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Unfair dismissal

Unfair dismissal is a complex area of employment law, but one every employer should understand. If you fail to follow the rules when dismissing an employee, you risk being taken to an Employment Tribunal and having to pay compensation.
 
Last updated 3 November 2022.
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A dismissal usually occurs when an employer terminates an employee's contract of employment. A dismissal will normally be considered fair if the employer can show that it is related to:

  • the employee’s misconduct (eg theft, poor attendance, or violence)

  • the employee’s lack of capability (ie poor performance) or qualifications

  • a genuine redundancy

  • a statutory requirement (eg if an employee’s role requires them to drive but they’ve had their driving licence revoked)

  • some other substantial reason (eg the employee unreasonably refuses to accept changes to their terms of employment)

If the reason for dismissal doesn’t fall under one of the above categories, the dismissal could potentially be considered unfair. There are some situations where dismissing an employee is automatically unfair. 

Some employees have a right not to be unfairly dismissed, provided by the Employment Rights Act 1996. An employee is protected from unfair dismissal after 2 years of continuous service. If an employee started their job prior to 6 April 2012, only 1 year of continuous service is needed.

This 2-year qualification period is not required when dismissal is made for one of a certain list of reasons. Many of these reasons are the same as those that make dismissal automatically unfair. 

An employee who believes they have been unfairly dismissed can make a legal claim for unfair dismissal against their employer. They usually need to bring their complaint to an Employment Tribunal within 3 months of the date of termination of their employment (ie the date they were dismissed). 

Automatic unfair dismissal describes situations where an employee was dismissed for one of the specified impermissible reasons (ie those  protected by legislation). Some (non-exhaustive) examples of automatically unfair dismissals include those related to the employee’s: 

If the reason for dismissing an employee was one or more of these reasons, then (subject to occasional exceptions and additional  criteria) the dismissal will be considered automatically unfair.

What happens when dismissal is automatically unfair?

If an Employment Tribunal finds a dismissal to be automatically unfair, the employer will not be able to defend the claim and the employee automatically succeeds in arguing that their dismissal was unfair

What if dismissal isn’t automatically unfair?

If a dismissal isn’t based on one of the reasons that would make it automatically unfair, and the employer gives a reason why they believe the dismissal was fair, the courts will all take into account relevant circumstances and decide whether the dismissal can reasonably be considered fair or not.

If an employee is dismissed for a potentially fair reason, their dismissal may still be considered unfair if their employer did not follow a fair procedure when dismissing them. 

Only gross misconduct is a fair reason to dismiss an employee who is protected from unfair dismissal without notice. Even then, fair process must be followed in establishing that this is necessary. For less serious misconduct, employers should give at least two formal warnings.

To follow a fair process that is more likely to be accepted by Employment Tribunals, use the ACAS Code of Practice on Disciplinary and Grievance Procedures. If an Employment Tribunal finds that an employer has unreasonably failed to comply with the ACAS code, the amount of compensation awarded to an employee who brings a successful claim against them can be increased by 25%. 

Always be aware of the procedure you have to follow when you discipline an employee, even if it doesn't involve dismissal at this stage, as you may need to rely on this to justify a later dismissal.

When you take disciplinary action against an employee, check their Employment contract and your HR policies and procedures. You have to comply with these. 

Remember to follow any data protection policies and notices you have. You should tell employees the types of data you might collect about them and what might you do with it in a Data protection and data security policy (which sets out the policies and procedures you comply with when dealing with personal information and personal data) and/or an Employee privacy notice (which describes how you collect, use, retain and disclose personal information). For more information, read Data protection and employees.

A contract is a two-way agreement. An employee has to respect all its terms, but it's also supposed to stop an employer from destroying or seriously damaging their relationship of trust and confidence with the employee. When the duty of trust and confidence is broken, an employee can often resign and claim constructive dismissal.

Before taking any action, think about having a quick private chat with an employee to explain what the problem is and what formal action you might take if they don’t respond in the right way.

An informal chat may be suitable if the misconduct wasn't serious or deliberate.

In some cases, it may be appropriate to explore the possibility of departure on agreed terms with an employee under legal rules allowing 'protected conversations', which might protect the confidentiality of the negotiations (ie so they can’t later be used as evidence against you in court).

Never tell an employee that you are going to dismiss them if they don't improve or agree to leave, unless you have first followed a formal process. This may be constructive dismissal, which can lead to unfair dismissal or wrongful dismissal claims.

Always put a note on an employee’s HR file after an informal conversation, or send them an email confirming your chat.

If the misconduct happens again, you can still take formal action later, but you can’t normally reopen an incident you’ve already dealt with informally.

If an Employment Tribunal says an employer has unfairly dismissed someone, that person can claim compensation against them.The maximum amount they can claim for unfair dismissal changes.

In rare situations, the employer may also have to reinstate the employee (ie give them their job back) or re-engage the employee (ie re-employ them in a different job). It’s uncommon, however, for an unfairly dismissed employee to want this.

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