We often help employers dealing with fair dismissal claims. Employees with more than two years’ service have unfair dismissal rights. The reason for dismissal has to be one of a list of potentially legitimate reasons and you, as the employer, must follow a fair procedure, otherwise the dismissal will be unfair and can lead to a claim against the employer in the employment tribunal.
Unfair dismissal compensation can be up to £98,922 from April 2018 and there are no longer 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?
- What’s a fair dismissal for misconduct?
- Is a criminal conviction a fair reason for dismissal?
- What’s a fair capability dismissal?
- What’s meant by a fair procedure in a dismissal?
- 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?
- Penalties of an unfair dismissal
- 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:
- Capability or qualifications – typically poor performance or ill-health
- Contravention of a statutory restriction (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. 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?
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
- There’s a narrow definition of redundancy – it only covers closure of your business or a workplace, or a reduction in the need for employees to do particular work. Plus the employer has to show it acted reasonably in dismissing for that reason. And even if there’s a genuine redundancy, the selection might be for a ‘protected’ reason that’s automatically unfair (whistleblowing, for example)
- SOSR is also 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. The main examples are:
- Family reasons – pregnancy, childbirth, exercising rights to family leave and so on
- Certain health and safety reasons
- Exercising rights to time off work
- 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 these 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) is also automatically unfair, but the two year qualifying period applies.
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?
- Did the employer follow a fair procedure?
The test for reasonableness is whether the employer‘s decision to dismiss was within the ‘range of reasonable responses’, taking into account the circumstances, including the employer’s size and admin resources.
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.
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.
What’s a fair dismissal for misconduct?
Conduct dismissals cover anything from a failure to follow lawful instructions to conduct outside work that damages the employment relationship.
If you dismiss an employee because of misconduct, then you’ll need evidence that you had reasonable grounds for believing that the employee was guilty. Although it’s necessary for your belief in the employee’s guilt to be genuine, it doesn’t actually have to be correct or justified.
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.
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.
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.
Is a criminal conviction a fair reason for dismissal?
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 a fair capability dismissal?
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.
What’s meant by a fair procedure in a dismissal?
In addition to dismissing for a fair reason, for a dismissal to be fair the employer must follow a fair procedure. This usually involves:
- Thorough investigation of the issues
- Providing reasons to the employee, in writing
- Giving the employee time to respond – holding a meeting or hearing. In relation to poor performance, the employee must be given a reasonable period to improve
- Informing the employee of the decision (in writing)
- Allowing an appeal against the decision to dismiss.
The ‘range of reasonable responses’ test outlined in What’s the test for reasonableness? 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.
With misconduct and poor performance dismissals, the ACAS Code of Practice on Disciplinary and Grievance Procedures must be followed – tribunals will take this into account in deciding whether the employer has acted reasonably. There is some dispute 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.
The company’s own procedures must also be followed – including the notice period.
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’.
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 – for more on this see our advice guide The Honest Guide to What You Do and Don’t Need a Solicitor For – Part 3: Hiring Employees. 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 ACAS pre-claim conciliation before lodging their claim with the 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.
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 it without notice because the employer behaved in 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.
Penalties of an unfair dismissal
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, up to £15,240 for 2018/19, plus a compensatory award, based on future loss of earnings, of a maximum of £83,682. That’s an overall maximum of £98,922 on current figures. 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 £83,682 maximum) that it considers ‘just and equitable’ in the 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.
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 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 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 constitute gross misconduct (but also 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
- 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 – see our advice post HR involvement in disciplinary investigations
- 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 – in a 2017 case the Court of Appeal suggested that a dismissal could be automatically unfair even though the decision-maker thought the employee was a poor performer, if someone else had manipulated that decision to dismiss
- 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