The Principle
The law provides protection for an employee from being unfairly dismissed from their job or
from being forced out of their work by the actions of their employer. To claim unfair dismissal,
the employer must have clearly terminated the contract of employment orally, in writing or by
conduct.
Where there has been no dismissal but the employer has acted so unreasonably as to force
the employee to resign their position, this is known as ‘constructive dismissal’ and the
employee may act as if dismissed by the employer. To claim constructive dismissal, the
employee must show that the employer has acted in serious breach of contract. A minor
breach is not enough. Examples of serious breaches would include imposing changes to
hours, pay or work location without the employee’s agreement, or being in serious breach of
the implied term of mutual trust and confidence. An employment tribunal will generally
expect the employee to have first exhausted all internal avenues of grievance with the
employer and not to have resigned as a first option. Constructive dismissal is a last resort
action.
‘Resign or be dismissed’ ultimatums resulting in a resignation would also be covered by an
application to a tribunal for constructive dismissal.
Finally, it should be noted that the non-renewal of a fixed term contract by the employer is a
dismissal and therefore can amount to an unfair dismissal. It is not possible for employees
employed under fixed term contracts to agree to waive their unfair dismissal rights.
Exclusion
Not all employees are protected from being unfairly dismissed. The employee must have
been employed for at least one year’s continuous service (but see automatic unfair dismissal
cases below). If the employee is excluded by reason of this, they will not be able to
challenge the unfairness of their employer’s actions whatever the circumstances. Their only
hope of redress will be a claim for breach of contract against the employer.
The Potentially Fair Reasons for Dismissal
The employee must first prove that they have been dismissed or constructively dismissed.
Once this is shown, the employer is then under a legal obligation to demonstrate that the
dismissal was for one of six permitted potentially fair reasons for dismissal. These reasons
may afford the employer a defence to their act of dismissal. They are:
1. Capability or qualifications.
2. Conduct.
3. Redundancy.
4. Statutory requirements.
5. Some other substantial reason.
6. Retirement.
Capability and qualifications
Generally ‘capability’ will include the following:
‘Qualifications’, on the other hand, includes any degree, diploma or other academic, technical
or professional qualification relevant to that person’s position as an employee.
Conduct
Misconduct is, for obvious reasons, a potentially fair reason for dismissal. The law supplies
no definition of ‘conduct’. However, it does include acts of gross misconduct, for example:
Conduct will also include acts of ordinary misconduct such as:
An act of gross misconduct and one of ordinary misconduct are, as the lists show, different in
nature. Gross misconduct is so serious that it acts to bring the contract to an immediate end
without warning or notice to the employee, provided always that they have had an
opportunity to defend their position against the initial allegation before the employer arrives at
their decision. In this regard, the employer will also need to ensure that there is compliance
with the statutory dismissal and disciplinary procedures. An act of gross misconduct will
therefore provide an employer with a potentially fair reason for dismissal.
Ordinary misconduct does not bring the contract to an immediate end. In order for the
employer to have a defence against dismissal for such conduct they must usually have
followed a fair disciplinary procedure in respect of warnings. In addition, prior to dismissal,
the employer will need to ensure that the statutory dismissal and disciplinary procedures
have been complied with. In practice, tribunals require the application of the ACAS Code of
Practice on Disciplinary and Grievance Procedures which requires the implementation of four
stages:
1. Informal action - counselling.
2. A formal written warning.
3. A final written warning.
4. Dismissal.
There should be an opportunity for the employee to state their case prior to the imposition of
each stage of the procedure and, prior to dismissal, the employer must comply with the
statutory dismissal and disciplinary procedures. Failure to follow a disciplinary procedure
may take away the employer’s defence of a potentially fair reason for dismissal. In addition,
if the statutory dismissal and disciplinary procedures have not been followed prior to
dismissal, this will render the dismissal automatically unfair if the employee has been
employed for one year or more. These matters are dealt with in more detail in the
Disciplinary Practice and Procedure section of Employment Law Online.
Redundancy
It is a potentially fair reason for dismissal where an employee’s contract has been terminated
because their job has diminished considerably or ceased to exist at their normal place of
work. Redundancy is covered in more detail in the Redundancy section of Employment Law
Online.
Statutory requirements
This potentially fair reason for dismissal is aimed at those situations where an employer has
to dismiss an employee because they are not able to continue in that job without
contravening some law. For example, a driver who loses their driving licence for a year
because of a drink- driving conviction will not be able to undertake driving duties for their
employer during that period of time.
Some other substantial reason
This fifth potentially fair reason was designed to be a ‘catch-all’ for those reasons that did not
fall neatly into the other categories but nonetheless should rightfully, on their facts, provide
the employer with a defendable position in law.
One common type of dismissal persistently presents itself within this group. That is, where an
employer reorganises their business and as a necessary part of that restructuring is forced to
impose contract changes on the employee i.e. the business reorganisation falling short of a
full blown redundancy but similarly being driven by economic factors. In such situations, to
dismiss an employee who refuses to accept such contract changes will be a potentially fair
dismissal ‘for some other substantial reason’.
Retirement
This sixth potentially fair reason applies from 1 October 2006. The provisions, introduced by
the Employment Equality (Age) Regulations 2006, are extremely complicated because they
provide that a retirement dismissal is not subject to the usual test of fairness for dismissal
which applies to the other potentially fair reasons. Instead, the Regulations set out a ‘duty to
consider’ procedure that employers must follow to effect a retirement dismissal and then they
set out a series of circumstances in which retirement is deemed to be the only reason for
dismissal. These are linked to the ‘duty to consider’ procedure.
Retirement will be taken to be the only reason for dismissal where:
Conversely, the Regulations set out the circumstances where retirement will not be held to
be the reason for dismissal. These are:
Finally, the Regulations provide for circumstances in which it will be left to the employment
tribunal to determine whether or not the reason for dismissal is retirement. These are:
Where retirement is held to be the reason for dismissal, if that dismissal has been effected in
accordance with the statutory ‘duty to consider’ procedure, it is automatically fair under the
rules. If the employer has, however, completely failed to notify or has failed to follow any part
of the ‘duty to consider’ procedure, then it will be automatically unfair.
If the reason for dismissal is found not to be retirement, the dismissal can be both age
discriminatory and unfair. In this case, the fairness of the dismissal will be considered under
the normal unfair dismissal provisions. This means the employer will need to show another
potentially fair reason for dismissal.
The Fairness of Dismissal
Where a dismissal falls within one of the categories of potentially fair dismissals, it is the role
of an employment tribunal to consider all the facts of a particular case and to determine
whether in all the circumstances the dismissal was fair and reasonable. The employer,
having dismissed an employee, will be under an initial burden to defend their action on the
basis of one of the potentially fair reasons for dismissal. Having done that, the tribunal will
then look into the following factors:
The tribunal must then ask itself whether, in accordance with equity and the substantial
merits of the case, it believes the employer acted reasonably or unreasonably in treating the
reason as a sufficient reason for dismissing the employee.
A dismissal can be unfair on substantive grounds, on procedural grounds or on both.
Capability and qualifications
For an employer to dismiss an employee on the grounds that they were incapable of
performing the tasks required of them, the employer must satisfy the tribunal that they
honestly felt this to be the case. The employer must adopt a fair procedure and, prior to the
decision to dismiss, that procedure must incorporate the requirements of the statutory
dismissal and disciplinary procedures. A fair procedure should include the following:
In addition, prior to any decision to dismiss the employee on capability grounds, the employer
must comply with the following statutory minimum procedure:
1. The employer must set out in writing the employee’s alleged capability problems
(including the grounds) which lead him to contemplate dismissing the employee. The
statement must be sent to the employee and the employee invited to attend a meeting to
discuss the matter.
2. The meeting must not take place until the employee has had a reasonable opportunity to
consider their response. After the meeting, the employer must inform the employee of
his decision and of the right to appeal against it.
3. If the employee wishes to appeal, they must inform the employer. The employer must
then invite the employee to attend an appeal meeting. After the appeal meeting, the
employer must inform the employee of his final decision
Dismissal of an employee for not having the required qualifications is rare, since the relevant
information should have been checked by the employer at interview stage. If an employee
misleads an employer at interview or within the job application in respect of qualifications and
the employer subsequently discovers the truth, the employee may reasonably be dismissed if
the required qualifications are essential for the performance of the job. If, however, during
the course of employment a qualification is taken away, the employee should only be
dismissed if it is not reasonable or possible to provide suitable employment in some other
capacity.
An employee may become incapable of working due to ill-health. Before dismissing an
employee who is ill, the employer is obliged to consider any medical evidence reasonably
available. Often this will necessitate requesting the permission of the employee to approach
their doctor or consultant for a report or asking the employee to undergo a medical
examination by an independent doctor appointed by the employer. The employee may
refuse permission, but if they do, the employer will be able to make a decision on their future
employment without the benefit of an expert medical opinion. This decision may not favour
the employee. Having obtained a report from the employee’s doctor or from an independent
doctor, the employer is in a position to make a reasoned decision as to the employee’s future
employment within their business. The employer must consider:
Finally, the employer should consult the employee fully before taking any decision to dismiss.
As a minimum, consultation will involve compliance with the statutory dismissal and
disciplinary procedures i.e.
1. The employer must set out in writing the employee’s long-term incapacity problems which lead him to contemplate dismissing the employee. The statement must be sent to the employee and the employee invited to attend a meeting to discuss the matter.
2. The meeting must not take place until the employee has had a reasonable opportunity to
consider their response. After the meeting, the employer must inform the employee of
his decision and of the right to appeal against it.
3. If the employee wishes to appeal, they must inform the employer. The employer must
then invite the employee to attend an appeal meeting. After the appeal meeting, the
employer must inform the employee of his final decision
Conduct
The procedural requirements which make dismissal for misconduct potentially fair are dealt
with in detail in the Disciplinary Practice and Procedure section. Briefly, dismissal for
misconduct must have been subject to the following:
In the case of an allegation of gross misconduct, the employer is still required to convene a
disciplinary hearing and comply with the statutory dismissal and disciplinary procedures. If
after that hearing the employer has an honest belief, based on reasonable grounds after all
reasonable investigation, that the employee did act as alleged, there may be a finding of
dismissal without notice on the ground of gross misconduct.
Redundancy
Redundancy is dealt with in detail in the Redundancy section. To summarise, for a dismissal
on the ground of redundancy to be potentially fair there must be:
A situation where the job at that place of work has diminished considerably or ceased
to exist.
The employer will also need to comply with the statutory dismissal and disciplinary
procedures.
Statutory requirements
The mere fact an employer may be able to show, due to contravention of law, they are no
longer able to employ a certain individual, will not absolve them from the responsibility of
following a fair procedure in implementing that dismissal. The procedure should include:
Some other substantial reason
As previously stated, a dismissal which habitually falls into this category is that involving a
business re-organisation and changes to the employee’s contract of employment. In this
case and in all the others within this category, formal procedures on consultation and
hearings are pre-requisites before the dismissal will be regarded as potentially fair.
Whatever the business needs of the employer, the tribunal will not accept that any situation
is so urgent that employees may be unfairly treated in substance or by the failure to observe
procedural fairness and principles of natural justice.
Depending on the circumstances of the case and the particular reason for dismissal, the
employer will usually also need to ensure compliance with the statutory dismissal and
disciplinary procedures.
Retirement
Retirement has already been dealt with above and is further discussed in the Discrimination
chapter.
There are a number of types of dismissal which fit within those categories of dismissal
deemed ‘automatically unfair’ dismissals. These will not allow the employer any defence at
all.
Those categories below marked by an asterisk ‘*’ have no one year service requirement.
Trade union membership and activity*
It is automatically unfair to dismiss an employee because they were, or proposed to become,
a member of an independent trade union. It is also automatically unfair to dismiss an
employee for refusing to become or to remain a member of an independent trade union.
Where an employee is dismissed for having taken, or having proposed to take, part in the
activities of an independent trade union, outside working hours or within working hours if
permitted by the employer, they will be deemed to have been automatically unfairly
dismissed.
Official industrial action*
The dismissal of an employee for participating in official industrial action will be automatically
unfair if it occurs during the first 12 weeks of such participation. A dismissal will also be
unfair after that period if the employer has failed to take reasonable procedural steps to
resolve the dispute.
There is no equivalent protection for employees participating in unofficial industrial action.
Where the action is unofficial, the employer has greater latitude under the law to selectively
dismiss and re-engage without penalty. This, in practice, will allow an employer to dismiss
the ring-leaders of the industrial action.
Pressure dismissals*
An employer who dismisses an employee because of pressure from a trade union, by way of
the threat of industrial action, will be dismissing that employee unfairly.
Assertion of a statutory right*
Where an employee seeks to assert a statutory right (for example, to demand a written
statement of particulars of employment or not to have unlawful deductions made from his
wages) and is dismissed, that employee will be deemed to have been automatically unfairly
dismissed. This prevents employers from dismissing employees if all they seek is the
enforcement of their statutory rights.
Pregnant employees*
To dismiss an employee solely because she is pregnant or for any reason predominantly
connected with her pregnancy or on grounds related to childbirth or maternity leave is an
automatic unfair dismissal. Employees also have the right not to be subjected to any
detriment or victimised for reasons related to pregnancy, childbirth or maternity.
Health and safety dismissals*
Employees are protected from dismissal where they:
There is no maximum compensatory award for health and safety-related dismissals.
op workers and Sunday trading*
From August 1994, the law has recognised the following types of shop worker in respect of
Sunday trading:
In brief, the protected shop worker is one who before that date was not employed to work
Sundays. Where the employee is asked to work Sundays and has no objection, by written
notice to the employer the employee thereby becomes ‘opted-in’ and no longer a ‘protected
shop worker’. The written notice to the employer must be signed and dated and clearly state
there is no objection to working Sundays. The employee is under no legal obligation to
comply with the employer’s request in such circumstances. The employee has freedom of
choice.
An ‘opted-out’ worker is one who is not protected but, in complying with similar formalities
above, has given their employer clear notice of their objection to Sunday working. To
prevent the disturbance to the employer that may ensue if employees were allowed to opt-in
and out with regularity, the employer may insist that for a period of three months after having
received an opting-out notice the employee undertakes Sunday work.
Every new employee has the right to receive from the employer an explanatory statement
that they may choose to work or not to work on Sundays. If the employee wishes to object to
Sunday work and does so within the first 8 weeks of service, the employer is discharged from
the obligation to provide an explanatory statement. In these circumstances workers who
object will become ‘opted-out’ shop workers. The right to work or not to work on Sundays as
a shop worker applies irrespective of length of service.
It is automatically unfair to dismiss a shop worker for refusing to work on a Sunday where
they are either protected or opted-out.
Dismissals on a transfer of an undertaking
Transfers of undertakings or business transfers are dealt with in the Transfer of Undertakings
section. To dismiss an employee further to a business transfer will be regarded as unfair.
The dismissal may be before or after the transfer date and the employer is only afforded a
defence if they can show that the reason for dismissal was either an economic, technical or
organisational reason which would necessarily lead to changes being required in the work
force.
National minimum wage dismissals*
It is automatically unfair to dismiss a worker simply because the employer does not wish to
pay the national minimum wage or because the employee has taken action to enforce their
rights to the NMW. In addition, if a worker is subjected to any detriment, such as hours being
reduced, they may bring a claim in the employment tribunal.
Public interest disclosure dismissals*
The Public Interest Disclosure Act 1998 protects employees who ‘blow the whistle’ about
wrongdoing. In certain circumstances, disclosures are protected and the employees who
make them similarly protected. Employees are protected from unfair dismissal and from
suffering any other detriment from their employer. Detriment may take a number of forms,
such as denial of promotion, facilities or training opportunities which the employer would
otherwise have afforded.
Certain kinds of disclosure qualify for protection, for example, where the employee
reasonably believes one or more of the following matters is either happening, took place in
the past, or is likely to happen in the future:
The reasonable belief held by the employee might be discovered subsequently to be, in fact,
wrong. This will not matter provided it was a reasonably held belief in the circumstances at
the time of disclosure and the disclosure was made in good faith. The employee may make
the disclosure to the employer or to a third party if they reasonably believed they would be
subject to a detriment by the employer if disclosure were made to them.
Employees protected by the provisions who have been dismissed or have suffered other
detriment can complain to an employment tribunal. There is no limit to the amount of
compensation that may be claimed for public interest disclosure dismissals.
Working time cases*
It is automatically unfair to dismiss an employee for refusing to forgo a right conferred on him
by the Working Time Regulations 1998 (e.g. the right to paid annual leave) or refusing to
comply with a requirement imposed on him by the employer in contravention of those
Regulations (e.g. refusing to work on average more than 48 hours per week). In addition, it
is also unlawful to subject an employee to a detriment for reasons related to those
Regulations.
Pension scheme trustees*
An employee’s dismissal is automatically unfair if the reason relates to the employee
performing his functions as a trustee of a pension scheme related to his employment.
Trade union recognition*
It is automatically unfair to dismiss an employee on grounds related to compulsory trade
union recognition or de-recognition and it is unlawful to take adverse action short of dismissal
on these grounds.
Dismissal for exercising right to be accompanied at disciplinary and other hearings*
An employer who dismisses an employee for exercising his statutory right to be
accompanied at a disciplinary or grievance hearing (or at another meeting to which the
statutory right to be accompanied applies, for example a retirement meeting), or for
accompanying another employee, will be dismissing that employee unfairly. An employee
also has the right not to be subjected to any detriment on these grounds.
Parental leave dismissals*
The dismissal of an employee for taking parental leave is automatically unfair and it is
unlawful to victimise him for reasons relating to parental leave.
Time off for family emergencies dismissals*
If the reason for dismissal relates to the employee exercising his right to time off to deal with
family emergencies, this is automatically unfair. In addition, it is unlawful to subject an
employee to a detriment for reasons relating to time off for family emergencies.
Employee representatives*
An employee’s dismissal will automatically be regarded as unfair if the reason relates to the
employee carrying out his functions as an employee representative on a transfer of an
undertaking or where the employer proposes to make collective redundancies or where the
employee is a negotiating or information and consultation representative under the
Information and Consultation of Employees Regulations 2004. It is also unlawful to subject
an employee to a detriment for reasons relating to being an employee representative.
Right to time off for study or training*
Regulations provide that employees who are aged 16 or 17 and who have not attained a
certain standard of achievement in their exams are entitled to be permitted by their employer
to take a reasonable amount of paid time off work to undertake study or training leading to a
relevant qualification. The provisions also apply to an 18 year old who is in the middle of his
study or training.
An employee’s dismissal for exercising his statutory right to time off for study or training is
automatically unfair.
Working tax credit cases*
It is automatically unfair to dismiss an employee because they qualify for working tax credit to
be paid through the payroll or because they took steps to enforce their rights in this regard.
Part-time workers*
It is automatically unfair to dismiss an employee because they have sought to exercise their
rights under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations
2000. The regulations provide that part-time workers should be treated no less favourably in
their working conditions than comparable full-time workers with the same type of contract.
Employees on fixed-term contracts*
It is automatically unfair to dismiss an employee because they have sought to exercise their
rights under the Fixed-Term Employees (Prevention of Less Favourable Treatment)
Regulations 2002. The regulations provide that fixed-term employees should be treated no
less favourably in their working conditions than comparable permanent employees.
Paternity or adoption leave dismissals*
If the reason for dismissal relates to the employee exercising his right to either paternity
leave or adoption leave, it is automatically unfair. In addition, it is unlawful to subject an
employee to a detriment because he sought to take either paternity or adoption leave.
Flexible working requests*
It is automatically unfair to dismiss an employee because he has made an application to
work flexibly under the statutory right to request flexible working arrangements. It is also
unlawful to subject an employee to a detriment on these grounds.
Statutory dismissal and disciplinary procedures
It is automatically unfair to dismiss an employee on the grounds of capability, conduct,
redundancy or non-renewal of a fixed-term contract without first complying with the statutory
dismissal and disciplinary procedures. The employee needs to have one year’s service in
order to bring a claim.
Jury service*
It is automatically unfair to dismiss an employee who has been summoned or is absent from
work to attend jury service. It is also unlawful to subject an employee to a detriment on these
grounds. Note that the protection against dismissal does not apply if the employer can show
that his business was likely to suffer substantial injury if the employee was absent, that the
employer had made this known to the employee and that the employee nevertheless
unreasonably refused or failed to apply to be excused from jury service or to have his jury
service deferred.
Written Reasons for Dismissal
Every employee who has at least one year’s continuous service with their employer and who
is dismissed, is entitled to request a written statement of reasons for that dismissal from the
employer. The employee may make their request orally or in writing and the employer must
comply with the request within 14 days. In addition, an employee who is dismissed during
pregnancy or maternity leave, irrespective of length of service, is entitled to a written
statement of reasons for dismissal without having to request it. The written statement is
admissible in evidence in any tribunal proceedings.
Should the employer refuse the request or supply inadequate or untrue reasons, the
employee may bring a complaint before an employment tribunal. The complaint may lead to
an award against the employer to pay the employee a sum equal to two weeks’ pay and a
declaration as to what the real reasons were for the termination.
Time Limits
An employee must bring their claim for unfair dismissal before an employment tribunal within
three months starting with the effective date of termination. The employment tribunal has
power to extend the time limit where they consider it was not ‘reasonably practicable’ for the
employee to present the complaint in time. In practice, it is rare for tribunals to grant
extensions of time on unfair dismissal applications.
Remedies for Unfair Dismissal
When an employee has succeeded in their claim for unfair dismissal, they are entitled to
choose whether they wish to return to the job or compensation. Returning to work is known
as reinstatement or re-engagement. The difference between the two is that reinstatement
provides return to the same job whilst re-engagement is the return to a comparable job.
Reinstatement
This is an order made by the tribunal that the employer shall treat the ex-employee in all
respects as if they had not been dismissed. The tribunal will consider:
In practice, the employer is entitled to object to an order being made and the tribunal will
consider evidence from the employer in respect of the following:
If the employer’s argument against reinstatement fails, the tribunal will clarify for the
employer and complainant:
Re-engagement
This order is one in which the employer is told to engage the complainant in a comparable
position to that from which they were originally dismissed. The tribunal will hear objections to
the order and take into account the points raised above. In addition to the clarification points
above, the tribunal will also clarify:
It should be noted that whilst a tribunal will consider the changed circumstances of the
employer post-dismissal, it will not allow the mere fact that the employee has been replaced
to provide a defence for the employer. That would make avoidance of reinstatement and re-engagement orders too easy.
Additional award
If the employer refuses to comply with an order for reinstatement or re-engagement, the
tribunal is empowered to make what is known as an additional award. This is an amount of
compensation of between 26 and 52 weeks’ pay up to a maximum of £350 per week (from 1
February 2009).
The additional award is made on top of the other awards, typically the basic and
compensatory awards.
Basic award
Where it is impractical to order reinstatement or re-engagement, the employee must look to
financial compensation. The first element of compensation will be the basic award which is
payable when there is a finding of unfair dismissal. The amount to which the employee is
entitled is dependent upon the following:
Calculation is made by taking into account a maximum sum of £350 per week (from 1
February 2009) and a maximum length of service of 20 years starting at the end of the period
of service and working backwards in complete years. The employee is entitled to:
The amount of the basic award may be further reduced in the following circumstances:
Compensatory award
The amount the tribunal may grant as a compensatory award may be anything up to a
maximum statutory ceiling figure of £66,200 (from 1 February 2009). In deciding how much it
should award, a tribunal will take into account several factors:
Other damages are assessed in accordance with their net value and include:
Awards are commonly in the region of £200 for loss of statutory rights.
As with the basic award, the compensatory award may be reduced by the tribunal. Factors
taken into account include:
In respect of whether or not the unfairness of the dismissal made any difference, this is
currently of less importance to the tribunal than it had been for some years. Tribunals will
look not at whether the failure to adopt a fair procedure made any difference to the decision,
but what would have happened if a fair procedure had been adopted.
Mitigation is an obligation on the employee, having been dismissed, to do everything
reasonably practicable to secure alternative work. In short, employees will be penalised by
the tribunal if they have not made reasonable attempts to obtain some suitable alternative
work. The burden of proving that the complainant has not made every effort to reasonably
mitigate their loss is on the employer. Should the employee incur necessary expenditure in
attempting to mitigate their loss (e.g. travel costs), such amounts are recoverable within the
compensatory award.
Where the complainant has received State benefits from the date of dismissal, the tribunal
must identify how much of the award covers lost earnings. This amount may then have
deducted from it the State benefit element which may be recouped by the State.
The order of deductions is as follows:
Note that the statutory maximum is only applied after all reductions have been made.
Interest on tribunal awards
Interest will accrue on awards made by an employment tribunal at the rate of 8% per annum
starting 42 days after the tribunal’s decision is despatched to the parties in the case. Interest
accrues on a daily basis. Awards of costs or expenses do not carry interest.
There are two forms of settlement acceptable in law.
ACAS settlements
Once proceedings have been issued before an employment tribunal, an ACAS officer will
become involved with the case in an attempt to resolve the dispute by settlement through
negotiation. Where agreement is achieved the details of the settlement are formalised in a
document drafted by the ACAS officer known as a COT3 form. COT3 settlements are
binding on both parties.
Compromise agreements
Where there is a dispute between employer and employee that could lead to proceedings
being issued, in certain circumstances their differences may be settled using the compromise
agreement facility. The compromise agreement is a simple means of resolving disputes but
a number of conditions must be satisfied. For the agreement to be valid in law it must:
If the conditions are satisfied the agreement will be legally binding on both parties and will act
as full and final settlement of the particular dispute.
Future Reform
The statutory dismissal and disciplinary procedures and the statutory grievance procedures,
and the current ACAS Code of Practice on Disciplinary and Grievance Procedures, are being
repealed in their entirety from April 2009, to be replaced with a less onerous regime based
on a brand new ACAS Code of Practice. Until April 2009 however, they will continue to
apply.
Summary
Capability or qualifications.
Conduct.
Redundancy.
Statutory requirements.
Some other substantial reason.
Retirement
Definition
Wrongful dismissal should not be confused with unfair dismissal. The latter is the statutory
right not to be dismissed unfairly. Wrongful dismissal derives from common law and is
where the employer decides to terminate the contract of employment by dismissing the
employee without notice. The employer is then in breach of contract and the employee may
claim damages for that breach.
Until relatively recently, a wrongful dismissal claim could only be brought before a county
court or High Court but it may now be brought as an action for breach of contract before an
employment tribunal. The amount claimed by the employee will determine which forum may
be used. In some cases the employee will have a choice.
AMOUNT IN DISPUTE TYPE OF COURT
Less than £25,000 Employment tribunal or county court
Greater than £25,000 County court or High Court
(it may be given fast track status subject to level of complexity)
In order to bring a claim the employee must be able to show that:
and
Where the employee has a choice of court or tribunal in which to bring their action they
should consider the advantages and disadvantages of each forum. If an employee brings a
wrongful dismissal claim in the county court or High Court they may utilise a number of
useful procedural devices which are not available in employment tribunals.
Summary judgment
An employee may apply for summary judgment in specific circumstances where they believe
the employer has no real defence to the claim. The result can be very quick payment for the
employee by order of the court or the employer being ordered to pay money into court as a
condition of being granted leave to defend. This becomes a very useful tactic for the
employee to apply pressure to pay on the reluctant employer. The court has the power to
strike out a so-called defence of its own volition. The claimant can simply write to the court
asking the District Judge to determine whether the defendant’s reply should be treated as a
defence. This is appropriate where the reply is an obvious play for time.
Interim payment
An employee may be able to seek an interim payment from the employer. This is possible
where the employee has a strong case for payment and financial hardship will ensue if
payment is unduly delayed. The three basic grounds on which an interim payment may be
claimed are where:
1. The employer has admitted liability but contests the amount of damages.
2. The employee has obtained judgment against the employer and damages are to be
assessed.
3. If the action proceeded to trial, the employee would obtain judgment for substantial
damages against the employer.
Counter-claim
The county court, High Court and employment tribunals all have a procedure whereby the
employer can put in a counter-claim. That is, the employer counter-claims that the employee
owes them money for some reason and so is himself in breach of contract. The
circumstances in which an employer can bring a counter-claim are more restricted in the
employment tribunal.
Employment tribunals
A wrongful dismissal claim of less than £25,000 before an employment tribunal also has
some clear advantages. The two main ones being a quicker hearing of the case and the
employee is unlikely to have an award of costs made against them in the event they are
unsuccessful. This latter point is significant since the other party’s costs could run into
thousands of pounds.
The employee must have been dismissed to claim wrongful dismissal. There are several
ways in which dismissal may be established.
Dismissal with notice
This is the most straightforward and is where the employer terminates the contract of
employment by giving the employee contractual notice or by complying with the statutory
minimum period of notice, whichever is the greater. It follows that any dismissal by the
employer, which fails to comply with either the contractual or statutory notice, is a breach of
contract and wrongful dismissal. Statutory minimum notice periods are set out in the
Contract of Employment section.
Where a contract of employment contains no provision for notice the court or tribunal is
entitled to impose what it determines is a reasonable period of notice. This may be greater
than the statutory period of notice.
For example, a salaried employee has been working for six months under a contract of
employment. The contract says nothing about the provision of notice. The employee is paid
regularly at monthly intervals. The employer terminates the contract and seeks to apply the
statutory minimum period of notice of one week. In this example, it may be possible for the
employee to bring an action for wrongful dismissal on the basis that by implication they are
entitled to one month’s notice by reference to their pay interval and level of pay. The
employee will be relying on the tribunal to agree that, on the facts, a reasonable period of
notice would have been one month.
This example is common in practice and in most cases the tribunal would find in favour of
the employee’s claim if for no other reason than the employer should be penalised for failing
to clarify the period of notice in the contract. Where the employee is particularly skilled,
highly paid or in a position of seniority, it is not inconceivable that the tribunal or court would
be prepared to imply a reasonable period of notice of three months to one year should the
contract be silent.
Dismissal without notice
Dismissal without notice may occur where the employee is allegedly guilty of:
In each of these cases the termination of employment without notice will be a summary
dismissal. Such immediate termination and the ability of the employer to implement such
action is a matter of common law. Put simply, it occurs when the employee has acted in
such a way as to completely undermine the relationship of trust and confidence between
themselves and the employer. The employee, by their act or omission, is often said to have
destroyed the contract of employment, rendering it inoperable from that point onwards.
Another way in which such acts are commonly described is to say the employee has acted in
repudiatory or fundamental breach of contract upon which the employer is entitled to
respond by imposing summary dismissal.
However, not just any breach of contract by the employee will give rise to summary
termination. The employer must always be able to justify the dismissal without notice. If the
employer fails to prove a repudiatory breach on the part of the employee, the employee may
claim they have been wrongfully dismissed and therefore entitled to claim damages for
breach of contract based upon the period of notice to which they are entitled under contract
or statute.
In bringing an action for wrongful dismissal in such circumstances, the employee is in effect
challenging the reason for summary dismissal. Any hearing must necessarily look at the
alleged fault by the employee to determine whether the employer’s response was justified. It
may be useful to consider the following:
Resignation by the employee due to the employer’s breach
If the employer acts in fundamental breach of the contract (for example, by failing to pay due
wages or salary) they will be acting in repudiatory breach of the contract of employment.
The employee then has a choice. They can continue with the contract and waive the right to
take action for the repudiatory breach, or they may resign and sue the employer for wrongful
dismissal as if they had been dismissed.
Typically the situation is this. The employee is under a contractual or statutory obligation to
provide notice of their intended resignation from their position with the employer. This
required notice may be one week, one month, three months or more, depending on the
nature and wording of the contract. For one reason or another, usually because the
employee has a better job to go to, the employee fails or refuses to give the employer the
required period of notice under the contract. This failure is a breach of contract on the part
of the employee. The employer may, in theory, bring an action for damages against the
employee. The employer would have to bring their action before the county court or High
Court since they have no jurisdiction to issue proceedings against an employee in an
employment tribunal.
In most cases, it is not in the employer’s best interests to sue the errant employee and
quantifying loss before the court in such circumstances can be difficult.
The employer cannot as a general rule restrain the employee from leaving inside the notice
period. What then, if anything, can an employer do against the employee? The answer is
that only in a limited number of cases, with exceptional facts, will the court be willing to
prevent an employee from leaving an employer in breach of contract. Such cases would be
where the employee is of significant importance to the employer, such as the editor of a
national newspaper. Even then, no court order will demand that the employee works out the
period of notice. Instead the employee is put on what is called ‘garden leave’. That is,
relieved of all duties and paid their salary at the normal interval for the duration of the notice
period they should have given under the contract. In return, for that period they are
restrained from taking up employment elsewhere.
There are many occasions where the employee is dismissed by the employer and instead of
being asked to work out the statutory or contractual period of notice they are paid ‘in lieu’ of
notice. The employee receives an equivalent sum of money to that which they would have
earned had they worked out the period of notice. Where this occurs, the general principle is
the employee will have no claim for wrongful dismissal. This is because the court will view
the payment in lieu as damages for wrongful dismissal, thus effectively taking away from the
employee a right of action.
It is important the employee is put in the same financial position they would have been in if
notice had been given. For example, if they have a company car for personal use, they
should be compensated for loss of that car during what would have been the notice period.
Two important aspects of this situation should be noted. Firstly, the employer can pay in lieu
of notice, whether or not this right is expressed in the contract of employment. Secondly, no
employee has the right to demand to work the period of notice. The reason the courts adopt
this approach is an unwillingness to force an employer or employee to work for or with one
another.
Where there is a right in the contract of employment for the employer to pay the employee in
lieu of notice, then the sum paid to the employee will be a payment made under the terms of
the contract and so be taxable and subject to National Insurance contributions. Where
there is no contractual right to pay in lieu, the sum paid is, as stated above, regarded as
damages for breach of contract. Since the employee is required to be put in the position
they would have been in had notice been properly given, the damages can be paid net by
the employer, equivalent to what they would have received had they worked the notice
period. However, it is common for employees to be paid in lieu of notice gross in these
circumstances and this is generally acceptable under Revenue & Customs’ rules although
each case should be checked with the Revenue in advance, particularly where there is a
custom and practice of paying in lieu in the absence of a contractual clause. In any event,
damages are taxable to the extent they exceed £30,000.
An employee may have within their contract of employment a number of restrictive
covenants with which they must comply in the event of termination of the contract of
employment. Examples are:
Other similar restraints may be agreed under contract. Should the employer wrongfully
terminate the contract of employment (for example, by paying in lieu in the absence of an
appropriate clause), their ability to impose such conditions subsequently upon the employee
may be in question. The principle applied by the court is that a wrongdoer, in this case the
employer who is in breach of contract, is not entitled thereafter to the support of the court in
respect of other contract terms and conditions.
Wrongful dismissal, being a claim for breach of contract, is subject to the normal contract
claim limitation. All claims in the county court and High Court must be brought within six
years of the breach of contract.
Where the employee brings his claim before an employment tribunal, he must present his
claim to the tribunal within three months starting with the effective date of termination or the
last day on which the employee worked for the employer. The employment tribunal has
power to extend the time limit where they consider it was not ‘reasonably practicable’ for the
employee to present the complaint in time. This will only apply in exceptional
circumstances.
Breach of contract claims may only be made to an employment tribunal where the
employee’s employment has terminated. Existing employees must therefore make such a
claim to the county court or High Court.
In theory, provided the employee is in no way excluded from bringing either action, they may
bring claims for unfair dismissal and wrongful dismissal at the same time. This can now
occur in two ways:
If both actions are before a tribunal the facts relating to each aspect of the claim will be
heard at the same time and a decision will be made by the tribunal on each in a single
judgment.
Where the wrongful dismissal claim is brought before the county court or High Court it is
usual for the employer to request that the tribunal proceedings are stayed (put on hold) until
the outcome of the wrongful dismissal action. Such a request will normally be granted. It is
a principle of law that the employee will not be entitled to recover twice for the same loss.
Any award made in a tribunal may be taken into account by the county court or High Court
and vice versa.
The employer may admit wrongful dismissal and wish to settle their dispute with the
employee rather than go to court. In respect of an action that may be taken in the county
court or High Court, the law provides that the parties can reach an agreement not to proceed
to court provided the employee is in receipt of ‘valuable consideration’. That is, some benefit
(usually financial but not always) must be granted to the employee by the employer in return
for the case being dropped.
The complicating factor is the emergence of employment tribunals in respect of wrongful
dismissal claims. Tribunal actions for wrongful dismissal can only be settled with certainty by
the intervention of ACAS and a COT3 agreement or by the parties implementing a statutory
compromise agreement. The latter requires procedural formalities and the requirement for
the employee to have independent legal advice (see the Unfair Dismissal section).
Generally, the employee is entitled to damages equal to wages or salary that they would
have earned if the employer had not prematurely terminated the contract of employment.
Additionally, the employee may claim any benefits in kind that would have been received
during the notice period had it been worked.
The period of time over which these entitlements are assessed is from the point of wrongful
termination to when the contract could have been lawfully terminated by the employer. In
most cases this will be no more and no less than the period of notice that should have been
given to the employee. In assessing the loss recoverable, the court will consider two factors:
Wages and salary
The amount of basic salary, whether expressly stated in the contract or included by
implication, will be recoverable. The most common and reliable method of calculating the
amount of basic salary over the period of notice is to assess the net salary over the relevant
period. This sum should then be ‘grossed-up’. The employee should receive the amount
remaining after tax and National Insurance liabilities have been deducted from the grossedup
sum. In many cases, this will amount to the net sum payable over the period. Social
security contributions received by the employee over the relevant period will be deducted
from the amount recoverable by order of the court.
Additional amounts
An employee may customarily or under contract be in receipt of payments over and above
that of basic salary. Such amounts can include:
The amount recoverable is based on the employer denying the employee the opportunity of
earning such payments. To evaluate this, the court will use:
In looking at commission, profit-related pay and bonus payments the court will not
necessarily assume that these would be payable in the amounts paid up until the date of
dismissal. It may be possible for the employer to show that their business is poor postdismissal
and that would have affected the amounts payable under such provisions - the
court will listen to this evidence. However, in most cases, the courts will look at past
payments and apply an average amount payable over the relevant notice period.
Depending on the wording of the contract of employment, many bonus payments are
discretionary by nature. If they are discretionary they will not be regarded as a contractual
entitlement and may therefore not be recoverable by the employee.
Holiday pay is another typical additional amount recoverable in wrongful dismissal actions.
The amount payable will depend on the terms of the contract and any statutory entitlement.
Generally, a contract will state the annual entitlement, for example, 28 days. To calculate
the entitlement the employee should divide the annual entitlement by 52 (representing the
weeks in one year). This figure is then the rate of weekly accrual. This weekly figure should
be multiplied by the number of weeks in the holiday year up to and including the date upon
which the contract would have ended had due notice been issued. Finally, any holiday taken
in that holiday year should be deducted, leaving the amount recoverable under the wrongful
dismissal action. This amount is recoverable net since it is a right derived under contract.
Benefits in kind
These will include:
The basis of calculating all these amounts is the net value to the employee for the duration
of the notice period.
Other losses
Another possible element of damages is the loss of the opportunity to bring a successful
claim for unfair dismissal. This may arise where, as a result of the wrongful dismissal, the
one year period of qualifying service is not attained, but would have been had due
contractual notice been given. However, as the law currently stands, employees cannot
circumvent the one-year qualifying period for unfair dismissal by claiming damages for ‘loss
of opportunity’ as part of a wrongful dismissal action.
A claim for damages may also include an amount to compensate the employee as a result of
the employer failing to follow a contractual disciplinary procedure. The employee will be able
to claim damages for the time it would have taken the employer to go through the
contractual procedure.
Losses not recoverable
Damages for mental stress, anxiety, inconvenience, injured feelings and frustration may not
be awarded in an action for wrongful dismissal. Compensation for the manner of dismissal
has no place in damages awarded in wrongful dismissal actions (nor indeed in unfair
dismissal actions). However, in very limited circumstances, damages for loss of reputation
may be recoverable.
Mitigation
The employee will be under a general duty to mitigate their loss. This includes actively
looking for alternative employment and not unreasonably refusing such employment should
the opportunity arise. The onus of proving the employee has failed to mitigate their loss is
on the employer. The duty to mitigate only begins once the contract has been breached by
the employer - even where the employer has indicated in advance that they will dismiss the
employee.
Moreover, the obligation to take reasonable alternative employment is more flexible towards
the employee than at first it may appear. For example, just because an alternative job offers
a similar wage or salary, this may not make it a suitable alternative position. The status and
responsibility offered by the new position are matters the employee is entitled to take into
account when making his decision to accept or reject the offer. On the other hand, to hold
out for exactly the same salary, status and responsibility in difficult economic conditions may
be regarded as a failure to make a reasonable effort to mitigate loss.
If a new position is secured, the employee will have mitigated their loss. This could be in full
or in part. The new job may be lower paid. As a general rule, the amount earned by the
employee in their new job will be taken into account by the court and deducted from the total
of the wrongful dismissal claim. The period between dismissal and new employment will
remain recoverable, as will any shortfall in wage or salary between the old and new job for
the duration of the notice period.
Unfair dismissal compensation
Rarely is the basic award for unfair dismissal deducted from the damages awarded for
wrongful dismissal. The compensatory award is a different matter. Amounts paid under a
compensatory award may be deducted in so far as they correspond to heads of damages in
the wrongful dismissal claim. This would mean that a certain proportion of the amount
awarded for loss of earnings or additional payment at tribunal may reduce the value of the
wrongful dismissal claim. In practice, this calculation, which requires a defined composition
of the compensatory award, is not easy.
Accelerated receipt
This is not applicable in the great majority of wrongful dismissal actions, for the simple
reason that most people’s entitlement to notice, whether contractual or statutory, is short. It
may apply to those employees who are entitled to a period of notice of say, one or two years,
and the court makes its decision and awards damages before the expiry of the period of
notice.
Accelerated receipt is a mechanism used by the court to reduce an amount of damages
awarded. It takes into account the possibility of occurrences that might affect employment
until the end of the stated period of notice such as death, medical incapacity or the employee
deciding to resign before the unexpired portion of the notice period. It also takes into
account that the employee will be receiving a proportion of wages as damages up front.
Investment of these funds will in itself create some wealth that would not have been possible
had the employee worked under contract. A normal rate of reduction is between 2 and 6 per
cent.
Injunctive Action
There may be occasions when the employee is not satisfied with claiming damages for
wrongful dismissal but wishes to restrain the employer from dismissing them. A possible
remedy would be an application to the court for an injunction to restrain the employer from
acting as they intend. The general rule is that injunctions for such matters are granted in
only exceptional cases. The reason being the courts’ reluctance to compel an employer to
retain an employee, since to do so may adversely affect commercial considerations and
result in conflict between the two parties. As stated above, an injunction sought by the
employer to restrain the employee from leaving inside the notice period is a similarly rare
occurrence but for different reasons.
The exception to the general rule against granting an employee an injunction is where it can
be manifestly proven that the relationship of trust and confidence between the parties is
intact and that damages in themselves would be an inadequate remedy. In addition, the
court will give consideration to the size and resources of the employer. Large organisations
and local authorities, for example, are more likely targets for a successful application for an
injunction by an employee wrongfully dismissed. The test applied by the court to an
injunction application is known as the ‘balance of convenience’. The court will look at:
Summary
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