Dismissing an employee for a reason other than one allowed by law, or without following the correct procedure or giving adequate notice, may lead to a claim for unfair or wrongful dismissal. Compensation for a successful claim can potentially be substantial. Regardless of whether a claim succeeds, the costs of defending it, in terms of management time and legal costs, may be significant and are not usually recoverable from the employee.

Establish whether there are grounds for dismissal

There are only five potentially fair reasons for dismissing an employee:

  1. Their misconduct at work (for example, they have filed a fraudulent expenses claim or persistently arrive late at work);
  2. Their lack of capability, or inability to carry out their job because they lack the necessary skills required (for example, a sales manager has consistently failed to meet reasonable sales targets despite receiving additional support and training); or because of long term illness and their inability to return to their job in the near future.
  3. Their job is redundant (for example, if the business is declining or the workplace is facing closure). Do not use redundancy as an easy alternative to dismissing an employee for poor performance. The "redundant" employee could still make a claim for unfair dismissal;
  4. Their continued employment would be illegal (for example, the business has discovered that an employee's immigration status does not permit them to work); or
  5. "Some other substantial reason", that is something not falling into one of the above categories which nevertheless warrants dismissal, such as where the relationship between the parties has broken down irretrievably.

Dismissing an employee for any other reason than those listed above will be unfair. Depending on the circumstances, it may also be unlawful discrimination.

It is no longer legal to dismiss an employee just because they reach the age of 65, which used to be a legal retirement age.

Always follow the correct procedure

  • Even if a business has established a potentially fair reason for dismissing an employee, it must still follow the correct procedure. Failure to do so could lead to a claim for unfair dismissal.
  • Generally, an employee must have completed a qualifying period of service before they can bring a claim for unfair dismissal. The qualifying period is two years or one year if their employment started before 6 April 2012.
  • However, certain dismissals are deemed to be automatically unfair and an employee is protected as soon as they start work. These include dismissals connected with:


            parental leave;

            requests for flexible working;

           whistleblowing; or

           a TUPE transfer.

Check the employee's contract

It is possible to dismiss an employee fairly but still be in breach of contract if the business has not given them the correct notice period under their contract. A business does not want to take any action that could breach an employee's contract because:

  • It may lose valuable protections in the contract such as post-employment restrictions (for example, stopping an employee going to work for a competitor).
  • The employee may have a claim for wrongful dismissal in breach of contract.

PILON clauses

  • A payment in lieu of notice (PILON) clause is a contractual right that enables a business to pay an employee a lump sum rather than allow them to work out their notice period.
  • Before terminating employment and making a PILON, the business should ensure that the contract of employment they wish to terminate allows for termination in this way.
  • If a business decides to make a PILON, it must notify the employee that a PILON is being made to them in exercise of the employer's contractual right to terminate the employment with immediate effect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.