An employer’s guide to dismissing lawfully

There are many reasons why employers may wish to dismiss individuals from their business, including misconduct, performance concerns or a downturn in work levels. Prior to dismissing an individual, an employer should determine what rights that individual has, both from a statutory and contractual perspective. 

Employment status and the qualification period 

Individuals enjoy differing levels of legal protection depending on their employment status. “Employees” have the highest level of rights and protection afforded by the law, including the right not to be unfairly dismissed. “Workers” do not have these rights but, for instance, have the right to paid holiday. Examples of workers include individuals providing services on a casual basis, agency workers, apprentices and fixed term workers. 

An employee must be employed for a period of two years before they can bring a claim for unfair dismissal unless the reason for the dismissal is deemed “automatically unfair” (see below).

What is a fair dismissal?

If an employee with over two years’ service is dismissed and seeks to bring an unfair dismissal claim, the employment tribunal will decide whether or not the dismissal was fair. A dismissal will be held to be fair if:

• the employer shows that the reason (or principal reason) for the dismissal was one of the five potentially fair reasons for dismissal (see below); and
• if in all the circumstances (including the employer’s size and administrative resources) has acted reasonably in treating that reason as a sufficient reason for dismissing an employee.

The reason for dismissal 

An employer can justify dismissing an employee if there is a potentially “fair” reason for dismissal. These are dismissals on the basis of:

• Conduct: for example, a single act of misconduct such as theft or dishonesty or a series of less serious acts, such as repeatedly disobeying reasonable orders.
• Capability or qualification: for example, poor performance, 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.
• Some other substantive reason (known as ‘SOSR’): This type of dismissal does not have a statutory definition but case law has developed to provide guidance on what type of reasons can be relied upon and when. Examples of dismissals that may fall under this provision 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. 

There are some reasons for dismissal which will qualify as being “automatically fair”. These include dismissal for the purposes 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

Once the employer has established a potentially fair reason for the dismissal, the employment tribunal must then decide if the employer acted reasonably in dismissing the employee for that reason.

Whether the dismissal is fair or unfair depends on whether in all the circumstances (including the employer’s size and administrative resources) the employer acted reasonably in treating that reason as a sufficient reason for dismissal.

This aspect of fairness is usually divided into two parts:

1. Did the employer follow a fair procedure? 
2. Did the employer act reasonably in treating the reason as a sufficient reason for dismissal?

Fair procedure

In order to act reasonably, an employer must follow a fair procedure when dismissing an employee.

Where no or an unfair procedure has been followed, an employer cannot argue that the dismissal is still fair because it would not have made any difference to the outcome of the situation. An unfair procedure = an unfair dismissal. However, if a dismissal is found to be unfair due to a procedural failing, an employment tribunal can reduce the amount of compensation to reflect the fact 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). 

Although the stages required in a fair procedure will vary (slightly) depending on the reason why the employer is considering dismissal, there are some principles of procedural fairness that apply to most cases. The 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.

Acting reasonably

The test as to whether the employer acted reasonably is an objective one. The dismissal must fall within a range of reasonable responses that a reasonable employer in those circumstances and in that business may have adopted. The size and resources of the employer is a relevant consideration in determining the range of reasonable responses. 

The objective test applies to both the employer’s decision to dismiss and the investigation that led to the outcome of dismissal. It is not the role of the employment tribunal to re-try the factual issues of the dismissal or substitute its views for that of the employer. The employment tribunal must instead assess the reasonableness of the employer’s conduct, as opposed to focussing on the employee’s guilt or innocence, and consider the dismissal in light of the facts known to the employer at the time of the dismissal. Assessing the reasonableness of an employer’s decision-making will also include considering whether the employer has complied with its own workplace policies (for example, a disciplinary policy) and whether it has maintained consistency in how it treats its employees for similar issues in the past. 

On occasion the employer’s actions may possibly aggravate, cause or contribute to the circumstances leading to the employee’s dismissal, for example, the conduct of other employees or decisions the employer has taken may have contributed to the employee suffering ill-health, poor performance, or led to a breakdown in trust and confidence. Where this has happened, the employer’s actions will not necessarily mean that the dismissal is unfair, but they will be a relevant factor for the employment tribunal to consider in deciding whether the decision overall was fair or unfair, and in serious cases might be the difference between the decision being in the range of reasonable responses (and therefore, fair) or outside that range (and therefore unfair). 

ACAS Code

The ACAS Code applies to disciplinary situations (including misconduct and poor performance dismissals but not redundancy or dismissals for ill-health). Where relevant, it must be taken into account by employment tribunals in deciding whether an employer has acted reasonably in relation to the procedure followed and 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 ACAS Code can affect the amount of compensation due as employment tribunals have the power to increase or decrease a compensatory award by up to 25% for a party’s unreasonable failure to comply with the Code.

Automatically unfair dismissal 

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. 

Automatically unfair reasons include dismissing an employee for the following reasons:

• 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.
• Whistleblowing.
• Asserting a statutory right, for example, challenging unlawful deductions from pay.
• Health and safety activities.

If an employee was dismissed for health and safety activities or for whistleblowing, there is no upper limit on the compensatory award. Otherwise the usual upper limit will apply (see below).

Dismissing in accordance with the employee’s contract 

If an employee is summarily dismissed, which will usually be limited to gross misconduct situations, they will lose their entitlement to a notice period or pay in lieu of notice (PILON). In virtually all other cases, dismissal should be in accordance with the employee’s contract. This means that the employer should ensure that the employee is given the requisite notice period or PILON. The notice does not need to be in writing unless the contract stipulates it must be.

If the notice period is not set out in the employment contract, it must be reasonable and in any event, not less than the statutory minimum, which is between 1 and 12 weeks 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. 

Remedies 

If an employee is successful in showing unfair dismissal, the employment tribunal can consider awarding a remedy, which includes re-instatement, re-engagement and compensation (in that order), as well as costs.

• “Re-instatement” 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, employment tribunals rarely award these remedies because there has often been a breakdown in the employer/ employee relationship and the employee does not wish to continue working for the employer. 

Employment tribunals usually award compensation only. Compensation is split into two types of awards:

1. Basic award: The basic award is designed 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. The basic award may be capped, subject to a minimum amount (for example, where the principal reason for a dismissal is trade union activities) or adjusted in certain circumstances. 
2. Compensatory award: This is a sum that the employment tribunal believes is just and equitable based on financial loss caused to an 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 employment tribunal may reduce the compensatory award if:

• the employee unreasonably failed to mitigate their losses;
• the employee would have been fairly dismissed anyway if a proper procedure had been followed, or at a later date for another reason (e.g. there has been a redundancy situation in the meantime); and/ or
• the employee’s conduct contributed to the dismissal.

As stated above, the employment tribunal may also adjust the award, before applying the statutory cap, by up to 25% if it deems that any failure to follow the ACAS Code by either party was unreasonable.