the qualifying period.
- There are five potentially fair reasons for dismissal. These are capability, conduct, redundancy, statutory illegality, or ‘some other substantial reason’ (SOSR).
- Even where an employer can show one of the five reasons, for a dismissal to be fair, they must also follow a fair procedure.
- The different types of unfair dismissal claims are:
- Ordinary unfair dismissal.
- Automatic unfair dismissal.
- Constructive dismissal.