A Guide to Unfair Dismissal

Only employees have the right not to be unfairly dismissed. The right does not extend, for example, to people who are self-employed, independent contractors, members of the armed forces or workers employed under an illegal contract – e.g. a bar person under the age of 18.

Unless a dismissal is 'automatically unfair', an employee must have completed a qualifying period of two years' continuous service for their employer before they are eligible to submit a claim for unfair dismissal to an Employment Tribunal (ET).

A dismissal is classed as automatically unfair, regardless of the reasonableness, if it was for certain specific reasons or the reason for it was that the employee was seeking to exercise certain specific employment rights. These include:

• pregnancy, including all reasons relating to maternity;
• family, including taking parental leave, paternity leave, adoption leave or time off for dependants;
• discrimination – i.e. because of an employee's race, sex, age, disability, religion or belief, sexual orientation or because of gender reassignment, marriage or civil partnership;
• being a part-time or fixed-term employee or seeking to exercise the attached employment rights;
• membership of a trade union and/or trade union activities;
• carrying out health and safety duties;
• making a protected disclosure (whistleblowing);
• requesting to be paid the National Minimum Wage; and
• acting as an occupational pension scheme trustee.

A dismissal will also be automatically unfair if the reason, or principal reason, for it was a transfer to which the Transfer of Undertakings (Protection of Employment) Regulations 2006 apply or a reason connected with the transfer but which was not an economic, technical  or organisational reason entailing changes in the workforce.

In other cases, a dismissal is fair or unfair depending on the employer's reason for it and how the dismissal process is conducted.

There are five potentially fair reasons for dismissal, which are set out in Section 98(2) of the Employment Rights Act 1996 (ERA). These are:

• the employee's conduct;
• the employee's capability or qualification;
• redundancy;
• where continued employment would be a breach of a statutory restriction; and
• some other substantial reason of a kind such as to justify dismissal.

It is up to the employer to prove that the reason given for the employee's dismissal falls within one or more of these potentially fair reasons. If it cannot do so, the dismissal will be unfair.

Where the employer has demonstrated that the reason for an employee's dismissal was a potentially fair reason, the ET will then consider whether, in the circumstances (taking into account the size and administrative resources of the business), the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee (Section 98(4) ERA). This is called the 'range of reasonable responses' test, whereby the ET examines whether or not the decision to dismiss is one which a reasonable employer could have reached in the given situation. If it is, the dismissal is fair. In reaching its decision, the ET must examine the facts and not substitute its own views for those of the employer.

The procedure to be followed in order to ensure that a dismissal that is for a potentially fair reason is lawful will vary depending on what the reason is. The dismissal may still be unfair if there are procedural defects, for example failing to carry out a proper investigation before dismissing an employee for gross misconduct. Also, a final warning given in bad faith cannot be relied upon when assessing whether or not there was sufficient reason for dismissing an employee.

Where appropriate, it is important that the employer follows the Advisory, Conciliation and Arbitration Service (Acas) Code of Practice on Disciplinary and Grievance Procedures, which sets out the basic principles of fairness that should be adhered to when dealing with disciplinary and grievance matters, providing the standard of reasonable behaviour in most instances. Disciplinary situations include misconduct and/or poor performance, although an employer may prefer to have a separate procedure for dealing with capability issues.

Whilst a failure to follow the Code does not, in itself, make an employer liable to proceedings, the ET will take it into account when considering relevant claims. An ET can also adjust any compensation award made by up to 25 per cent if it feels that an employer has unreasonably failed to follow the guidance provided.

The Acas Code does not apply to dismissals due to redundancy or the non-renewal of fixed-term contracts on their expiry. Whilst redundancy is a potentially fair reason for dismissal, a redundancy dismissal may be found to be unfair – for example if a particular employee is unfairly selected for redundancy. Where the decision to make someone redundant follows the reasonable application of a fair process, however, it will not normally be open to question.

Where an employer wishes to terminate an employee's employment prior to the end of a fixed-term contract, the ordinary rules governing dismissal should apply. The termination should be treated in the same way as terminating a permanent contract. Where the dismissal is related to performance or conduct, the Acas Code should be followed. If it is by way of redundancy, consultation should be undertaken as appropriate.

In all circumstances, dismissing an employee should normally be the last resort. The employer should carry out a thorough and balanced investigation in a timely manner in order to establish the facts on which to base any decision. Employees should be kept informed at all stages and made aware of their respective rights. In order to ensure that a fair and consistent approach is followed, clear written rules and procedures should be made available to employees and steps taken to ensure that these are well understood by employees and managers.

If an employee succeeds in their claim of unfair dismissal, the ET can order reinstatement or re-engagement. However, the normal outcome is an award of financial compensation made up of a 'basic' award, to reflect the fact that the claimant has been unfairly dismissed, and a 'compensatory award' that the ET deems just and appropriate in the circumstances. The basic award is calculated based on the claimant's pay as at the effective date of termination, length of service and age, with a maximum amount of a week's pay currently set at £489. The compensatory award is intended to put the claimant in the same financial position as they would have been in had they not been unfairly dismissed. Reductions to the award may be made if, for example, the claimant has failed to mitigate his or her loss or failed to comply with the Acas Code of Practice. The compensatory award is subject to a cap of 12 months' pay where this is less than the statutory maximum amount of £80,541.

From 6 April 2016, the Small Business, Enterprise and Employment Act 2015 introduced a new penalty for employers that fail to pay employment tribunal awards or settlements reached through Acas in the hope that this will improve compliance. Where the amount due remains unpaid, an enforcement officer will issue a 'warning notice'. If the employer fails to pay by a specified date, a penalty of 50 per cent of the relevant amount will be imposed, subject to a minimum of £100 and a maximum of £5,000. The penalty will be reduced if payment is made promptly. The penalty is payable to the Secretary of State, not the claimant employee. Employers who are fined also face the prospect of being publicly 'named and shamed'.

In employment cases, costs awards do not automatically follow the result of the case – i.e. the loser does not automatically have to pay the winner's legal costs. The ET does have the power to make a costs order (or a preparation time order where the receiving party was not legally represented) if it considers a party or their representative has acted vexatiously, abusively, disruptively or otherwise unreasonably' in the course of the proceedings, or where a claim is 'misconceived' – i.e. has no reasonable prospect of success. However, the ET may have regard to the paying party's ability to pay.

Wrongful Dismissal
Wrongful dismissal occurs when an employee's contract of employment is terminated by the employer in circumstances where the termination breaches one or more terms of the contract of employment or is in breach of the employer's statutory obligations – e.g. dismissing someone without giving them proper notice. A claim for wrongful dismissal is, in effect, a breach of contract claim and can be pursued in the civil courts or in the ET. Unlike unfair dismissal, there is no qualifying period of service needed to bring a wrongful dismissal claim.

Constructive Dismissal
Constructive dismissal occurs when an employee is not formally dismissed by their employer but is forced to leave their job against their will because of a fundamental breach of contract on the part of their employer.

Examples of serious breaches of contract are:

• cutting an employee's pay without their agreement;
• unlawfully demoting an employee without reason;
• changing an employee's duties, working hours or work location without agreement;
• allowing an employee to be harassed, bullied or discriminated against;
• making an employee work in dangerous conditions, in contravention of health and safety law; and
• a serious breach of the implied term in any employment contract that an employer should not act in a way that breaches the trust and confidence which an employee can expect from them. The 'last straw' in a series of less serious actions which cumulatively undermine the trust and confidence can also amount to a repudiatory breach of the employment contract.

In order to succeed in a claim for constructive dismissal, the employee must show that they have not acted in a way that suggests that they have accepted the breach, which is referred to in legal parlance as 'affirmation of contract'.