UK: Dismissing an employee

Last Updated: 16 September 1999

When dismissing an employee, too many employers find themselves facing claims for wrongful and/or unfair dismissal, or else having to pay far more by way of a settlement than they should otherwise be obliged to . Defending or negotiating such claims or settlements can be expensive, time consuming, and more often than not is an unpleasant experience for both employer and employee.

However, the costs, time and ill-feeling involved can be greatly reduced by adopting the following safeguards:

  • ensure that you have a thorough knowledge of both your own and your employee's contractual rights;
  • acquaint yourself with the basic statutory rights afforded to your employee when he or she is dismissed;
  • avoid hasty "spur of the moment" decisions;
  • seek legal advice as soon as possible - preferably before taking any steps in the dismissal process.

This note highlights the most common contractual and statutory rights which you should consider. The purpose of the note is to help you to avoid pitfalls before you seek legal advice. In addition, this note indicates the information which your lawyer is likely to require and the issues which you should be prepared to discuss with him or her.

The contract of employment

If you breach the terms and conditions of your employee's contract of employment, (either during the process of dismissing the employee or otherwise), the employee will be able to make a wrongful dismissal claim.

Statute

If you breach the employee's statutory rights when carrying out the dismissal, the employee will be able to bring an unfair dismissal claim, and possibly also a discrimination claim.

N.B. If the employee is also a director and/or shareholder, the relevant provisions of the Company's articles of association together with any shareholders' agreement must be considered.

The Employee's Rights under the Contract of Employment

Wrongful Dismissal/Claim for Breach of Contract

Such a claim can arise in one of two ways:

  • Breach of contract leading to resignation

If you breach a fundamental term of the employee's contract during the course of the employment, the employee is entitled to claim that he or she has been constructively dismissed, to leave the employment immediately and to claim damages for wrongful dismissal.

  • Breach of contract as a result of dismissal

If you carry out the dismissal in such a way as to breach the employee's contractual rights, the employee will be able to claim wrongful dismissal. Typically, this will arise where you fail to give the proper contractual period of notice or else dismiss the employee for a reason which is contrary to the express purpose of the contract.

The Contractual Period of Notice

The contract of employment will usually specify the requisite period of notice. However, if the contract is not for a fixed term and a notice period has been expressly agreed, there is an implied term that it may be terminated on reasonable notice. In any event, the employee must not be given less than the statutory minimum notice period.

You may of course prefer the employee to cease work immediately rather than work out his or her notice period. The employee can agree to waive his or her right to some or all of the contractual period. Alternatively, you may either:-

  • continue to pay the employee as usual, but to ask him or her to remain at home. This is commonly referred to as putting the employee on "garden leave"' and will not normally be a breach of contract by the employer so long as the employee is fully remunerated; or
  • make a payment in lieu of some or all of the employee's contractual notice period.

If there is a contractual right to terminate the employment on making a payment in lieu of notice the employer will not be in breach of contract by making such a payment. If there is no such contracutal right, the employer will be in breach of contract and the making of such a payment will only extinguish a damages claim where the employee has been put in exactly the same position in which he or she would have been if notice had been given. In addition, the existence of a contractual right to make a payment in lieu of notice can be significant in terms of the tax treatment of such payments and the enforceability of restrictive covenants.

Damages

In order to bring a claim for wrongful dismissal, the employee must establish that he or she was dismissed in breach of contract and has suffered loss as a result. The employee must however take all reasonable steps to mitigate his or her loss by seeking other employment.

The Employee's Statutory Rights

The Right not to be Unfairly Dismissed

If an employee is dismissed without good reason or without adopting a fair procedure, you are liable to a claim for unfair dismissal under the Employment Protection (Consolidation) Act 1978 ("EP(C)A"). The industrial tribunal will consider whether or not the dismissal was fair in all the circumstances.

Reasons for Dismissal

There are five potentially "good" reasons set out in the EP(C)A, and you must show that the employee was dismissed for one of them: * the employee's capability or qualifications; or

  • the conduct of the employee; or
  • redundancy; or
  • that the employee could not continue to work in the position which he or she held without contravention of a duty or restriction imposed by or under a statute; or
  • some other substantial reason of a kind such as to justify the dismissal of an employee holding the postion which that employee held.

If you fail to establish a good reason for the dismissal, the tribunal must find the dismissal unfair.

If you do establish that the reason for the dismissal is an acceptable one, the tirbunal will proceed to determine whether he acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee. Among the factors to be taken into account by the tribunal is whether you adopted a fair procedure.

For example, did you adhere to an established disciplinary procedure? Did the employee have the opportunity to state his or her case? In the case of redundancy, consultation between you and the employee prior to dismissal is essential.

N.B. An employee must satisfy various conditions if he or she wishes to bring a claim for unfair dismissal, notably that he or she was employed under a contract of employment, was employed for the necessary qualifying period and was dismissed.

Certain employees are excluded from the right not to be unfairly dismissed, including employees over retirement age and those working abroad.

Unacceptable Reasons for Dismissal

Broadly, the following are automatically unfair reasons for dismissal:-

  • union-related reasons;
  • health and safety-related reasons;
  • maternity-related reasons;
  • the assertion of statutory rights;
  • unfair selection for redundancy;
  • spent convictions or a failure to disclose these;
  • dismissals on the transfer of an undertaking unless the dismissal is for an economic, technical or organisational reason entailing changes in the workforce.

 

Remedies

An employee who is found by an Industrial Tribunal to have been unfairly dismissed may be awarded compensation, reinstatement or re-engagement.

Should you require further information or specific advice, please contact Tony Thompson.

This note provides a general outline of this subject. Each case requires specialist advice depending on its own particular circumstances (and in particular on any taxation implications) and no responsibility can be accepted for the application of any principles contained in this note unless we have given such detailed advice.

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