Employers guide to dismissing employees
By Joanne Hue, Updated: 2023-03-16 (published on 2022-03-17)
There could be numerous reasons for the dismissal of an employee by the employer, including misconduct, performance, or substandard delivery of work. However, an employer has to determine the rights of an employee before dismissing them from their position. The rights should be determined both from a statutory as well as contractual perspective.
Employment status and the qualification period
The law provides different levels of protection to employees depending upon their employment status. The employees have the highest level of rights and protection as provided by the law, including their right to not be unfairly dismissed. These rights are not available to workers, but they do have a right to get holiday pay.
Workers include individuals who provide services on a casual basis, agency workers, apprentices, and fixed-term workers.
To bring a claim for unfair dismissal, an employee must be employed for a period of two years unless the reason for the dismissal is deemed automatically unfair.
What is a fair dismissal?
When the employee has served more than two years in employment and has been dismissed and brings a claim of unfair dismissal, it will be decided by the employment tribunal whether or not the dismissal was fair. The dismissal will be held to be fair where, the employer shows that the dismissal was due to one of the following reasons:
- Conduct of the employee such as an act of misconduct like theft or dishonesty, or a series of less serious acts like disobeying reasonable orders repeatedly.
- Capability or qualification of an employee, for example: ill health or lack of formal qualifications;
- Redundancy, this includes workplace closure, business closure or reduced need for employees;
- Illegality, which means that continuing to employ the individual would contravene a statutory restriction, for example, because they are no longer able to work in the UK due to their immigration status; or
- Some other substantive reason (known as ‘SOSR’). There is no statutory definition for this type of dismissal but the cases have developed over a period of time to provide guidance on the reasons which can be relied upon and when can be relied upon. The examples include a failure to agree to a change in contract, breakdown in trust and confidence or personality clashes, particularly if this is with a client.
If the employer has acted reasonably in all circumstances, these reasons are sufficient to dismiss an employee.
Some reasons for dismissal are considered to be automatically fair. It includes dismissal for the purpose of safeguarding national security; participation in unofficial industrial action and participation in official industrial action where the employer is dismissing all participants.
Reasonableness of dismissal
Where a potentially fair reason for the dismissal has been established by the employer, the employment tribunal must decide whether the employer has acted reasonably in dismissing the employee. The fair or unfair dismissal of an employee depends upon whether the employer has acted reasonably in all circumstances in treating that reason as a sufficient reason for dismissal.
This aspect of fairness is usually divided into two parts:
- Whether a fair procedure has been followed by the employer.
The employer must follow a fair procedure in order to act reasonably when dismissing an employee. Where an unfair or no procedure is followed, the employer can’t argue that the dismissal of an employee is fair. The unfair procedure is equal to unfair dismissal. However, due to a procedural failing, the dismissal is found to be unfair, the amount of compensation can be reduced by the employment tribunal to reflect that there would have been a dismissal if a fair procedure had been followed. This is often referred to as a ‘Polkey deduction’ (by reference to the name of the landmark case from which the principle derives).
Some principles of procedural fairness apply to most of the cases which suggests that an employee:
- Should know the allegation/evidence against them or the reason why their employment is at risk;
- Should know that they are at risk of dismissal;
- Should be allowed to make representations (usually at a meeting or hearing); and
- In some cases, should also be allowed a right of appeal.
- Whether the employer acted reasonably in treating the reason as a sufficient reason for dismissal.
The test as to whether the employer acted reasonably is an objective one. The dismissal of an employee must fall within reasonable circumstances that a business would have adopted during that situation. The resources and size of the employer play a relevant role while considering the reasonableness of the dismissal. The objective test applies to both the employer’s decision to dismiss and the investigation that led to the outcome of dismissal.
The employer tribunal is not required to retry the factual issues of the dismissal or substitute its views for that of the employer. Instead, the employment tribunal is required to assess the reasonableness of the employer’s conduct, as opposed to focussing on the employee’s guilt or innocence, and consider whether the dismissal was fair owing to the facts known to the employer at the time of the dismissal.
In assessing the reasonableness of an employer’s decision-making, the tribunal will emphasize whether the employer has complied with its own workplace policies (for example, a disciplinary policy) and whether it has maintained consistency in dealing with similar issues on previous occasions.
Further, the employer’s action may possibly cause, aggravate or contribute to the circumstances leading to the employee’s dismissal. Such instances include the conduct of other employees or decisions the employer has taken that may have contributed to the employee suffering ill-health, poor performance, or led to a breakdown in trust and confidence. These instances will be taken into consideration by the employment tribunal on considering whether the dismissal of the employee was fair or unfair.
The ACAS Code applies to disciplinary situations (including misconduct and poor performance dismissals but not redundancy or dismissals for ill-health). The employment tribunal must take this into consideration while deciding whether an employer has acted reasonably in relation to the procedure and followed any warnings given prior to dismissal.
The Code sets out practical steps and principles in respect of how an employer can handle disciplinary and grievance situations. In brief, employers should investigate the issues, inform the employee of the issue in writing, conduct a disciplinary hearing or meeting with the employee and inform the employee of the decision.
As well as affecting the fairness of the dismissal, the amount of compensation can be impacted by the ACAS Code. In order to comply with the code, the employment tribunals have the power to increase or decrease a compensatory award by up to 25% for a party’s unreasonable failure.
Automatically unfair dismissal
As mentioned above, the two-year continuous service qualification period does not apply for claims of unfair dismissal which are deemed to be because of an automatically unfair reason. The following reasons are automatically unfair reasons including dismissing an employee:
- Pregnancy including all reasons relating to maternity, for example, attending anti-natal classes;
- Family reasons including parental leave, paternity leave (birth and option), adoption leave, or time off for dependants;
- Representation including acting as an employee representative;
- Trade union membership and on the grounds of union recognition;
- Part-time and fixed-term working;
- Pay and working time hours including aspects covered under the Working Time Regulations, annual leave, and the National Minimum Wage, for example, dismissing an employee for refusing to opt-out of the 48 hour week;
- Asserting a statutory right, for example, challenging unlawful deductions from pay; and
- Health and safety activities.
There is no upper limit on the compensatory award where an employee was dismissed for health and safety activities or for whistleblowing. In other cases, the usual upper limit will apply.
Dismissing in accordance with the employee’s contract
In case of summary dismissal of the employee which is usually limited to gross misconduct situations, their entitlement to a notice period or get paid in lieu of notice (PILON) is lost. In all other cases, the dismissal of an employee should be in accordance with the employment contract. This means that the employer should ensure that the employee is given the requisite notice period or PILON. It is not necessary for a notice to be in writing unless the contract stipulates it must be. Where there is no notice period set out in the contract, it has to be reasonable and in any event, should not be less than the period allowed by the statute, which is dismissing employees within 12 months depending on the employee’s length of service.
Dismissal and post-termination restrictive covenants
If the employer dismisses an employee in breach of contract, it will lose the benefit of any post-employment restrictions in the contract, for example, a restriction on the employee working for a competitor or contacting the employer’s clients.
Examples of breaches could be, for instance, failing to provide adequate notice where the dismissal was not for gross misconduct. The employee could also bring a claim of wrongful dismissal.
Where an employee is successful in showing that the dismissal was unfair, an award of a remedy can be considered by the employment tribunal which includes reinstatement, re-engagement, and compensation (in that order), as well as costs.
- Reinstatement is where the employer is required to treat the employee as if they had never been dismissed.
- Re-engagement is where the employer is required to provide suitable employment to the employee.
However, these remedies are rarely awarded by the employment tribunals because there has often been a breakdown in the employer/employee relationship and the employee does not wish to continue working for the employer.
The compensation is the only usual remedy awarded by the employment tribunals. Compensation is divided into two types of awards:
- Basic award – This award is basically awarded to compensate an employee for loss of job security and is calculated in the same way as the statutory redundancy payment according to a formula based on the employee’s age, length of service, and weekly pay. The maximum that can be awarded is 30 weeks’ pay, subject to the statutory limit of a week’s pay. Subject to a minimum amount, the basic award may be capped or adjusted in certain circumstances.
- Compensatory award – Such award is generally awarded where the employment tribunal believes is just and equitable based on the financial loss caused to the employee by the dismissal. This may include salary, pension, and other benefits lost until an employee obtains new employment or until such time the employment tribunal considers just and equitable. Compensatory awards are subject to a statutory cap, which is the lower of a numerical cap (revised every year) or 52 weeks’ gross pay. The statutory cap for the compensatory award does not apply to dismissals which are automatically unfair for whistleblowing or health and safety reasons.
The amount of compensation award may be reduced by the employment tribunal if:
- Unreasonable failure by the employee to mitigate their losses;
- If a proper procedure had been followed, the employee would have been fairly dismissed anyway or at a later date for another reason (e.g. there has been a redundancy situation in the meantime);
- The conduct of an employee contributed to the dismissal.
As stated above, before applying the statutory cap, the award may be adjusted by the employment tribunal by up to 25% if it deems that any failure to follow the ACAS Code by either party was unreasonable.