Termination of the employment contract HR Management

Employment contracts can terminate in a variety of ways, for example job redundancy, voluntary resignation, death in service, non-renewal of a fixed-term contract and summary termination due to conduct – ‘the sack’. This part of the chapter examines the issue of termination due to dismissal under the headings of fair dismissal, unfair dismissal, wrongful dismissal and constructive dismissal.

  • Fair dismissal

In the majority of situations when an employee is dismissed from employment, the reasons for the dismissal are likely to be fair. An employer can fairly dismiss an employee on several grounds; dismissal is likely to be fair if it relates to the following categories:

  • Employee conduct – theft or fraud in the workplace, gross insubordination, fighting etc.
  • Job redundancy – where a job is no longer needed and the employee is dismissed due to job redundancy through no fault of their own and has been correctly consulted about the situation and fairly selected for redundancy via an agreed process of selection. If an employee has two years of continuous service with the employer, they must be compensated for the redundancy.
  • Capability, competence and qualifications. An employer can fairly dismiss an employee on these grounds but must demonstrate that dismissal relates to job capability, not the employee.

For example, to obtain dismissal due to capability on the grounds of illness or disability an employer must demonstrate that they have already made changes to the work situation of an employee and cannot make further changes. Without this evidence the employee may have a claim under the Disability
Discrimination Act.

If an employee has falsified their qualifications or if they lose a practitioner qualification, for example by being struck off the medical register if they are a doctor, dismissal is likely to be fair. If an employee is deemed to be incompetent it will be necessary to demonstrate this, for example that they have been through an internal disciplinary procedure and been given a reasonable opportunity to improve their performance but failed to do so.

  • Statutory bar or other legal requirement that prevents the continuation of employment. For example, if an employee is a driver or needs to be able to drive to perform their job, the loss of a driving licence is likely to be a fair reason for dismissal. Similarly, if there is another legal requirement that the employee can no longer meet, dismissal is likely to be fair; for example, for deep sea divers there are strict age and hours limits due to health and safety considerations. Equally, lorry drivers may have to pass eyesight checks and pilots meet strict health requirements. While dismissals may be fair in some situations, an employer may offer the employee another job. This is more likely if the firm has a collective bargaining agreement with a trade union.
  • Some other substantial reason. Here an employer must demonstrate, in a case where a dismissal is disputed, that the dismissal, while it does not relate to the categories listed above, is nonetheless substantive, fair and reasonable.
  • Unfair dismissal

A dismissal is fair if an employer can demonstrate that the reason for the dismissal fits into one of the five categories listed above. However, as pointed out earlier in the chapter, many aspects of employment law turn on questions of interpretation and the reasonableness of a particular interpretation. So while an employer may deem a dismissal fair, an employee may disagree.

For example, they may claim that they were unfairly selected for redundancy, or that they have been victimised for whistle-blowing or that their dismissal on any of the grounds listed above was motivated by discrimination such as disability, race, sex, marital status, pregnancy etc. In situations where the fairness of a dismissal is disputed and proceeds to an employment tribunal, there are several tests that the tribunal will apply to rule on a dismissal.

Dismissals due to conduct, redundancy, statutory bar, competence and qualification and some other substantive reason are termed potentially fair reasons for dismissal. A tribunal will examine the dismissal against the facts of a particular case to test whether the dismissal was fair in the particular circumstances of the case. If the details of a particular case do not meet the criteria for a potentially fair dismissal then the dismissal is unfair. In some circumstances a reason for dismissal may be fair yet the dismissal may have been conducted in an unfair manner, that is, a dismissal may be procedurally unfair.

Hence if there are internal procedures that should be followed that relate to grievance and discipline in the workplace it is vital that an employer follows these procedures and is further able to demonstrate to the employee, their representatives and a tribunal that they have done so. As part of the chapter states, employees need one year of continuous employment service to qualify for protection against unfair dismissal. This extends to unfair dismissals that relate to job redundancy, that is, unfair selection for redundancy, whereas dismissal due to job redundancy requires two years’ employment service before an employee qualifies for compensation.

Unfair dismissals that relate to race or sex discrimination, including those for unequal pay and those that relate to pregnancy, are automatically unfair and are available to employees as day one rights. For example, a group of part-time women workers employed on a particular pay grade made redundant after six months’ service may be able to demonstrate unfair selection for redundancy if no male employees were made redundant and they can establish that they were made redundant because they were the cheapest employees to terminate.

Other situations where no length of service is necessary to claim unfair dismissal include those that relate to trade union membership, participation in lawful industrial action that lasted less than eight weeks, participation as an employee representative for purposes of consultation (where there is no trade union presence), refusal to work on grounds of health and safety or where an employee seeks to assert a statutory right.

  • Wrongful dismissal

A wrongful dismissal is a dismissal that is in breach of contract, for example dismissal without notice or a failure to pay all due wages and remuneration during the notice period. Many wrongful dismissal cases relate to highly paid business executives who are dismissed but denied some aspect of their remuneration package. Other cases may relate to employees in government service who are dismissed by Ministers.

In the early 1990s, Michael Howard, the Conservative government Home Secretary, dismissed Derek Lewis, head of the prison service, without notice in a dispute about who held overall operational responsibility for prisons. Mr Lewis sued for wrongful dismissal and the Home Office later met his claim.

  • Constructive dismissal

Constructive dismissal refers to a situation where an employee alleges that an employer has acted so contrary to the operation of their contract of employment that the contract is deemed to be unlawfully and immediately terminated. Events that may trigger constructive dismissal include financial loss due to unilateral changes in pay and remuneration, racial or sexual harassment, unilateral relocations to undesirable areas, being unilaterally stripped of authority or persistent victimisation.

Claims for constructive dismissal are risky because an employee has to satisfy a tribunal that they had no alternative but to leave and in the majority of cases it is unlikely that the employee will get their job back. Normally employees who are constructively dismissed pursue a claim for breach of contract where employment tribunals can make an award of up to £25 000. In addition to this, the employee can pursue a statutory award for unfair dismissal.

  • Redundancy rights

Under current legislation – the Employment Protection Acts and the Employment Rights Act 1996 – employees require two years of continuous service in a particular employment from the age of 18 to qualify for a lump sum compensation award. Further, the employee must have a contract of employment and for each complete year of service between the ages of 18 and 21 they will receive half a week’s pay.

This increases to one week’s pay for employees between the ages of 22 and 40 and rises to one and a half week’s pay between the ages of 41 and 65. Redundancy payments are unaffected by the number of hours an employee works but the statutory limit for one week’s pay is £250 and redundancy payments up to the value of £30 000 are tax free. An employer must make the payment as soon as the employee is dismissed.

Employers are required to consult the workforce about redundancy and, where collective bargaining is present, a trade union must be consulted. In non-union workplaces employers must establish a representative body of the workforce to consult over redundancy, for example multinational corporations may use an already established European Works Council for this purpose. The employer must notify the consultative body or the trade union of the reasons for redundancy, the numbers involved and the grades of job affected, the method of determining which jobs are redundant and how any payments that supplement the statutory requirements are to be worked out.

If an employer has collective bargaining it is likely that there will be an established redundancy procedure negotiated with the trade union. There is a statutory period for consultation that relates to the number of jobs being made redundant. If over 100 jobs are made redundant the employer must consult over a 90-day period, but only 30 days of consultation are necessary where the number of job redundancies is fewer than 100.

Throughout the consultation period an employer must seek alternatives to job redundancy and act in good faith. Both these issues are controversial. Many trade unions argue that it is easier to dismiss British employees than employees in other EU nations because consultation occurs once the decision to make jobs redundant is taken, rather than before the decision is made as is required by law in most other EU nations.

In extreme cases some employees, for example those employed at Vauxhall’s Luton plant, have first heard of their impending redundancy through the local and national media. The enforcement of a European Union directive on employee consultation may improve this situation, see part . Part of this chapter detailed the contractual and statutory rights of employees, part examined the continued presence of discrimination and part demonstrated the difficulty of establishing employee rights that relate to working time.

This part of the chapter illustrated how employers can fairly dismiss employees and how employees can claim unfair, wrongful or constructive dismissal. Part 6 of the chapter examines the issues that relate to the enforcement of employee rights in the employment relationship.


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