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Dismissing employees: key facts

Always take advice before dismissing employees. They could bring any one – or any combination – of the following three claims against you if you handle the dismissal badly.

1. Unfair dismissal

Grounds for the claim

A dismissal occurs when you sack someone, you fail to renew a fixed term contract on the same terms, or there is a ‘constructive dismissal’ (see below).

A dismissal is automatically unfair if it is for one of a number of prescribed reasons, including whistleblowing (also known as protected disclosure), health and safety activities, pregnancy, etc. For more information see our checklist circumstances when a dismissal is automatically unfair.

Otherwise, a dismissal is unfair unless you can establish that it was for one of the legal reasons justifying dismissal, and that you acted reasonably in dismissing for that reason. The reasons are:

  • The conduct of the employee.
  • The capability or qualifications of the employee. This is most likely to be relevant in cases of sickness or other long-term absence, or where the employee lacks the necessary skills or qualifications for doing the job.
  • Illegality. This might apply where, for example, someone has been employed to do something illegal, or is not legally entitled to work in the UK.
  • Redundancy.
  • ‘Some other substantial reason’. This means any other substantial reason which justifies dismissal — for example, pressure from a third party customer.

Note: the default retirement age has been phased out and employers can only compulsorily retire older workers where it can be objectively justified.

Even if the dismissal is justified under one of the reasons, it will still be unfair unless you followed fair and reasonable procedures. In most cases, this means a procedure that follows the provisions of the relevant Acas Code of Practice on disciplinary procedures.

If you unreasonably fail to follow the Acas Code of Practice, the Employment Tribunal has discretion to increase any compensatory award it makes against you by up to 25% (and to reduce it by up to 25% if an employee fails to follow it).

Constructive dismissal

Constructive dismissal is a form of unfair dismissal. It occurs when you as employer commit a ‘fundamental breach’ of the contract of employment — so fundamental that it is inconsistent with a continuing employer/employee relationship and looks as though you no longer intend to be bound by an essential part of your contract with your employee. Such a breach entitles the employee to resign but, because you put them in that position, the law allows them to treat themselves as having been dismissed, and claim against you for unfair dismissal.

Constructive dismissal might arise, for example, if you apparently arbitrarily cut an employee’s pay; or made it very obvious that you were demoting or undermining a manager; or you appointed someone to work in one place and then unilaterally demanded that they move to another. 

That said, such a change in pay or function would not necessarily be a constructive dismissal, particularly if you had exhausted all other avenues in trying to help the employee improve their performance. Much would depend on the facts.

Any employee who makes a complaint about constructive unfair dismissal to an Employment Tribunal is at risk of having any compensatory award made to them by the Employment Tribunal reduced by up to 25% if they have unreasonably failed to follow the relevant Acas Code of Practice on grievances.

If they have delayed filing a grievance, they are likely to be treated as having affirmed the contract. If they have not specified your alleged fundamental breach as the reason for resigning, at the time they resign, the Tribunal may doubt that it was the reason they resigned.

Be warned: Employment Appeals Tribunal (EAT) rulings have widened the definition of a grievance, so that it might, for instance, include a letter of resignation setting out the problem, a solicitor’s letter on the employee’s behalf, or even a manager’s typed-up and circulated record of a meeting at which an employee raised grievances. The employee is not required to follow the employer’s grievance procedure, and the word ‘grievance’ need not necessarily even be mentioned – indeed, in one case, a letter from an employee that expressly stated that he did not want to raise a formal grievance was subsequently held to be a grievance. However, unreasonable failure to follow the relevant Acas Code of Practice on grievances could result in any compensatory award made to them by the Employment Tribunal being reduced by up to 25%.

If a grievance is filed, and you unreasonably fail to follow the relevant Acas Code of Practice on grievances, the Employment Tribunal has discretion to increase any compensatory award made against you by up to 25%. You will have to establish that the dismissal, and manner of it, was reasonable and fair, like any other dismissal claim.

The qualifying period

In most cases employees cannot sue for unfair dismissal unless they have at least two years' continuous service with you, but in some cases employees can sue regardless of age or length of service. See our checklist ‘Circumstances when a dismissal is automatically unfair’. An unfair dismissal claim can be brought by any, subject to the length of service criteria.

What they can claim

An employee who alleges unfair dismissal can claim:

  • compensation
  • reinstatement
  • re-engagement

Compensation for unfair dismissal can include both a basic award and a compensatory award. Under new rules the basic award is £13,500 and the compensatory award is capped up to a maximum of either £74,200 or one year's gross pay and the fees which must be paid when an employment tribunal case is presented - whichever is the lower. The new cap will apply where the ‘effective date of termination’ (the date on which the employee’s notice expires, where employment has been terminated with notice) or the date on which termination takes effect (where employment has been terminated without notice) is after 29 July 2013. The basic award is worked out on the same basis as redundancy, ie it depends on the employee’s age, length of service and pay, and is calculated using the following starting point:

  • half a week’s pay for every year the employee was under 22
  • one week’s pay for each year in which the employee was between the ages of 22 and 40
  • one and a half week’s pay for each year in which the employee was 41 years old or more

The calculation of a week’s pay is subject to a statutory maximum (£450 per week), and no more than 20 years of service can be taken into account.

Alternatively, an employee might ask for either reinstatement (to their old job, as though they had not been dismissed), or re-engagement (to a different job with the same employer, or a successor or associated employer). In either case, their employment must be treated as continuous – ie as though they had not been dismissed at all.

2. Discrimination

Grounds for the claim

A dismissal is discriminatory if it is related to a protected characteristic your employee has or is thought to have (perception discrimination):

  • sex, or marital or civil partner status
  • colour, race, nationality or ethnic origin
  • disability
  • sexual orientation or gender reassignment
  • religious or philosophical beliefs
  • age

Discrimination can be direct, against a particular employee, or indirect, because a provision, criterion or practice discriminates against a particular group of employees compared to another group.

The qualifying period

There is no minimum service requirement.

What they can claim

There are no upper limits on the amount of the award.  An employee who wins on a discrimination claim might also be entitled to compensation for injury to feelings.

Employees subjected to discrimination can also bring claims against individuals, which could include you and/or your managers.

3. Wrongful dismissal

Grounds for the claim

This is likely where you have dismissed an employee (other than fairly, for gross misconduct):

  • without proper notice (ie you have either given less than the statutory minimum notice period, or less than the minimum stipulated in their contract of employment, if longer)
  • without pay in lieu of notice

You will not have to give employees pay in lieu of notice if you are dismissing them fairly, for gross misconduct.

If you do want them to leave immediately you should, ideally, have a provision in their contract of employment that entitles you to pay them off in lieu of notice. Without such a provision you are, technically, breaching their contract if you dismiss them with pay in lieu. This may prejudice you in enforcing any contractual obligations (such as restrictive covenants against working for competitors) subsequently.

Moreover, there is a risk that the courts will take a poor view of such a move, particularly if it appears to have been made with a view to cutting the period of employment short to the employee’s particular detriment.

The qualifying period

No minimum qualifying period of employment is required before an employee can claim for wrongful dismissal.

What they can claim

If employees have been dismissed wrongfully, they can claim damages from you to put them in the position they would have been if the breach had not occurred. Usually, this means a sum equal to salary and any benefits payable during the notice period.

If they believe they are entitled to more than an Employment Tribunal can award in such cases (currently £25,000), they can decide to take the claim to a civil court instead, where damages are unlimited. They cannot bring a claim in both.

They are expected to do all they can to limit their losses by seeking alternative comparable employment. In establishing the level of damages an Employment Tribunal takes into account (and if appropriate deducts) any money that they have earned from new employment during the notice period – although your obligation to pay damages for their dismissal does not end simply because your ex-employee finds a new job.

Time limits

If the claim is one that can be brought to the Employment Tribunal, it must be brought within three months of the date of dismissal or of the incident that forms the basis of the claim.

The Employment Tribunal has the discretion to extend time if the employee can show that it was not reasonably practicable to present the claim within the three-month period.

Time can also be extended in discrimination cases, when to do so would be ‘just and equitable’.

If the claim is one that can be brought in the civil courts (ie for wrongful dismissal), an employee has six years to make a claim there. The court has discretion to extend time in some situations.

Always take legal advice.