Employment Law for Employers Q&A: Handling dismissals fairly

When that happens, the principle claim that employers will generally be looking to avoid is one of unfair dismissal.

Here, we look at some of the questions commonly asked by employers concerned about avoiding unfair dismissal claims:

Q. Who can claim unfair dismissal?

A. The right not to be unfairly dismissed only applies to ‘employees’ and not the wider category of workers or the self-employed.

Commonly, only employees with at least two years’ service have unfair dismissal rights, however there are some situations where these rights apply from the commencement of their employment.

The circumstances in which employees generally do not require two years’ service to bring an unfair dismissal claim include:

• Most cases of automatically unfair dismissal (see below).
• Dismissal relating to membership of the reserve forces.
• Dismissal relating to the employee’s political opinions or affiliations.

Q. What is a dismissal?

A. In order to bring a claim for unfair dismissal, the employee must first have been dismissed. A dismissal can happen in one of three ways:

• An express termination of the employment relationship by the employer.
• The expiry of a fixed term contract.
• Constructive dismissal.

Constructive dismissal occurs where the employee, without undue delay, resigns in response to the employer’s fundamental breach of an implied or express term of the contract of employment. The implied term of trust and confidence is one that is often alleged to have been breached by an employee claiming constructive dismissal.

Q. What is a fair dismissal?

A. A fair dismissal is one that is:

1. For a potentially fair reason; and
2. Where the employer acts reasonably in treating that as a sufficient reason for dismissal, taking into account all the circumstances (including the size and resources of the employer).

Q. What are the five potentially fair reasons for dismissal?

A. Fair reasons for the dismissal of an employee must fall into one of the following five categories:

• Capability or Qualifications.
• Conduct.
• Redundancy.
• Breach of a statutory duty or restriction.
• Some other substantial reason.

It is important for the employer to identify the reason for dismissing an employee at the time of the dismissal. It can sometimes fall into more than one category and so the employer should in those circumstances refer to each potentially fair reason that it is relying on.

Q. When is it considered reasonable for an employer to dismiss for a potentially fair reason?

A. In addition to establishing a potentially fair reason for dismissal, an employer must be able to demonstrate that it acted reasonably in dismissing an employee for that reason.

This means that the employer should:

1. Follow a fair procedure in dismissing the employee; and
2. Act reasonably in treating that reason as sufficient to justify dismissal.

The exact procedure to be followed varies depending upon the type of dismissal. However, all cases require the employee to be warned that they are at risk of dismissal and why; and to be given the opportunity to make representations before the decision to dismiss is taken.

Q. What are ‘automatically unfair’ dismissals?

A. There are some circumstances where dismissal will automatically be deemed to be unfair, no matter what procedure the employer follows. These include dismissals (or being selected for redundancy) for reasons connected to pregnancy or childbirth, whistleblowing, health and safety activities, exercising various rights to time off work, or asserting statutory rights under the Employment Rights Act 1996.

In many cases, an employee does not require two years’ service to bring a claim for automatically unfair dismissal.

Q. What compensation is an employee entitled to for an unfair dismissal claim?

A. While it is possible for an employee to seek re-instatement or re-engagement, the usual remedy sought by employees for unfair dismissal is compensation.

Compensation is generally divided into two parts:

1. A basic award; and
2. A compensatory award.

The basic award is calculated by reference to a statutory formula that is similar to that used to calculate statutory redundancy pay. There are however some situations where the basic award is subject to a minimum figure or where it can be reduced to reflect the employee’s conduct.

The compensatory award is mainly made up of the employee’s loss of earnings (including loss of salary, benefits and pension) for such period as the employment tribunal thinks fit, which can include future losses where an employee has not been successful in gaining alternative employment at a similar rate of remuneration by the date of the tribunal hearing. Losses claimed as part of a compensatory award are subject to the employee’s duty to mitigate their position by seeking other employment and in most cases, to the statutory limit on compensation, which is the lesser of one year’s gross pay or (for the tax year 2020/21) £88,519.

In cases where the claimant was dismissed (or selected for redundancy) for carrying out health and safety activities or for whistleblowing, there is no upper limit on the compensatory award.

The compensatory award may also be adjusted up or down by up to 25% where there has been a failure by the employer or employee respectively to follow the ACAS Code of Practice on Disciplinary and Grievance Procedures.

This article should not be relied upon as a substitute for professional legal advice. If you are an employer seeking legal advice on a particular matter or employment circumstance, please contact Peter Rolph by emailing [email protected] or by completing the form below. 

Useful links:

• ACAS Code of Practice on Disciplinary and Grievance Procedures (pdf)
• Employment Rights Act 1996 (GOV.uk)
• Calculate your employee’s statutory redundancy pay (GOV.uk)