By law, to fairly dismiss an employee you must show that you have a valid reason that you can justify and that you acted reasonably in all the circumstances.
Under section 98 of the Employment Rights Act 1996 (the 1996 Act) there are various valid reasons for terminating employment. These include:
- Conduct or
- Breach of a statutory restriction
- For some other substantial reason
Dismissal of employment due to redundancy
There are many reasons why a business may need to reduce the number of employees. This can be because of a reduction in workload, a change in the type of work available, a change of location or where the business is closing down.
Redundancy as a form of dismissal is fair in most cases, as long as there is a genuine reason for the redundancy and a fair selection process has been followed. This could be based on the following criteria:
- An employee’s skills, qualifications and/or aptitude
- An employee’s standard of work and/or performance
- An employee’s disciplinary and/or attendance records.
However, you cannot select an employee for redundancy in any way that would directly or indirectly discriminate against certain individuals or groups of individuals by reason of a protected characteristic. This could include things like age, disability sex, race, religion or belief.
This means that you may need to discount things like maternity-related absences so as to avoid indirectly discriminating against women. You should also be careful about using the last-in-first-out method, as this can negatively impact on young workers who are likely to have a shorter service than older workers.
Termination by reason of capability
Termination because of conduct
Misconduct issues could include things like persistent lateness or unauthorised absences from work, while performance issues could include an inability to keep up with important changes to their job or to get along with work colleagues.
That said, unless any misconduct or performance issues are especially serious, you will need to give an employee the opportunity to change their behaviour or the chance to improve their performance prior to making any decision to dismiss. You may also need to provide suitable training.
In some cases, however, the misconduct may be so serious so as to justify summary dismissal. This is known as gross misconduct, where terminating employment without notice, or pay in lieu of notice, can be lawful, as long as you follow a fair process and there is clear evidence to support your finding.
Gross misconduct can include things like theft, fraud, use or threats of violence, breaches of health and safety, or serious insubordination in the workplace.
Dismissal due to a breach of a statutory restriction
This reason is rarely used when terminating employment but can be necessary where continuing to employ someone would mean that you are breaking the law. For example, where a HGV driver has lost their licence or where an employee’s work visa has expired, it would be illegal to carry on employing them.
You must, however, still follow the necessary dismissal process for it to be fair to dismiss an employee based on breach of a statutory restriction.
Some other substantial reason
The concept of “some other substantial reason” is a statutory catch-all provision under the 1996 Act that allows an employer to fairly dismiss an employee in circumstances where no other potentially fair reasons apply.
That said, this phrase is not statutorily defined, so whether or not your reason for dismissal falls within its scope will depend on the facts of each case. It cannot be anything frivolous or insignificant, rather it must be something “substantial”.
A good example would be where your business has recently undergone a restructure or reallocation of work patterns, but this does not give rise to an actual redundancy situation because there is no reduction in the number of roles available or the work to be undertaken.
Other reasons that could be regarded as substantial are a significant conflict of interest or where an employee does not agree to reasonable changes to their employment terms and conditions.
Dismissal due to illness
It is possible to fairly dismiss an employee by reason of a longstanding illness or prolonged absence through sickness where this has affected their ability to do their job or has made it impossible for them to do their job at all.
However, where a capability issue is linked to someone’s physical or mental health, dismissal should be used as a last resort after exploring ways in which you can help the employee to do their job. This could include arranging an occupational health assessment to determine what, if any, reasonable adjustments can be made to assist them, such as a phased return to work, amended duties, altered hours or workplace adaptations.
Dismissal because of a long-term disability may be unlawful discrimination, and terminating employment by reason of a disability could be classed as unfair. However, if an employee cannot do their job because there are no reasonable adjustments that can be made by you to remove any disadvantage suffered by them, it may be fair for you to dismiss them, even if they are disabled.
What is a fair procedure for termination of employment?
Where you are looking to establish a fair dismissal, you must not only show that you have a valid reason for the dismissal, but that you acted reasonably in all the circumstances. There is no legal definition of “reasonableness”, but the following factors may determine whether a dismissal was fair:
- Whether the reason you gave for the dismissal was the real one
- Whether you genuinely believed that the reason was fair
- Whether you carried out proper investigations where appropriate
- Whether you followed the relevant procedures
- Whether you have behaved consistently, for example, by not dismissing an employee for something that others have been allowed to do
- Whether you gave the employee plenty of warning about the possibility of dismissal
- Whether you told the employee why they were being considered for dismissal and listened to their views
- Whether you allowed the employee to be accompanied at any disciplinary or dismissal hearing(s)
- Whether you gave the employee the opportunity to appeal
As a matter of best practice, in cases of conduct or capability matters, you should always refer to the guidance set out under the ACAS Code of Practice on Disciplinary and Grievance Procedures. This involves a variety of steps that must be taken before making any decision to dismiss, including written warnings and suitable training, where appropriate.
Although any failure to follow the Code of Practice will not, in itself, make you liable to proceedings, nor does it automatically make any dismissal unfair, an employment tribunal can increase any award of damages made against you by up to 25% for any unreasonable failure to follow this guidance.
Even in circumstances where an employee is potentially guilty of gross misconduct, a full investigation and fair disciplinary procedure should still be followed, providing the employee with an opportunity to respond before terminating their employment without notice.
When terminating employment by reason of redundancy, this can only take place after the appropriate consultation process has been followed. This will allow you to respond to any representations made or objections raised by employees and/or their representatives, and to consider any reasonable alternatives to dismissal. Where you are making 20 or more employees redundant within any 90-day period you must also follow the collective consultation rules.
What notice should be given when terminating employment?
When terminating employment you must provide the employee with a minimum period of notice. This can be either statutory or contractual.
The minimum statutory notice you can give is one week’s notice if the employee has worked for you continuously for one month or more but for less than 2 years, with one additional week for each complete year of employment up to a maximum of 12 weeks. For example, for 2 years continuous employment the notice period will be 2 weeks.
If the contract of employment provides for a longer period of notice you must provide the employee with this period instead. Alternatively, where permitted within the contract, you can give them pay in lieu of notice. The only exception to this is where you can justify summary dismissal for gross misconduct.
In circumstances where you fail to give an employee the correct notice, or pay in lieu of notice, this will amount to wrongful dismissal. This is essentially where you break the terms of an employee’s contract during the dismissal process by failing to provide them with what they are contractually or statutorily entitled to.
Terminating employment within a 2-year period
Employees can only usually claim unfair dismissal if they have worked for you for a qualifying period of 2 years. In theory, this means that you can dismiss any employee without having a valid reason to do so in circumstances where they have accrued less than 2 years continuous service.
However, where you have written dismissal procedures in place that form part of the employee’s contract of employment, you must still adhere to these procedures otherwise risk being in breach of contract. It is also good practice to follow a fair procedure as set out in the ACAS Code of Practice, giving the employee an opportunity to state their case and appeal any decision.
In some cases dismissals will be classed as automatically unfair for which no qualifying service period is required. Terminating employment will be automatically unfair if the reason for dismissal is connected with an employee exercising any of their rights relating to:
- Pregnancy, including all reasons relating to maternity
- Family reasons, including parental, paternity and adoption leave, or taking time off for dependants
- Acting as an employee or trade union representative
- Joining or not joining a trade union
- Being a part-time or fixed-term employee
- Pay and working hours, including the Working Time Regulations 1998, annual leave and the National Minimum Wage
- Whistleblowing, ie; reporting wrongdoing at work
Terminating employment during a probationary period
It is normally open to an employer to terminate employment during a probationary period, unless the employee’s contract expressly states that this is prohibited. However, this type of contractual provision is rare as the probationary period is primarily designed to assess an individual’s capabilities before making them a permanent member of staff.
Provided that there is no such clause, you can lawfully bring the employment contract to an end, although you should still provide the employee with an opportunity to respond to any performance or conduct issues relating to their proposed dismissal. You will also still need to give the employee any statutory or contractual notice to which they are entitled.
This means that if an employee has worked for you for one month or more, you must give them at least one weeks’ notice. Only in cases where an employee has committed an act of gross misconduct can you dismiss them without any notice.
Dismissals and terminating employment contracts can be challenging for employers, and if not handled as required by law, you could face repercussions such as claims for unfair dismissal.
DavidsonMorris’ employment lawyers can help with all aspects of employment contracts, including terminations. We bring extensive experience in advising employers on employee exits in all circumstances, from redundancy to performance management, long term sickness absence and more. Working closely with our HR specialists, we offer a holistic advisory and support service for employers encompassing both the legal and people management elements of contract terminations. Speak to our experts today for advice.
Termination of employment FAQs
What are the fair reasons for dismissal?
Under the Employment Rights Act 1996 the fair reasons for dismissal include redundancy, capability or conduct, or where continued employment would contravene the law. There could also be some other substantial reason of a kind that justifies the dismissal.
How much notice do you have to give to terminate a contract?
To lawfully terminate a contract of employment you must provide the employee with a statutory or contractual period of notice, whichever is longer. The minimum statutory notice you can give is one week’s notice if the employee has worked for you continuously for between one month and 2 years.
What is unfair dismissal?
An unfair dismissal is one that falls outside one of the fair reasons for dismissal. These reasons include redundancy, capability or conduct, breach of a statutory restriction or some other substantial reason. To qualify for unfair dismissal an employee must usually have 2 years continuous employment, unless the reason for dismissal was automatically unfair.
Last updated: 18 April 2020