Always take advice before dismissing employees. They could bring any one – or any combination – of the following three claims against you if you handle the dismissal badly.
1. Unfair dismissal
Grounds for the claim
A dismissal occurs when you sack someone, you fail to renew a fixed term contract on the same terms, or there is a ‘constructive dismissal’ (see below).
A dismissal is automatically unfair if it is for one of a number of prescribed reasons, including whistleblowing, health and safety activities, pregnancy, etc. See our checklist ‘Circumstances when a dismissal is automatically unfair’.
Otherwise, a dismissal is unfair unless you can establish that it was for one of the legal reasons justifying dismissal, and that you acted reasonably in dismissing for that reason. The reasons are:
The conduct of the employee.
The capability or qualifications of the employee. This is most likely to be relevant in cases of sickness or other long-term absence, or where the employee lacks the necessary skills or qualifications for doing the job.
Illegality. This might apply where, for example, someone has been employed to do something illegal, or is not legally entitled to work in the .
Redundancy.
‘Some other substantial reason’. This means any other substantial reason which justifies dismissal — for example, pressure from a third party customer.
Where the dismissal is for the purposes of the worker’s retirement, and he has been notified of his right to request to work longer (as required by age discrimination law).
There is a complication in relation to dismissal on grounds an employee has reached retirement age. What happens if your retirement age is 65 (or older) is currently a matter of some speculation, because an organisation called Heyday, backed by Age Concern, has challenged the legality of the ‘default retirement age’ in the courts, and the case has been referred to the European Court of Justice. A definitive decision is unlikely before 2009, though in the meantime the Advocate General (whose opinion is generally, but not invariably, followed by the full court) has come down in favour of the default in a similar Spanish case (‘Palacios’).
The situation causes potential problems because, where employers want a retirement at 65, and the employee in question does not, the latter is being encouraged to claim unfair dismissal and/or age discrimination within the time limit for making such claims, and then apply to have the case ‘stayed’ (put on hold) until the ‘Heyday’ ruling is made. If you find yourself faced with a similar situation, take legal advice.
Even if the dismissal is justified under one of the reasons, it will still be unfair unless you followed fair procedures. In most cases, this means following at least the statutory disciplinary and grievance procedures introduced in October 2004.
In particular, the three-stage (’standard’) procedure, required in almost all dismissal cases, requires that:
the problem must be set out in writing and the employee must be invited to attend a meeting to discuss the matter;
the meeting must be face-to-face, after which the employer must inform the employee of the decision and confirm the right of appeal; and
an appeal must be arranged, if the employee requests it.
In rare cases of gross misconduct, this may be abbreviated to a two-stage (‘modified’) procedure – although this should only be used as a last resort, and with the benefit of legal advice.
However, the minimum statutory disciplinary and grievance procedures do not apply to dismissals by reason of retirement, provided the new statutory procedure (whereby retiring workers must be notified that they can request to work longer) introduced under the age discrimination laws in October 2006 has been complied with.
And in some very specific cases (for example, sudden closure of a business because of an unforeseen event), the minimum statutory disciplinary and grievance procedures do not apply at all.
Where the minimum statutory disciplinary and grievance procedures do apply, failure to observe them (or to observe them adequately) can lead to an automatic finding of unfair dismissal where a former employee with at least one year’s service makes a complaint to the Employment Tribunal. It could also lead to an increase of between 10 and 50 per cent in the compensatory award to the employee and a minimum basic award of four weeks’ pay.
Changes to the dispute resolution procedures have been proposed in the Gibbons review and subsequent consultative process. This does seem likely to have some considerable effects – as for instance, the statutory backing for the changes in disciplinary and grievance procedures introduced in 2004 may well disappear. However, there will still be strong guidelines in place, requiring equivalent or greater fairness in handling disputes from both sides; so any effort you put in now to ensuring that your procedures are fair and open will not be wasted.
The object of the changes is to cut short disputes where possible; where this is not possible to divert them to less formal methods of dispute resolution, and to rely on the Employment Tribunal system only in the most intractable or legalistic cases. However, there is as yet no timetable for the introduction of the required legislation.
Constructive dismissal
Constructive dismissal is a form of unfair dismissal. It occurs when you as employer commit a ‘fundamental breach’ of the contract of employment — so fundamental that it is inconsistent with a continuing employer/employee relationship and looks as though you no longer intend to be bound by an essential part of your contract with your employee. Such a breach entitles the employee to resign but, because you put them in that position, the law allows them to treat themselves as having been dismissed, and claim against you for unfair dismissal.
Constructive dismissal might arise, for example, if you apparently arbitrarily cut an employee’s pay; or made it very obvious that you were demoting or undermining a manager; or you appointed someone to work in one place and then unilaterally demanded that they move to another.
That said, such a change in pay or function would not necessarily be a constructive dismissal, particularly if you had exhausted all other avenues in trying to help the employee improve their performance. Much would depend on the facts.
Any employee who makes a complaint about constructive unfair dismissal to an Employment Tribunal is likely to have it blocked, unless they have promptly raised the matter, in writing, as a grievance, and then waited at least 28 days for you to respond. If they have delayed, they are likely to be treated as having affirmed the contract. If they have not specified your alleged fundamental breach as the reason for resigning, at the time they resign, the Tribunal may doubt that it was the reason they resigned.
Be warned: Employment Appeals Tribunal (EAT) rulings have widened the definition of a grievance, so that it might, for instance, include a letter of resignation setting out the problem, a solicitor’s letter on the employee’s behalf, or even a manager’s typed-up and circulated record of a meeting at which an employee raised grievances. The employee is not required to follow the employer’s grievance procedure, and the word ‘grievance’ need not necessarily even be mentioned.
If you fail to respond to the grievance, the claim may proceed, and any award against you may be increased by between 10 and 50%. You will have to establish that the dismissal, and manner of it, was not unfair, like any other dismissal claim.
Be warned also that this fluidity in the definition of a grievance works the other way too. The EAT decided in another recent case that an employee’s launch of a grievance, once she knew the grounds on which she was being made redundant, constituted a valid appeal against dismissal, and that she was therefore entitled to the three-month extension of time in bringing a claim for unfair dismissal (because she had reasonable grounds for believing the dismissal procedure was being followed), even though she had missed the seven-day deadline for filing an appeal.
The qualifying period
In most cases employees cannot sue for unfair dismissal unless they have at least one year’s continuous service with you, but in some cases employees can sue regardless of age or length of service. See our checklist ‘Circumstances when a dismissal is automatically unfair’. An unfair dismissal claim can be brought by an employee of any age – the previous prohibition on employees over 65 bringing unfair dismissal claims has been abolished.
What they can claim
An employee who alleges unfair dismissal can claim:
Compensation.
Reinstatement.
Re-engagement.
Compensation for unfair dismissal can include both a basic award (currently £9,900 maximum), and a compensatory award (currently £63,000 maximum). The basic award is worked out on the same basis as redundancy, ie it depends on the employee’s age, length of service and pay, and is calculated using the following starting point:
- Half a week’s pay for every year the employee was under 22.
- One week’s pay for each year in which the employee was between the ages of 22 and 40.
- One and a half week’s pay for each year in which the employee was 41 years old or more.
The calculation of a week’s pay is subject to a statutory maximum, currently £330 per week, and no more than 20 years of service can be taken into account.
If the dismissal is automatically unfair, because of your failure to observe statutory disciplinary and grievance procedures, this can lead to an increase of between 10 and 50 per cent in the compensatory award to the employee and a minimum basic award of four weeks’ pay.
Alternatively, an employee might ask for either reinstatement (to their old job, as though they had not been dismissed), or re-engagement (to a different job with the same employer, or a successor or associated employer). In either case, their employment must be treated as continuous – ie as though they had not been dismissed at all.
2. Discrimination
Grounds for the claim
A dismissal is discriminatory if it is related to the employee’s:
Sex, or marital or civil partner status.
Colour, race, nationality or ethnic origin.
Disability.
Sexual orientation.
Religious or philosophical beliefs.
Age (save where he has reached retirement age, and the statutory procedure requiring the employer to notify him that he may request to work longer has been complied with). But see the comments regarding the Heyday challenge above.
Discrimination can be direct, against a particular employee, or indirect, because a provision, criterion or practice discriminates against a particular group of employees compared to another group.
The qualifying period
There is no minimum service requirement.
What they can claim
There are no upper limits on the amount of the award. An employee who wins on a discrimination claim might also be entitled to compensation for injury to feelings.
Employees subjected to discrimination can also bring claims against individuals, which could include you and/or your managers.
3. Wrongful dismissal
Grounds for the claim
This is likely where you have dismissed an employee (other than fairly, for gross misconduct):
Without proper notice (ie you have either given less than the statutory minimum notice period, or less than the minimum stipulated in their contract of employment, if longer); or
Without pay in lieu of notice.
You will not have to give employees pay in lieu of notice if you are dismissing them fairly, for gross misconduct.
If you do want them to leave immediately you should, ideally, have a provision in their contract of employment that entitles you to pay them off in lieu of notice. Without such a provision you are, technically, breaching their contract if you dismiss them with pay in lieu. This may prejudice you in enforcing any contractual obligations (such as restrictive covenants against working for competitors) subsequently.
Moreover, there is a risk that the courts will take a poor view of such a move, particularly if it appears to have been made with a view to cutting the period of employment short to the employee’s particular detriment. The Scottish Court of Session (equivalent to the Court of Appeal) recently refused to accept that there was an implied term in an employee’s contract, allowing the employers to dismiss him with pay in lieu, and thereby get out of paying him a bonus to which he would otherwise have been entitled.
The qualifying period
No minimum qualifying period of employment is required before an employee can claim for wrongful dismissal.
What they can claim
If employees have been dismissed wrongfully, they can claim damages from you to put them in the position they would have been if the breach had not occurred. Usually, this means a sum equal to salary and any benefits payable during the notice period.
If they believe they are entitled to more than an Employment Tribunal can award in such cases (currently £25,000), they can decide to take the claim to a civil court instead, where damages are unlimited. They cannot bring a claim in both.
They are expected to do all they can to limit their losses by seeking alternative comparable employment. In establishing the level of damages an Employment Tribunal takes into account (and if appropriate deducts) any money that they have earned from new employment during the notice period.
Time limits
If the claim is one that can be brought to the Employment Tribunal, it must be brought within three months of the date of dismissal or of the incident that forms the basis of the claim.
The Employment Tribunal has the discretion to extend time if the employee can show that it was not reasonably practicable to present the claim within the three-month period.
Moreover, a three-month extension of time is automatically granted in the case of a claim brought directly against an employer (as opposed to a claim brought against a colleague) if:
the statutory disciplinary procedure applies; and
the employee reasonably believes, at the time the normal time limit expires, that the employer is following a dismissal or disciplinary procedure.
This could happen where the employer is still investigating, or has not notified the employee of the result of any appeal hearing within the normal three-month time limit.
Time can also be extended in discrimination cases, when to do so would be ‘just and equitable’.
If the claim is one that can be brought in the civil courts (ie for wrongful dismissal), an employee has six years to make a claim there. The court has discretion to extend time in some situations.
Requests for references
You are not required by law to give references at all. However, a refusal to give a reference to a sacked employee (for example, where the employee has raised issues of sex discrimination during employment) could in itself give rise to a claim based on victimisation.
You owe a duty of care to the ex-employee, to ensure that the reference is not prepared carelessly or negligently. However, you also owe a duty of care to the prospective employer. You could have a liability to either party, if they suffered loss because the reference was misleading or inaccurate.
It can be best just to give a factual reference, with the dates of employment and the position of the employee. If you give more information, however, make sure that the reference is fair and accurate, and not misleading.
Always take legal advice.
