employment law

Terminating an employee’s contract of employment

If you are in a situation where you are looking to terminate an employee’s contract there are two principal considerations.

First; you must provide the employee with sufficient notice under their contract of employment. Second; try to avoid a claim for unfair dismissal.

Wrongful dismissal

The first consideration is addressing a potential breach of contract claim – known as wrongful dismissal.

In order to avoid a claim in this regard you must ensure the employee is given the requisite notice under the terms of their employment contract.

In some circumstances the contract will allow a payment in lieu of notice allowing you to make a payment to the employee in respect of their notice period, with them leaving immediately.

If the contract is silent in respect of the notice period the statutory minimum notice shall apply. The statutory minimum notice is 1 week for every year of employment up to a maximum of 12 weeks.

Unfair dismissal

When dismissing an employee this is usually the employer’s main concern, rather than any wrongful dismissal claim. A claim for unfair dismissal is a statutory right that an employee with the requisite service has; the right not to be unfairly dismissed.

The qualifying period

An employee will usually need to have (although there are some limited exceptions) worked for an employer continuously for 2 years (if their employment commenced on or after 6 April 2012) or 1 year (if their employment commenced prior to 6 April 2012).

The right not to be unfairly dismissed is only available to employees rather than workers or sub-contractors.

Where there is a question regarding whether an individual is an employee or not, a Tribunal will review the reality of the relationship between the parties rather than any labels attached to it by the parties.

Fair reasons for dismissal

There are 6 potential reasons for fair dismissal set out in s98 of the Employment Rights Act:

• Capability or qualifications;
• Conduct/Misconduct;
• Retirement;
• Redundancy;
• Illegality; and
• Some other substantial reason.

It is up to the employer to show the reason for dismissal is a potentially fair one and is capable of justifying the dismissal.

If an employer can demonstrate a potentially valid ground the issue is then one of reasonableness under s98 (4). i.e. did the employer act reasonably in using the ground as a reason for dismissal, was it fair or unfair?

Reasonableness of dismissal – S98 (4)

The determination of the question of whether a dismissal is fair or unfair depends on whether in the circumstances including the size and administrative resources of the employer whether the employer acted reasonably or unreasonably in treating it as:

• sufficient reason to dismiss the employee; and
• in accordance with equity and the substantial merits of the case.

The tribunal must be satisfied that the employer was actually justified in dismissing for that reason. Whether or not an employer has acted reasonably is essentially a question of fact and one in the discretion of the tribunals.

One of the tests the Tribunal will undertake is to consider whether the employer’s response was within “the range of reasonable responses of the employer”.

If the Tribunal considers that it did then it is likely to be found to be a fair dismissal, even if the decision to dismiss was not necessarily a decision the Tribunal would have made.

The size and administrative resources of the employer is relevant when assessing the type of disciplinary process, internal procedures and appeals process it is practicable for the employer to have.

The compensation for a claim for Unfair Dismissal has two elements.

There is the basic award, which is calculated upon a formula based on a capped amount of weekly pay (the current cap is £430.00) and the employee’s length of service. The maximum basic award is £12,900.00.

The second part of the compensation for Unfair Dismissal is what is known as the “Compensatory Award”.

This is where the Tribunal will assess what the employee’s actual losses are and make an award based on these. It is usually the case that this would be an award for the employee’s loss of earnings.

However, in some circumstances the calculation can become somewhat complex. If the employee obtains new employment at a lower rate of pay than their previous employment, the Tribunal will make an award based on the difference between the pay in their new employment and the level of pay in their previous employment.

In some circumstances the Tribunal has to estimate how long the employee will be out of employment and make an award on that basis.

The cap for the compensatory award at the Employment Tribunal is currently at £72,300, although in some circumstances the Tribunal will not apply the cap.

The average award by a Tribunal in respect of a claim for unfair dismissal is between £4,500 and £5,500. The average cost of defending a Tribunal claim is £8,500 plus VAT.

The Compensatory Award can also be increased by up to 25% by the Tribunal, in circumstances where they are satisfied that the Employer did not follow the ACAS Code of Practice.

The ACAS Code of Practice are effectively Best Practice recommended by the Government on how to deal with Disciplinary procedures and other problems with Employees.

Further reading:

The ACAS Code of Practice; difficult or problem employees (Employment Law)

Settlement Agreements (Employment Law)

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