Unfair Dismissal Guide for Employers

In this guide for employers, we explain the fundamentals of unfair dismissal, including how ot reduce the risk of being subject to unfair dismissal claims.

What is unfair dismissal?

An employee’s right to not be unfairly dismissed is set out under section 94 of the Employment Rights Act 1996. The ERA states what the right is, who the right applies to and the remedies in the event the right is breached.

Dismissals are allowable in many circumstances, such as where the employer terminates an employment contract by redundancy, or following a disciplinary or performance management process. In addition to showing good reason for the dismissal, the employer must also have acted reasonably in holding that reason as sufficient grounds for dismissal.

The burden of proof is typically on the employee to prove that the unfair dismissal requirements have been met and that they qualify to bring a claim against their former employer.

While unfair dismissal claims can only be brought by qualifying employees, employers are advised to follow best practice when dealing with all workers and dismissals to mitigate legal risk and promote positive workplace morale as a fair and compliant employer.

What is the difference between unfair dismissal and wrongful dismissal?

The right to be dismissed fairly is a statutory right whereas wrongful dismissals relate to contractual rights.

Wrongful dismissal is concerned with the employer breaching terms of the employment contract. Claims for wrongful dismissal are considered against the specific terms of the contract and the failure of the employer to meet these obligations. Breaches of contract that could give rise to claims for wrongful dismissal include:

• Not giving the employee sufficient notice of contract termination where a minimum notice period applies
• Ending a fixed-term contract before the date agreed under the contract
• Where the employer is in breach of contractual disciplinary or redundancy procedures in dismissing the employee

Unlike unfair dismissal claims, there is no minimum service requirement for wrongful dismissal claims.

Compensation is usually limited to the employee’s pay and benefits during the period of notice that the employee would have been given, had the contract been terminated lawfully.

Who can claim unfair dismissal?

The right to claim unfair dismissal is only open to certain qualifying employees who have been dismissed. The following factors will be used to determine if someone is eligible to claim unfair dismissal.

Employee status

Workers and self-employed individuals cannot claim for unfair dismissal. Only those who qualify as having ’employee status’ can claim unfair dismissal. Employees are defined as individuals engaged under a contract of employment, whether written or oral. This includes part-time and fixed-term employees.

In practice, this creates a considerable grey area. While an employer may class someone as a worker, the facts and terms of the working relationship may suggest they qualify as an employee, affording them greater legal protections and rights, such as the ability to bring an unfair dismissal claim. It is always best to take legal advice to determine employment status and your legal options as the employer.

Exclusions from the right to claim unfair dismissal

The right to complain to a tribunal about unfair dismissal is not available to:

• self-employed people
• independent contractors
• members of the armed forces
• employees who have reached a settlement with their employer through Acas (Advisory, Conciliation and Arbitration Service) or the Labour Relations Agency (LRA) in Northern Ireland
• employees who have reached a settlement with their employer through a ‘settlement agreement’ or ‘compromise agreement’ after taking legal advice
• employees employed under an illegal contract, for example a barman under the age of 18
• employees covered by a dismissal procedure agreement that’s been legally exempted from the unfair dismissal rules
• employees taking part in unofficial industrial action (unless the dismissal is for an automatically unfair reason)
• police officers (unless the dismissal relates to health and safety or whistleblowing)
• those working on a fishing vessel and paid by a share in the profits or gross earnings of the vessel

Can fixed-term contract employees claim unfair dismissal?

The employee’s rights under a fixed-term contract will be determined largely by the terms of the contract itself.

Usually, a fixed-term contract means the job ends on a particular date or on completion of a certain project or piece of work. If the employer wants to bring the agreement to an end earlier, they should consult the contract terms on early termination. If there is provision for the contract to be brought to an end prior to the expected date, the employer is able to do so provided they do so fairly and in accordance with any associated obligations such as giving sufficient notice. Ordinarily, early termination will mean a week’s notice, unless the contract specifies more.

Qualifying employment period

The right to bring a claim for unfair dismissal only becomes available if the employee has worked for the employer for the minimum qualifying period of two continuous years by the effective date of termination of their employment. Exceptions to the qualifying period requirement mostly relate to situations in which the employee is automatically unfairly dismissed for one of a number of impermissible reasons.

The qualification period is one year for those whose continuous employment started before 6 April 2012.

Employees whose current period of continuous employment commenced before 6 April 2012 will:

• retain their unfair dismissal rights if they have already been continuously employed for one year or more as at 6 April 2012 (even if they have been employed for less than two years), or
• gain unfair dismissal rights after being continuously employed for one year

Dismissal

To bring a successful unfair dismissal claim, the employee has to show that they have actually been dismissed, for example through:

• the employer terminating their employment contract
• constructive dismissal
• the employer terminating a fixed-term employment contract at the end of the fixed-term

Dismissal does not include resignation, ending the contract through mutual agreement or the contract being frustrated.

Time limits

Employees have three months from the date of termination to bring a claim for unfair dismissal.

This general rule is subject to three possible qualifications:

• time will be extended where the prospective claimant is subject to the requirement for early conciliation
• time may be extended by exercise of the tribunal’s discretion
• special rules apply to dismissals with notice, regarding the earliest date on which a claim may be submitted

If an unfair dismissal claim is not presented within the initial three-month period from the effective date of termination, or any extended period where the prospective claimant is subject to the requirement for early conciliation, then the employment tribunal has discretion to extend the time within which the claim had to be presented by whatever further period it considers reasonable, provided that it is satisfied that it was not reasonably practicable for the claim to be presented to the tribunal within the initial three-month period.

In practice, this is generally a difficult test for a claimant to satisfy.

This time limit can only be extended if the claimant is availing of the ACAS early conciliation service, or if the tribunal accepts that it was not reasonably practicable to bring the claim within the standard time limits.

Start date where dismissal is with notice

The basic rule is that the three-month period during which an unfair dismissal claim may be presented begins with the effective date of termination. This rule defines not only the latest date on which such a claim may be presented (subject to any extensions to this time limit), but also the earliest date. Hence where the claimant is dismissed without notice, any claim presented before the effective date of termination will be premature and must be rejected by the tribunal. Claimants are not entitled to submit a claim for unfair dismissal if they have neither been:

• dismissed, or
• given notice of dismissal

The position is different where an employee’s dismissal is with notice. In such cases, the employee may present their claim at any time:

• after notice has been given (even if it is presented before the effective date of termination), and
• before the end of the three-month period beginning with the effective date of termination

In Balado, the employee was sent a letter after a disciplinary hearing which stated that they would be dismissed, but that the dismissal would only take effect (a) on expiry of the required period for appealing, if no appeal is lodged, or (b) on dismissal of any appeal that is lodged. This was held to constitute a dismissal with notice within the meaning of section 111(3), and hence the employee was entitled to present a claim of unfair dismissal from the point at which they received the letter rather than awaiting the outcome of any appeal.

If an unfair dismissal claim is presented during the period between the notice being given and the effective date of termination, then any references in the provisions of the ERA 1996 to:

• a complaint that a person was ‘unfairly dismissed’ shall be taken also to cover complaints that an employer has given an employee notice, where that employee alleges they will be unfairly dismissed when the notice expires
• ‘reinstatement’ shall be taken also to cover withdrawal of the notice by the employer
• ‘effective date of termination’ will mean the date which would be the effective date of termination on expiry of the notice
• an employee ‘ceasing to be employed’ shall be taken also to cover an employee having been given notice of dismissal

Potentially fair reasons for dismissal

Employers have to show good reason for the dismissal and the employee has the right to be informed as to the reason(s) for their dismissal.

Under the ERA, the following are potentially fair reasons for dismissal:

• capability
• conduct
• redundancy
• breach of statute
• some other substantial reason

In an unfair dismissal case, the tribunal will consider the dismissal in the context of the full facts and circumstances of the matter. Factors will include the size of the organisation and the extent to which they have access to resources. The tribunal should be looking to determine whether the employer’s actions fell within the range of reasonable responses of a reasonable employer.

If the dismissal is shown to relate directly to one of a number of specific reasons, including pregnancy and whistleblowing, the dismissal would be treated as automatically unfair.

Automatically unfair grounds for dismissal

An automatically unfair dismissal means an employee’s statutory legal rights are considered to have been breached by reason of the dismissal, whether or not the employer has acted reasonably through the dismissal process.
Dismissals are deemed automatically unfair in the following circumstances:

• They are pregnant or any reason relating to maternity or family reasons such as parental leave or time off for dependants
• They are a part-time or fixed-term employee
• They are a member of a trade union
• They were acting as an employee representative
• They asked for your legal rights at work, eg to be paid minimum wage or for holiday pay entitlement
• They took reported a health and safety issue
• They reported the employer for wrongdoing (‘whistleblowing’)

Employees can still lawfully be dismissed even where they fall under these categories. What renders the dismissal automatically unfair is where one of these is the reason for the dismissal.

It is also automatically unfair to make someone redundant where it is shown that the actual reason for dismissal was an unlawful reason.

Discrimination

By law, employers cannot discriminate against employees by reason of protected characteristics. This means it is unlawful to dismiss an employee because of:

• Age
• Disability
• Gender
• Sexuality
• Race, ethnicity or nationality
• Religion or beliefs
• Pregnancy or being on maternity leave
• Marriage or being in a civil partnership

Your employer can still lawfully dismiss you even if you come under one of these categories, but this cannot be the reason for the dismissal. If you can show that you were dismissed because of discrimination against you, this could qualify as unfair dismissal.

Is it lawful to dismiss someone on maternity leave?

Employers may be able to lawfully dismiss employees on maternity leave, provided the reason for dismissal is not related to the maternity leave.

Dismissals could be deemed fair by reason of:

• Redundancy – The redundancy must be fair and genuine and the employee must have been offered alternative, suitable employment within the organisation.
• Breach of contract – The employee has breached the terms of their contract by for example carrying out paid employment for another organisation while also taking statutory maternity pay.
• More than 6 months’ leave and it is no longer possible to return to the old job – The employee must have been offered alternative, suitable employment within the organisation.

Dismissal while on probation

By law, employers can dismiss employees who are on probation. Generally, employees on probation are given 1 week’s notice that their contract is being terminated. Some contracts of employment may provide a longer notice period.

Reasonableness of the dismissal

If the employer is unable to satisfy the tribunal that the reason for dismissal was potentially fair, the dismissal will be unfair. If the employer is able to establish a potentially fair reason for the dismissal, the tribunal will, under ERA 1996, s 98(4), consider whether the employer acted reasonably or unreasonably in treating that reason as sufficient to justify dismissal, having regard to all of the circumstances of the case, including the employer’s size and administrative resources. Equity and the substantial merits of the case will be taken into account.

The statutory test of fairness is expressed in the same words whether the reason for the dismissal is conduct, capability, redundancy, contravention of a statutory requirement or some other substantial reason; and whether the dismissal takes the form of a positive decision to bring an end to a ‘permanent’ contract of employment, with or without notice, or whether it takes the form of expiry, without renewal, of a limited-term contract.

It is not for the employment tribunal to substitute its own view for that of the employer when considering the fairness of a dismissal. Instead, it should determine whether the employer’s actions fell within the range of reasonable responses of a reasonable employer. In other words, even if the tribunal would not themselves have decided to dismiss in the circumstances facing the employer, the question is whether no reasonable employer could have decided to dismiss in those circumstances. This approach applies not only when considering the substantive decision to dismiss but also when assessing the procedural steps taken by the employer.

However, an employment tribunal does not necessarily impermissibly substitute its own judgment for that of the employer by making findings of fact in relation to matters not dealt with by the employer’s internal disciplinary hearing.

A contractual right will be relevant when assessing the fairness of a dismissal only when (and because) there is an exact coincidence between the contractual term and the particular reason for dismissal. For example, the question whether there has been a breach of contract will be relevant to (but not determinative of) the fairness:

• in a redundancy dismissal where there is a contractual agreement that the claimant would not be made redundant
• in a dismissal for capability as a result of illness where there is a contractual right to remain in employment while on sick leave
• in a dismissal for conduct for refusing to obey an instruction where the employee challenges that the instruction was lawful under their contract of employment

Compliance with the non-discrimination regime in the Fixed-Term Employee Regulations 2002 (eg by informing the employee of available vacancies) does not necessarily mean that the dismissal of a fixed-term employee will be fair.

Fair dismissal procedure

Fair grounds for dismissal are only part of the requirement. The employer must also follow a lawful process in dismissing the employee.

The process to follow will be determined by the reason for dismissal. For example, when making someone redundant you have to follow a specific process covering the selection and consultation stages, while gross misconduct will require you to follow a fair disciplinary procedure.

Unfair dismissal claims

In the event you are facing an unfair dismissal claim, the following are key factors in managing how you approach the litigation:

Early conciliation

Unfair dismissal is a ‘relevant proceeding’ for the purposes of the requirement for early conciliation. An individual intending to submit a claim for unfair dismissal will be required to satisfy the requirement for early conciliation unless one of the early conciliation exemptions applies. A prospective claimant is unable to bring a claim in the employment tribunal if:

• the requirement for early conciliation applies, and
• they have failed to comply with that requirement

There is also the option to request Acas conciliation prior to submitting a claim on a voluntary basis, or once a claim has been submitted.

Where Acas is involved, and the individual has ceased to be employed by the employer against whom the complaint is to be (or has been) made, the conciliation officer may seek a possible remedy for that person, be it reinstatement or re-engagement on equitable terms or an award of compensation.

Mitigation

Employees are under a duty to mitigate their losses resulting from the dismissal. This means they are required to try and find new employment as soon as reasonably possible after they have been dismissed.

The obligation is not to have secured a new job before the tribunal proceedings, but they must show the tribunal they have made reasonable efforts to find new work and reduce the financial losses resulting from the dismissal.

‘Reasonable’ in this context is considered subjectively and will turn on the facts of the case and the employee’s circumstances, conduct and intentions.

Remedies in unfair dismissal claims

The tribunal can award a number of remedies if unfair dismissal is established:

• an order for reinstatement— the employer is obligated to give the employee their old job back and also to make good any loss of earnings from date of dismissal to date of reinstatement
• an order for re-engagement— the employer is obligated to give the employee a job that is comparable to their old job and also to make good any loss of earnings from date of dismissal to date of re-engagement
• an order for compensation – which can comprise a basic award, a compensatory award, and an award of additional compensation

The way these possible remedies are applied is as follows:

• the tribunal will explain to the claimant that it can make an order for reinstatement or re-engagement, and the circumstances in which they may be made
• if the claimant expresses a wish an order for reinstatement or re-engagement to be made, the tribunal may make such an order (but is not obliged to do so)
• if an order for reinstatement or re-engagement is not made (whether because the claimant does not wish it, or the tribunal decides not to make such an order), then the tribunal will make an award of compensation (ie the basic award and the compensatory award)
• if the tribunal makes an order for reinstatement or re-engagement, but the terms of the order are not fully complied with, the tribunal will make an award of compensation
• if the tribunal makes an order for reinstatement or re-engagement, but the claimant is not reinstated or re-engaged and the employer is unable to satisfy the tribunal that it was not practicable to comply with the order, the tribunal will make:
• an award of compensation, and
• an additional award of compensation

Note that a tribunal may also consider whether or not to order the employer to pay a financial penalty. This is not awarded to the employee, but is payable to the Secretary of State.

As part of its judgment, the tribunal will of course make an explicit finding that the dismissal was unfair. According to the EAT’s judgment in Telephone Information Services v Wilkinson, the claimant has an entitlement (in addition to their other remedies) to that finding, not least because it may be important in their dealings with future prospective employers. It follows that if, before trial, the respondent makes an open offer to the claimant of an amount as great as the maximum award, without also admitting liability (in full), the claimant:

• will not be at risk of having their claim struck out if they turn down that offer and instead pursue their claim in order to secure a finding that they were unfairly dismissed, and
• will not be at risk on costs for doing so

Reinstatement and re-engagement

Reinstatement and re-engagements orders are rarely made.

Following a finding of unfair dismissal, the tribunal must explain to the employee the availability of orders for reinstatement and re-engagement and the circumstances in which they may be made. The tribunal must also ask the employee whether they wish to be reinstated or re-engaged.

Where the employee does express a wish to be reinstated or re-engaged, the tribunal may make such an order but is not obliged to do so.

Compensation

If the tribunal does not order reinstatement or re-engagement, it will make an award for compensation to be paid by the employer to the employee.

An order of compensation usually comprises:

• a ‘basic award’—an award to reflect the fact that the employee has been unfairly dismissed. It is calculated in much the same way as a statutory redundancy payment and depends on the gross weekly pay of the employee, his length of continuous employment before dismissal and his age. In some types of case, the basic award is set at a particular level or at a particular minimum level. The basic award may also be subject to a number of deductions.
• a ‘compensatory award’—to compensate the employee for financial losses suffered as a result of the unfair dismissal. It may be subject to a number of deductions and/or increases.

Interim relief

In certain circumstances, an interim remedy is available to an employee claiming unfair dismissal before the final hearing of their claim and before any finding of unfair dismissal has been made.

Generally, interim relief is available where the employee claims to have been dismissed for one of a number of automatically unfair reasons and the tribunal concludes that it is likely that they will be able to establish at a final hearing that they were dismissed for that reason.

There are strict time limits: applications for interim relief must be made within seven days of dismissal and will then be determined as soon as practicable.

Note that, where an application for interim relief is to be made, the prospective claimant is exempt from the requirement for early conciliation.

Where an application for interim relief is successful, the tribunal may order that the employee be reinstated or re-engaged or that their contract of employment should continue in force pending the final hearing of their claim.

Negotiating a settlement

As with other claims, it is open to the parties (or prospective parties) to an unfair dismissal claim to settle the claim privately or through the assistance of Acas. The parties may choose to settle their differences before the claim is commenced or even before the dismissal takes effect.

However, to be effective in settling a claim or potential claim for unfair dismissal, the agreement must comply with one of a number of statutory provisions. Generally, the agreement must either be achieved through Acas conciliation or be set out in a valid settlement agreement (formerly known as a compromise agreement).

Unfair dismissal FAQs

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Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.