Unfair dismissal - what is unfair dismissal in the UK?

In UK employment law, employees, who have completed two complete continuous years of service with their employer, are entitled not to be dismissed except in certain instances. These certain instances are deemed to be "fair" reasons for dismissal. 

Eligibility

To bring a claim for unfair dismissal, an employee must have at least two full continuous years' service with their employer.

However, this qualifying period of 2 years' continuous service does not generally apply to cases where the dismissal is deemed to be Automatically Unfair (see below). In these cases, an employee can bring the claim from day one, without a minimum level of service. 

Dismissal

To claim unfair dismissal, an employee usually needs to have been dismissed in one of the following ways:

1. The employer terminated their contract of employment; or
2. They resigned from their employment because of the employer's actions (i.e. constructive unfair dismissal), which made it impossible for them to continue in their role.

Constructive unfair dismissal 

An employee is entitled to claim constructive unfair dismissal if they believe that due to their employer's actions, they had no choice but to resign from their employment. To successfully bring this claim, an employee needs to show:

1. Their employer committed a fundamental breach of contract, i.e. a breach that goes to the heart of the contract and undermines the trust and confidence between the employer and employee necessary to sustain the employment relationship;
2. The employee resigned in response to this breach; and 
3. The employee resigned without unreasonable delay.

If an employee does not resign immediately following an employer's breach, an employment tribunal may decide that the employee accepted and agreed to the breach (i.e. agreed to continue their employment despite the breach). If this is the case, the employee will lose their right to claim constructive unfair dismissal. 

Fair reason

An employer is only entitled to dismiss for a fair reason. 

Written reasons for dismissal 

It is for the employer to show that the reason for dismissal was fair. 

If an employee with over two years' continuous service requests a written statement setting out the reasons for their dismissal, the employer has a duty to provide the employee with such a statement within 14 days of their request. Usually, the termination letter details the reasons for the employee's dismissal anyway, meaning this obligation will have been complied with. An employee with less than two complete years' continuous service is not entitled to written reasons for dismissal. 

Fairness

Once an employer has established the reason for dismissal, they need to demonstrate that the reason falls within one of the "potentially fair" reasons for dismissal.

The Employment Rights Act 1996 outlines the potentially fair reasons for dismissal as follows:

1. Capability;
2. Conduct;
3. Redundancy;
4. Breach of Statutory Duty or Restriction; and/or
5. Some Other Substantial Reason.

There is some overlap between these potentially fair reasons. The reason for dismissal may fall into more than one of the above. If this is the case, an employer needs to reference each potentially fair reason to provide the greatest protection in defending an unfair dismissal claim.

Capability or qualifications

In practice, capability dismissals fall into two categories:

1. Dismissal due to an employee's poor performance; or
2. Dismissal due to an employee's ill health.  

Where the dismissal is due to an employee's ill-health, employers need to be careful as the employee's illness may amount to a disability under the Equality Act 2010. If it does, the employer must make sure that the dismissal is not discriminatory on the grounds of disability, or it may face a discrimination claim (which all employees classed as "legally disabled" are entitled to bring, regardless of the length of service).  

Conduct

An employer can either rely on one act of misconduct by an employee or a series of acts to show that their misconduct was a potentially fair reason for dismissal. If there are a series of acts, the acts can be less serious in nature but still lead to a potentially fair dismissal following a series of warnings. However, if there is only one act that leads to an employee's dismissal, this will need to be serious misconduct (often amounting to what is known as "gross misconduct").

Misconduct may include, but is not limited to: 

• Disobeying reasonable orders;
• Violence at work;
• Unauthorised absence from work;
• Repeated lateness for work; and/or
• Theft.

Gross misconduct may include, but is not limited to:

• Theft;
• Violence at work;
• Damage to property;
• Setup of a competing business; and/or
• Serious misuse of the company's name or property.

The ACAS Guide recommends including examples of what the employer will count as misconduct and gross misconduct in contracts of employment or the staff handbook as this likely makes it easier for the employer to defend its decision in dismissing the employee. However, it should be made clear that any examples listed are not exhaustive. 

If an employee is dismissed on the basis of gross misconduct rather than misconduct, they will not be entitled to receive notice or payment in lieu of notice. For more detailed information, please see our article on wrongful dismissal. 

Redundancy

There needs to be a genuine redundancy situation for the dismissal to be potentially fair. This will occur where:

1. There is a closure of the business within which the employee was employed;
2. There is a closure of the place of business where the employee was employed to work; and/or
3. There is a reduced requirement for the employee to carry out work of a particular kind. 

Breach of statutory duty of restriction

A dismissal will be potentially fair if the employee is not able to continue to work in their role without either the employer or the employee contravening a duty or restriction imposed on them by law.

Examples of this may be:

• dismissal because the employee's continued employment would breach immigration rules;
• dismissal because the employee has lost their driving licence and their job requires them to drive; 
• or dismissal because the employer discovers the employee has a criminal record and thus cannot occupy that role.   

Some other substantial reason ("SOSR")

This potentially fair reason is used where an employer cannot demonstrate that the employee's dismissal falls into any of the above four potentially fair reasons. 

There is no guidance on what will fall within this potentially fair reason. Ultimately, an employer will have a duty to show that the reason for dismissal is one that could justify the dismissal of an employee holding the particular job in question. 

An example of a SOSR could be where the employee is employed to perform a client-facing role, and the client decides they do not want that particular employee on its account and there is no other work for the employee in the business.

Reasonableness of dismissal

Once an employer has established a potentially fair reason for an employee's dismissal, the employment tribunal must decide if the employer acted reasonably in dismissing the employee for this reason.

The employment tribunal generally focuses on two questions:

1. Did the employer follow a fair procedure?; and 
2. Did the employer act reasonably in treating the reason as a sufficient reason for dismissal?

Fair procedure

The procedure that an employer will need to follow to show that the dismissal was fair will depend on the "fair reason" chosen for dismissal. An employer should refer to the relevant ACAS guidance to help establish the procedure it should follow in respect of each potentially fair reason. ACAS Guides exist for capability (in relation to poor performance) and misconduct dismissals. 

For example, misconduct: 

• Investigate the issues;
• Inform the employee of the issues in writing prior to any hearing and provide them will all evidence upon which the company intends to rely;
• Conduct a disciplinary hearing with the employee; 
• Allow the employee to be accompanied at the disciplinary hearing; and
• Inform the employee of the decision in writing and include a right of appeal.

Reasonableness in treating the reason as a "sufficient reason" for dismissal

The employment tribunal needs to decide whether an employer's decision to dismiss the employee falls within the "range of reasonable responses" ("RoRR"). The RoRR includes all responses that an employer, acting reasonably in the same circumstances, might have adopted.

The employment tribunal must judge this objectively. Therefore, an employment tribunal cannot substitute its own view of how it would have treated the employee for that of an employer's. Provided an employer has acted in a way that a reasonable employer might have done in the same situation; the employment tribunal should find that it acted reasonably.  

In deciding if an employer acted reasonably in the circumstances, the size and administrative resources of the specific employer should be considered. There are also other specific elements the employment tribunal may consider depending on the potentially fair reason an employer has relied on.

For example, capability:

For a capability dismissal based on poor performance, the employment tribunal may consider the following factors:

• Whether the employee knew what was required of them;
• Whether the employer took steps to help the employee/ minimise the risk of poor performance;
• Whether the employer gave the employee a chance to improve;
• Whether the employer considered suitable alternative employment; and 
• Whether the employer warned the employee of the consequences of failing to improve. 

Automatically unfair 

Dismissals in connection to pregnancy or childbirth, health and safety activities, whistleblowing or asserting a statutory right under the Employment Rights Act 1996 are considered to be automatically unfair dismissals. 

There are numerous additional automatically unfair reasons for dismissal, these include,  

• circumstances where the employee has been selected for jury service and is dismissed as a consequence; 
• where the employee refuses to work Sundays 
• or where the employee refuses to work in breach of the working time regulations and is dismissed in consequence. 

As set out above, where dismissal is deemed automatically unfair, generally, there is no qualifying period. Therefore, employees with less than two years' continuous service with the company can still bring unfair dismissal claims on this basis.

Automatically fair

In a few limited circumstances, the employment tribunal must find that an employee's dismissal was fair and dismiss their case.

This will occur when:

• The employee was dismissed for the purpose of safeguarding national security;
• The employee was participating in unofficial industrial action at the time of dismissal (and the employer dismissed all participating employees); and
• If the employer is conducting a "lock-out" at the date of dismissal and has dismissed all employees with a direct interest in the dispute.

Such instances will be incredibly rare.

Remedies

If an employee brings a successful unfair dismissal, constructive unfair dismissal or automatic unfair dismissal claim in an employment tribunal, they will be awarded one of the following remedies:

Dismissal

If the employment tribunal finds that the employee has been unfairly dismissed, it will need to decide the most appropriate remedy to award in relation to this. 

The employment tribunal will consider:

• Reinstatement – i.e. placing the employee back in their job so as if they have not been dismissed;
• Re-engagement – i.e. placing the employee in a similar job from which they were dismissed that will count as suitable alternative employment; and/or 
• Compensation.

Reinstatement/ re-engagement 

The employment tribunal will ask the employee whether they wish to seek reinstatement or re-engagement as a possible remedy. If the employee does not wish to pursue these remedies, the employment tribunal will focus on providing the employee with compensation. 

If a reinstatement or re-engagement order is granted, the employer will usually have to make up all of the employee's lost salary and benefits between the date of dismissal and the date of their return to work. In doing this, the employer can take into account payments made to the employee for notice, accrued but untaken holiday and/or redundancy payments as well as earnings from other employment to reduce its liability for payment. 

Practically, even if the employee wishes to pursue reinstatement or re-engagement, the employment tribunal rarely grants such orders due to the likely loss of trust and confidence between the employer and employee, which is necessary to sustain the employment relationship.  

NOTE: If a reinstatement/ re-engagement order is granted, and the employer fails to comply with this, the employment tribunal may make an additional compensation award to the employee of between 26 and 52 weeks' pay, subject to the statutory limits. 

Compensation

Compensation is the usual remedy for employees who are successful in an unfair dismissal claim. This will consist of:

1. A basic award; and 
2. A compensatory award

Basic award

The basic award is based on the same formula used to calculate statutory redundancy payments. Therefore, it will depend on the age of the employee, their length of service with the employer and their gross weekly pay. The gross weekly pay is subject to a statutory cap – currently £525.

Compensatory award

The compensatory award is an amount that the employment tribunal believes is just and equitable to award the employee based on the financial loss caused to the employee by their unfair dismissal. This award will take into consideration the salary, pension and other benefits lost by the employee either until they obtain new employment or to such a period the tribunal thinks is just and equitable. 

The compensatory award can be reduced either through the employee's non-compliance with the ACAS Code of Practice (see above) or if the employee fails to mitigate their loss (e.g. fails to seek new employment). 

Furthermore, due to the Polkey case, the employment tribunal can reduce the compensatory award in situations where it has found an unfair technical dismissal, i.e. where the reason for dismissal is fair, but the employer failed to follow the correct process. The principles of Polkey are that had the employer followed a fair procedure; the employee would have still been dismissed. Therefore, damages are limited to the amount of time it would have taken to follow the correct procedure prior to dismissal. This is known as a "Polkey reduction". 

There is a statutory cap on the amount an employment tribunal can award an employee via a compensatory award. This is currently the lower of 52 weeks' pay or £86,444. 

NOTE: £86,444 is the upper limit for 2019- 2020. The statutory cap changes in April each year. 

NOTE: The statutory cap does not apply where the reason for the employee's dismissal was:

• On the basis that the employee made a protected disclosure (i.e. whistleblowing);
• On the basis that the employee raised health and safety concerns; or 
• An automatically unfair dismissal. 

Failure to provide written reasons for dismissal

If the employer fails to provide the employee with written reasons for dismissal (and they have over 2 years' continuous service), the employee is entitled to bring a claim to the employment tribunal on this basis (within the time limit as set out below). If the employee is successful, the employment tribunal may make a declaration as to why the employee was dismissed and will give them an award of 2 weeks' pay (subject to the statutory limit on week's pay) as compensation. The current statutory limit for a weeks' pay is £525. 

Failure to comply with the ACAS Code of Practice

The employer should familiarise itself with the guidance provided by the ACAS Code of Practice if guidance exists for the specific reason for dismissal. The main ACAS Code of Practice is for "Grievances and Discipline in the Workplace" ("the Code"). The code may not be applicable in all dismissal situations. However, it is advised that the employer checks the guidance before commencing any dismissal procedure to ensure any obligations are complied with.  

Not complying with the code does not in itself make the employer liable in any way. 

However, it is advised that employers do comply with the code and are able to demonstrate this compliance because if a matter progresses to an employment tribunal, the tribunal will take into account whether both the employer and the employee, complied with the code. If the employer has not, the compensation awarded to the employee via the compensatory award (see above) can be increased by up to 25%. 

Time limits

If the employee wishes to bring the claim in an employment tribunal for unfair dismissal, they must bring this within three months (i.e. three months minus one day) of the "effective date of termination". The effective date of termination differs depending on the individual circumstances of the matter:

• If the employee works their notice, the effective date of termination is when their notice expires;
• If the employment is terminated without notice (or the employee is given payment in lieu of notice), the effective date of termination is when the employment is terminated; and 
• If the employee is under a limited-term contract which is not renewed, the effective date of termination is when the contract ends.  

Therefore, the effective date of termination is usually the last day the employee is at work.