Section 98 Employment Rights Act Explained (2026)

Section 98 of the Employment Rights Act 1996 sits at the heart of UK unfair dismissal law. Whenever an employment tribunal considers whether a dismissal was fair, it turns to section 98 to determine whether the employer had a legally valid reason and whether they acted reasonably in relying on that reason. For employers, understanding how section 98 operates is critical to managing dismissal risk and avoiding tribunal claims.

This guide is written as a compliance-first reference point for employers within the wider UK employment law framework, focusing on how tribunals apply section 98 in practice and where employers commonly create avoidable exposure.

The statutory framework does not simply require a “good reason” for dismissal. Instead, it imposes a structured two-stage test. First, the employer must establish one of five potentially fair reasons. Second, the tribunal must be satisfied that the employer acted reasonably in treating that reason as sufficient to justify dismissal in all the circumstances.

What this article is about: this guide provides a detailed employer-focused explanation of Section 98 Employment Rights Act 1996. It explains where section 98 fits within the wider unfair dismissal regime, the five potentially fair reasons for dismissal, how the burden of proof works, what the “band of reasonable responses” means in practice and how automatic unfair dismissal interacts with the statutory framework. The aim is to provide a compliance-first reference point for employers making or defending dismissal decisions.

Section A: What Is Section 98 Employment Rights Act 1996?

Section 98 forms part of Part X of the Employment Rights Act 1996, which governs the statutory right not to be unfairly dismissed. While section 94 establishes the general right, section 98 sets out the legal mechanism by which a tribunal assesses whether a dismissal is fair or unfair.

For most ordinary unfair dismissal claims, an employee must have at least two years’ continuous service to bring a claim under section 94, subject to the qualifying period in section 108 and the exceptions for certain statutory claims. Employers commonly encounter disputes about whether the two-year threshold is met, including where service is short or continuity is contested, and these issues often sit alongside wider dismissal risk, including unfair dismissal under 2 years scenarios and other statutory or discrimination claims.

1. Where Section 98 Fits Within the ERA 1996

Section 98 performs two key functions:

• It defines the five potentially fair reasons for dismissal.
• It establishes the reasonableness test that tribunals must apply.

Under section 98(1), it is for the employer to show the reason for the dismissal. Under section 98(2), that reason must fall within one of the specified categories, or be “some other substantial reason” of a kind justifying dismissal. Under section 98(4), the tribunal must then determine whether the employer acted reasonably in treating that reason as sufficient to dismiss, having regard to equity and the substantial merits of the case.

This structure ensures that dismissal decisions are judged both on substance and on process.

2. The Two-Stage Unfair Dismissal Test

The operation of section 98 is commonly understood as a two-stage test.

Stage one: the employer must establish a potentially fair reason. If the employer cannot show that the dismissal falls within one of the statutory categories, the dismissal will be unfair.

Stage two: even where a potentially fair reason is established, the tribunal must consider whether the employer acted reasonably in treating that reason as sufficient to justify dismissal. This assessment must be carried out in accordance with equity and the substantial merits of the case.

In practical terms, this means that a dismissal for misconduct, capability or redundancy can still be unfair if the procedure was flawed, the investigation inadequate or the decision disproportionate.

Section 98 therefore imposes a structured legal discipline on dismissal decision-making. Employers must first identify the correct statutory reason, and then ensure that their handling of the matter falls within the range of reasonable responses open to a reasonable employer.

Section A Summary

Section 98 Employment Rights Act 1996 provides the legal framework for assessing unfair dismissal. It requires employers to establish one of five potentially fair reasons and to demonstrate that dismissal was reasonable in all the circumstances. Both the reason and the procedure will be scrutinised by a tribunal.
 

Section B: The Five Potentially Fair Reasons Under Section 98

Section 98(2) of the Employment Rights Act 1996 identifies five potentially fair reasons for dismissal. An employer must be able to show that the real reason — or if there is more than one, the principal reason — falls within one of these categories. If it does not, the dismissal will be unfair, regardless of how reasonable the employer believed their decision to be.

The five reasons are conduct, capability, redundancy, illegality or statutory restriction and “some other substantial reason” (SOSR). While these categories are broad, they are not unlimited. Employers must correctly identify the applicable reason and ensure their evidence supports it.

1. Conduct

Conduct relates to the employee’s behaviour. This may include acts of misconduct such as dishonesty, insubordination, violence, harassment, breaches of company policy or repeated lateness.

There is a distinction between ordinary misconduct and gross misconduct. Gross misconduct refers to conduct so serious that it fundamentally undermines the implied term of mutual trust and confidence, entitling the employer to dismiss summarily, without notice. However, even in cases of alleged gross misconduct, a fair investigation and disciplinary process must be followed.

A conduct dismissal will only be fair if:

• The employer had a genuine belief in the employee’s guilt.
• That belief was based on reasonable grounds.
• A reasonable investigation was carried out.
• Dismissal fell within the band of reasonable responses.

Failure in any of these areas may render the dismissal unfair, even where misconduct occurred. In practice, employers will usually need to be able to evidence that they followed a fair disciplinary procedure, including convening a properly managed disciplinary hearing, and that the allegation meets the employer’s own definitions and expectations around gross misconduct where summary dismissal is contemplated.

2. Capability

Capability refers to the employee’s ability to perform the role for which they were employed. This can arise in two principal contexts:

• Poor performance or lack of skill.
• Ill health or medical incapacity.

Capability also includes qualifications. If an employee loses a qualification necessary for the job, dismissal may fall within this category.

In performance cases, employers are expected to follow a structured capability procedure. This typically includes identifying performance concerns, setting measurable improvement targets, providing support or training and issuing appropriate warnings before dismissal is considered.

In ill health cases, employers must take care to obtain medical evidence, consult with the employee and consider whether any duties arise under the Equality Act 2010, including the need to consider reasonable adjustments where disability may be engaged. A failure to engage with this analysis can create parallel exposure in discrimination claims even where the employer considers the dismissal to be capability-based.

A failure to follow a fair capability process can render a dismissal unfair, even if performance concerns were genuine.

3. Redundancy

Redundancy is defined separately under section 139 of the Employment Rights Act 1996. It arises where the dismissal is wholly or mainly attributable to:

• The employer ceasing or intending to cease carrying on the business.
• The employer ceasing or intending to cease business at the place where the employee was employed.
• A reduced requirement for employees to carry out work of a particular kind.

Redundancy is a potentially fair reason, but fairness depends on the process. Employers must normally:

• Identify an appropriate redundancy pool.
• Apply fair and objective selection criteria.
• Consult with affected employees.
• Consider suitable alternative employment.

Where 20 or more redundancies are proposed within a 90-day period, collective consultation obligations can arise under separate legislation. Even where a genuine redundancy situation exists, a flawed consultation or selection process may result in a finding of unfair dismissal. Employers should also be aware that the statutory framework is commonly tested in practice through the quality of the redundancy consultation, the redundancy consultation period in smaller exercises and the defensibility of any selection tools, including a redundancy matrix. A tribunal will typically look for evidence that the employer had reasons for redundancy that were genuine, properly evidenced and tied to the statutory definition.

4. Illegality or Statutory Restriction

Dismissal may be fair where continued employment would contravene a statutory duty or restriction. This is sometimes referred to as “illegality”.

Examples include:

• A driver losing their driving licence where driving is essential to the role.
• A regulated professional losing a required licence to practise.
• A worker losing the legal right to work in the UK.

The employer must show that continued employment would have been unlawful or in breach of a statutory obligation. However, employers should still consider whether alternative roles are available before proceeding to dismissal, particularly where the restriction may be temporary or where redeployment is a realistic option.

5. Some Other Substantial Reason (SOSR)

SOSR operates as a residual category. It applies where the reason does not fall neatly within conduct, capability, redundancy or illegality, but is nevertheless substantial and capable of justifying dismissal. The statutory wording requires SOSR to be “of a kind such as to justify dismissal”.

Common SOSR scenarios include:

• Business reorganisations that do not technically amount to redundancy.
• Irretrievable breakdown in working relationships.
• Third-party pressure requiring removal of an employee from a role.
• Refusal to agree to lawful contractual changes.

The reason must be genuinely substantial. It cannot be trivial or a disguised redundancy or misconduct case. Tribunals will scrutinise whether the employer is attempting to re-label another statutory category. As with all other reasons, establishing SOSR is only the first step. The employer must still act reasonably in treating that reason as sufficient to justify dismissal, including following a fair process, consulting where appropriate and documenting why dismissal was proportionate.

Section B Summary

Section 98 identifies five potentially fair reasons for dismissal: conduct, capability, redundancy, illegality and some other substantial reason. Correctly categorising the reason is fundamental. However, establishing a potentially fair reason does not in itself make a dismissal fair. The employer must still satisfy the statutory reasonableness test under section 98(4).

Section C: How Section 98 Works in Practice

Identifying one of the five potentially fair reasons is only the starting point. In practice, most unfair dismissal cases turn not on whether a reason exists, but on whether the employer can prove that it was the real reason and that dismissal was a reasonable response in all the circumstances.

Section 98 establishes both the burden of proof and the framework for assessing fairness. Employment tribunals apply this structured approach in every ordinary unfair dismissal claim.

1. Burden of Proof and the “Principal Reason”

Under section 98(1), it is for the employer to show:

• The reason for the dismissal, or
• If there was more than one reason, the principal reason.

The “principal reason” is the main operative cause of dismissal. If the employer cannot establish the true reason, or if the tribunal concludes that the stated reason is not genuine, the dismissal will be unfair.

This means employers must be clear and consistent in documenting why the dismissal decision was taken. Shifting explanations or poorly recorded reasoning can undermine credibility before a tribunal. Where disputes escalate into formal litigation, employers may require specialist support in defending employment tribunal claims, particularly where the stated reason is challenged.

Once the employer establishes a potentially fair reason under section 98(2), the tribunal moves to the second stage: reasonableness.

2. The Band of Reasonable Responses

Section 98(4) requires the tribunal to determine whether the employer acted reasonably in treating the reason as sufficient to justify dismissal, having regard to equity and the substantial merits of the case.

In applying this test, tribunals use what is commonly known as the “band of reasonable responses” approach. The tribunal must not substitute its own view for that of the employer. Instead, it must decide whether dismissal fell within the range of responses that a reasonable employer might have adopted in the circumstances.

This principle recognises that different employers may reasonably reach different conclusions on the same facts. For example:

• One employer might issue a final written warning.
• Another might decide dismissal is appropriate.

If dismissal falls within the reasonable range, the tribunal will not interfere, even if it would have reached a different decision itself.

However, where dismissal is disproportionate, inconsistent with previous practice or based on an inadequate investigation, it may fall outside that range and be held unfair. These issues frequently arise alongside arguments about automatically unfair dismissal, particularly where the employee alleges that the stated reason masks a prohibited statutory ground.

3. Procedural Fairness

Procedural fairness is central to section 98(4). Even where a potentially fair reason exists, a dismissal may be unfair if the employer fails to follow a fair process.

The requirements will vary depending on the reason for dismissal, but in most cases employers should ensure:

• A reasonable investigation into the relevant facts.
• Clear written notification of the issues.
• An opportunity for the employee to respond.
• The right to be accompanied at a disciplinary or capability hearing.
• An appeal against the decision.

In misconduct cases, employers are expected to follow the ACAS Code of Practice on Disciplinary and Grievance Procedures. Failure to follow the Code does not automatically make a dismissal unfair, but a tribunal will take it into account and may increase any compensation by up to 25% where there has been an unreasonable failure to comply.

In redundancy cases, procedural fairness includes meaningful consultation and fair selection processes, often scrutinised through the wider redundancy framework. In capability cases, it includes warnings and opportunities to improve.

Tribunals will consider both substantive fairness and procedural fairness. A serious procedural defect may render a dismissal unfair even if the outcome might ultimately have been the same. In such cases, while compensation may be adjusted, the dismissal itself can still be declared unfair, with potential exposure to unfair dismissal compensation awards.

4. Procedural Defects and Compensation Risk

Even where a dismissal is procedurally unfair, compensation may be reduced if the employer can show that the employee would have been dismissed in any event had a fair procedure been followed. However, reliance on this principle does not make the dismissal fair. It only affects compensation.

Employers should not assume that procedural shortcuts can be cured after the event. Tribunal scrutiny increasingly focuses on whether decision-making was structured, documented and proportionate from the outset, particularly in cases overlapping with statutory rights, discrimination or health and safety concerns, including health and safety unfair dismissal claims.

Section C Summary

In practice, section 98 requires employers to prove the real reason for dismissal and demonstrate that dismissal was a reasonable response. The tribunal will assess both the substance of the decision and the fairness of the procedure. Even a valid reason can result in an unfair dismissal finding if the process is flawed or the outcome disproportionate.

Section D: Automatically Unfair Dismissal and the Limits of Section 98

While section 98 governs ordinary unfair dismissal, it does not operate in isolation. Certain dismissals are classified by statute as automatically unfair. In these cases, once the prohibited reason is established, the dismissal will be unfair without the need for the tribunal to assess reasonableness under section 98(4).

Understanding the distinction between ordinary and automatically unfair dismissal is essential for risk management.

1. What Is Automatically Unfair Dismissal?

Automatically unfair dismissal arises where Parliament has determined that dismissal for a particular reason is inherently unlawful. In such cases:

• There is generally no two-year qualifying service requirement.
• The employer cannot rely on reasonableness as a defence.
• The focus is on identifying the real or principal reason for dismissal.

If the principal reason for dismissal falls within one of the automatically unfair categories, the dismissal will be unlawful, regardless of procedure.

2. Common Automatically Unfair Reasons

There are numerous statutory grounds giving rise to automatic unfair dismissal. Common examples include dismissal for:

• Pregnancy, childbirth or maternity leave.
• Whistleblowing (protected disclosures).
• Asserting a statutory employment right, such as entitlement to the National Minimum Wage.
• Refusing to opt out of the 48-hour maximum working week under the Working Time Regulations.
• Trade union membership or activities.
• Acting as an employee representative.
• Taking family-related leave, such as paternity or parental leave.

In these situations, the employer cannot argue that dismissal was within the band of reasonable responses. If the prohibited reason is established, the claim will succeed. Many of these disputes also intersect with broader dismissal reform discussions and evolving case law, including developments covered in recent commentary on unfair dismissal reforms.

3. The Relationship Between Section 98 and Discrimination

Dismissal because of a protected characteristic, such as sex, race, disability, age, religion or sexual orientation, is unlawful under the Equality Act 2010. While discriminatory dismissals are not categorised within section 98 itself as a separate statutory reason, they will almost invariably be unfair and unlawful.

Unlike ordinary unfair dismissal claims:

• There is no qualifying service requirement.
• Compensation is uncapped.
• Employers cannot justify direct discrimination.

Where discrimination is alleged, the tribunal may consider both unfair dismissal under section 98 and discrimination under the Equality Act 2010. Employers therefore face overlapping statutory risks that extend beyond the traditional unfair dismissal framework.

4. Why Correct Categorisation Matters

Employers sometimes attempt to rely on conduct, capability or SOSR where the true reason relates to a protected disclosure, statutory right or discriminatory factor. Tribunals will examine the evidence carefully to identify the real principal reason.

If the tribunal concludes that the employer’s stated reason is not genuine, or that the dismissal was motivated by an automatically unfair ground, the employer will not be able to rely on section 98(4) reasonableness.

Correct categorisation and accurate documentation of the decision-making process are therefore critical in defending claims, managing litigation risk and limiting exposure to potentially significant compensation awards.

Section D Summary

Section 98 provides the framework for ordinary unfair dismissal, but it does not protect employers where dismissal is automatically unfair or discriminatory. In such cases, reasonableness is not a defence and qualifying service requirements generally do not apply. Employers must ensure that dismissal decisions are not influenced by protected statutory rights or discriminatory factors.

FAQs: Section 98 Employment Rights Act 1996

1. What does Section 98 of the Employment Rights Act say?

Section 98 sets out the legal framework for determining whether a dismissal is fair or unfair. It requires the employer to show the reason for dismissal and that the reason falls within one of five potentially fair categories. It also requires the tribunal to assess whether the employer acted reasonably in treating that reason as sufficient to justify dismissal under section 98(4).

2. What are the five fair reasons for dismissal under Section 98?

The five potentially fair reasons are:

• Conduct
• Capability (including qualifications)
• Redundancy
• Illegality or statutory restriction
• Some other substantial reason (SOSR)

An employer must establish that the principal reason for dismissal falls within one of these categories before fairness can be assessed.

3. What is SOSR under Section 98?

SOSR stands for “some other substantial reason”. It is a residual category that applies where the reason for dismissal does not fit within conduct, capability, redundancy or illegality, but is still substantial enough to justify dismissal. Examples include business reorganisations, irretrievable breakdown in working relationships or third-party pressure. As with all other reasons, the employer must still act reasonably.

4. What is the band of reasonable responses?

The band of reasonable responses is the legal test used by tribunals when applying section 98(4). Rather than substituting its own view, the tribunal must decide whether dismissal fell within the range of responses that a reasonable employer might have adopted in the circumstances. If dismissal falls within that range, it will normally be considered fair.

5. Do employees need two years’ service to claim unfair dismissal?

In most ordinary unfair dismissal claims, an employee must have at least two years’ continuous service. However, this qualifying period does not apply to automatically unfair dismissal claims, such as those involving whistleblowing, pregnancy or asserting statutory rights.

6. Can an employer dismiss without following a procedure?

Even where a potentially fair reason exists, a failure to follow a fair procedure may render the dismissal unfair. In misconduct cases, employers are expected to follow a fair disciplinary process in line with the ACAS Code of Practice. A serious procedural defect can lead to a finding of unfair dismissal.

7. Who has the burden of proof in an unfair dismissal claim?

The employer bears the initial burden of proving the reason for dismissal and that it falls within one of the five potentially fair reasons under section 98. The tribunal then considers whether the employer acted reasonably in treating that reason as sufficient to justify dismissal.

Conclusion

Section 98 Employment Rights Act 1996 provides the central legal framework for unfair dismissal in the UK. It imposes a structured two-stage test: the employer must establish a potentially fair reason and demonstrate that dismissal was reasonable in all the circumstances.

Correct identification of the statutory reason, a fair and proportionate process and clear documentation of decision-making are critical. Even where misconduct, capability concerns or redundancy genuinely arise, procedural failings or disproportionate outcomes can render a dismissal unfair.

Employers who understand how section 98 operates in practice are better placed to manage dismissal risk, comply with statutory obligations and defend tribunal claims effectively.

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