Basic legal guide to unfair dismissal

Tue 12 December 2023

Lawyer summary of unfair dismissal

Unfair dismissal refers to the termination of an employment contract by an employer without a valid reason or without following a fair process. In the UK, the Employment Rights Act 1996 (ERA 1996) sets out the legal framework for unfair dismissal claims. Where the employer dismisses the employee, the employer has the legal burden to prove the dismissal was fair procedurally and in terms if substance.

Constructive unfair dismissal is where an employee resigns in circumstances where he or she believes that the employer has put them in a position tantamount to having been dismissed. The burden of proving this is on the employee

Automatic Unfair Dismissal

This occurs if an employee is dismissed for a reason that is specifically prohibited by the ERA 1996. For example, automatically unfair reasons include dismissal for whistleblowing, refusing to consent to unlawful discrimination, or being a member of a trade union.

Qualifying period of employment for claiming unfair dismissal

In the UK, employees must have a minimum qualifying period of 2 years' continuous service with the employer to claim unfair dismissal.

There are some exceptions to this rule. This includes dismissal for whistleblowing, refusing to consent to unlawful discrimination, being a member of a trade union, or taking time off work to care for a dependent.

Procedural fairness or unfairness?

The employer must have followed a fair procedure when dismissing the employee. Employers should start by ensuring that they follow their own policies or procedures and should also look to comply with best practices in the ACAS guidelines.

In general terms, the following are minimum steps and standards :-

Investigation: The employer must investigate any allegations of misconduct thoroughly before making a decision to dismiss.
Representation: The employee must be given the opportunity to be represented by a trade union official or another representative of their choice at any disciplinary or grievance hearing.
Appeals: The employee must be given the opportunity to appeal against their dismissal.

If an employee is dismissed for a potentially fair reason but the employer has not followed a fair procedure, the dismissal may be unfair even if the reason for dismissal was objectively justified.

Fair reasons for dismissal

In the UK, there are 5 potentially fair reasons for dismissing an employee under the Employment Rights Act 1996 (ERA 1996). These reasons are:

Capability - This is where an employee's ability to do their job has deteriorated to an unacceptable level. This could be due to factors such as illness, injury, or lack of skill or experience.
Conduct - This is where an employee has engaged in misconduct that is sufficiently serious to warrant dismissal. This could include gross misconduct, such as theft, fraud, or violence, or less serious misconduct, such as repeated breaches of discipline or poor timekeeping.
Redundancy - This is where there is no longer a need for the employee's job to be done and the employer is making a genuine redundancy selection exercise.
Statutory illegality or loss of necessary work qualification - where the employee must have a qualification to do their job, such as an HGV licence, and the employee no longer has the necessary accreditation or qualification, or where they do not have the correct immigration status or have been convicted of a criminal offence .
Some other substantial reason - This is a catch-all category that can be applied in circumstances where the dismissal is not for capability, conduct, or redundancy but is still fair. This could include cases where an employee has brought the employer into disrepute or where the employee's continued employment would be a threat to the employer's business interests.

The list of potentially fair reasons for dismissal is not exhaustive. There may be other reasons that can be considered fair in particular circumstances.

Employers have a significant amount of discretion when it comes to dismissing employees. As long as the reason for dismissal is within a range of reasonable responses, the employer does not have to prove that the dismissal was fair. It is often difficult for employees to prove that their dismissal was clearly unreasonable and the Employment Tribunals are generally reluctant to second-guess employers' decisions.

Compensation for unfair dismissal

In the UK, there are two main types of compensation that can be awarded for unfair dismissal: a basic award and a compensatory award :-

Basic Award - a fixed sum of money that is payable to an employee who has been unfairly dismissed. The amount of the basic award depends on the employee's age and length of service. The current maximum basic award is £19,290.00.
Compensatory Award - to compensate the employee for the financial losses they have suffered as a result of their dismissal. These losses can include loss of earnings, loss of benefits items such as company cars, health insurance, pension contributions. The maximum compensatory award is currently £105,707.00. In practice, most claims are much lower than this amount.

Even where an employee has clearly been unfairly dismissed there is a legal duty on the employee to take reasonable steps to find a new job after being dismissed. If an employee fails to mitigate their losses, the amount of their compensatory award may be reduced. The tribunal will consider the following factors when assessing whether an employee has failed to mitigate :-

The employee's age and experience
The length of time they have been looking for a new job
The availability of suitable employment in their area
The efforts they have made to find a new job
If an employee has been offered a new job at a lower wage than their previous job, the tribunal may take this into account when calculating the compensatory award.

Claims for discrimination as well as unfair dismissal

There is a significant overlap between unfair dismissal claims and discrimination claims in the UK. This is because both types of claims can arise from the same underlying circumstances, such as an employee being dismissed because of their race, gender, disability, age, or religion or belief.

If an employee successfully claims both unfair dismissal and discrimination, they may be awarded compensation for both claims. Compensation for unfair dismissal is designed to compensate the employee for the financial losses they have suffered as a result of their dismissal. Compensation for discrimination is designed to compensate the employee for the emotional distress and humiliation they have suffered as a result of the discrimination. Damages for discrimination are uncapped.

Costs in the Employment Tribunal

The general rule in the Employment Tribunal is that neither side will be able to claim legal fees from the other, regardless of the outcome. This rule can be set aside, in full or part, at the discretion of the Tribunal panel.