Commonly asked questions on the legal issues relating to unfair dismissal
To be a 'fair' dismissal, an employer must show that it was due to one of five specific reasons. The employer must also have acted fairly and reasonably in carrying out the dismissal. More positive approaches, such as coaching and counselling, may help in some cases relating to conduct or performance, and should be considered before resorting to dismissal.
This factsheet explains the difference between wrongful, unfair and constructive dismissal. Concentrating on unfair dismissal, it sets out the five reasons, the importance of following a fair procedure and what this could entail. It looks at which employees qualify to claim unfair dismissal and considers the possible compensation employers could face.
It‘s important that employers have clear individual dispute resolution procedures that are communicated to all staff. The employer should ensure that line managers and any members of staff involved in managing disciplinary matters and grievances are properly trained in the organisation’s policies and procedures and know how to implement them. The employer and HR professionals have a responsibility to ensure that all disputes are handled in a fair and consistent manner across the organisation.
Dismissing employees is sometimes necessary; however, it can be costly and can also affect wider employee morale and potentially damage the business. It should be considered only when other, more positive options to improve performance have failed.
Where dismissals can't be avoided, it's essential to comply with the relevant law and codes of practice. There are also significant business benefits for employers, in terms of the response of other employees and the wider community, in being seen to handle dismissals fairly and responsibly.
What is dismissal?
Dismissal of an employee occurs when:
- the employer terminates the contract, either with or without giving notice
- a fixed term contract ends and is not renewed
- the employee leaves, with or without giving notice, in circumstances in which they are entitled to do so because of the employer’s conduct.
Some of the most common reasons for dismissal are misconduct, inability to do the job and redundancy.
In the UK, a dismissal will normally be ‘fair’ provided the employer has given one of the five specified reasons for the dismissal (see below) and has acted ‘reasonably’ in carrying it out. When somebody is dismissed, they sometimes say they will claim 'unfair' or 'wrongful' dismissal. The terms are often used interchangeably, particularly in media reports, but in fact they are entirely different and arise from very different concepts.
Wrongful dismissal occurs when the employer terminates the contract of employment, and in doing so breaches the contract. The most common example is terminating a contract without giving the contractual notice period. The period of notice is a matter for agreement between the parties, but is subject to minimum periods prescribed by law. Wrongful dismissal claims will generally be for the payment and benefits due for the notice period. CIPD members can find out more in our Wrongful dismissal law Q&As.
Employees have the right not to be unfairly dismissed. The law on unfair dismissal is mainly contained in the Employment Rights Act 1996, as amended by numerous statutes.
The basis of unfair dismissal law is that employees have the right to be treated fairly. In making a claim of unfair dismissal, the employee needs to demonstrate that they were dismissed; to successfully defend the claim, the employer will then need to show that this dismissal was fair because it was for a specific reason.
To be potentially ‘fair’, a dismissal must be for one of five reasons:
- capability or qualifications
- illegality or contravention of a statutory duty
- some other substantial reason
- redundancy - see our Redundancy factsheet for more on this. CIPD members can also see our Redundancy law Q&As for more detail.
Retirement is no longer a potentially fair reason for dismissal.
There are special statutory rules relating to discussions before a potential dismissal which lead to a settlement (or compromise agreement) between the employer and employee. For more detail, CIPD members can see our Tribunal claims, settlement and compromise law Q&As.
As well as falling within one of the five potentially fair reasons for dismissal, an employer must also have acted fairly and reasonably in taking that reason as sufficient for dismissing the employee. This involves following a fair procedure and is more complex than it sounds, and an employment tribunal still has wide discretion on what it considers to be 'fair'.
Dismissal is a serious matter that needs careful handling. Before taking any action, managers should first establish the facts. And before considering dismissal, managers should also consider if a more positive approach that does not involve dismissal is likely to be effective.
Matters relating to conduct - where the employee’s conduct is an issue, the level of ‘proof’ that the employee committed an alleged offence is not as high as that required in the criminal courts. However, the employer must be able to demonstrate that it carried out a thorough investigation into the alleged offence. The employer must then be able to show that the investigation led to a reasonable belief that the employee had committed the offence, and that the decision to dismiss was reasonable. Acas has published guidance for carrying out investigations, but recommends that anyone appointed as an investigator should be trained in this area.
Matters relating to poor performance - where the employee’s capability is in issue, matters may be beyond the employee’s control. The problems may be a result of inadequate leadership, bad management or defective work systems; if so, the employer can put in place appropriate remedies (often involving learning and development) to help improve the employee’s performance.
Many cases of both misconduct and poor performance can be dealt with by informal advice, coaching and counselling. Improvements can often be achieved through continuing feedback and joint discussion between individuals and their manager to identify the problem, establish the reasons for under-performance and agree the remedial action to be taken. See our factsheet on performance management.
If these positive approaches fail, the employer may need to take disciplinary action, which could include dismissal. Read our Discipline and grievance at work factsheet.
Following a fair procedure
Acas provides guidance on dealing with disciplinary and dismissal and grievance matters in its Code of Practice. Employment tribunals will always take the Acas Code into account, even though it does not have the force of law. In practice, employers must follow the Code as otherwise:
- they will have difficulty convincing an employment tribunal that they acted fairly, and
- failure to follow the Code may result in an order to pay compensation being increased or decreased by up to 25% depending on whether or not the employer or employee failed to comply with it.
In addition, employers must follow their own contractual or customary disciplinary process or dismissal procedure for a dismissal to be 'fair'.
Employers should usually follow at least three stages (although an appropriate procedure will often be more complex than this). For example:
- The employee should be informed in writing of the alleged offence.
- There should be a meeting between the employee and employer to discuss the alleged offence. Legally, the employee can be represented at this meeting by a trade union representative or colleague.
- The employee should have the opportunity to appeal against any sanction.
Qualification to make a claim
To balance the interests of employers and employees, there is a short period at the start of employment when employees do not enjoy protection from unfair dismissal, known as the 'qualifying period’. There are two qualifying periods for claiming unfair dismissal:
Employees employed before 6 April 2012 require one year’s continuous service in order to be able to claim unfair dismissal.
Employees employed on or after 6 April 2012 require continuous service for at least two years in order to be able to claim unfair dismissal.
All employees must contact the Acas early conciliation service before making an employment tribunal claim following a grievance. CIPD members can see more in our law Q&As covering early conciliation.
Certain employees who fall within the definition of ‘employee shareholder’ do not have unfair dismissal rights. For more information, CIPD members can see our Employee status law Q&As.
There are numerous exceptions to the requirement for a qualifying period in order to bring a claim. These include dismissals for:
- trade union membership or activities
- pregnancy or childbirth
- taking maternity, adoption, paternity or parental leave
- asserting a statutory right
- claiming the National Minimum Wage or National Living Wage
- asserting rights under the Working Time Regulations.
These are also examples of automatically unfair reasons for dismissal.
Is the dismissal automatically unfair?
The next step is to check whether or not the employee’s dismissal could be automatically unfair under the law. Examples of automatically unfair reasons for dismissal include those listed above, although there are further examples. CIPD members can see more detail in our Unfair dismissal law Q&As.
Constructive dismissal occurs when the employee resigns as a result of the actions of the employer. The employer’s actions must amount to a fundamental breach of the employment contract. The employee must resign in a timely manner and the resignation must be because of the breach.
The most common breach is that of the implied term of ‘mutual trust and confidence’ between the employer and employee.
Compensation for dismissal
In wrongful dismissal claims, damages are calculated as for any other breach of contract so an employee will be entitled to their full net salary for the contractual notice period, and compensation for loss of other benefits for that period.
Awards made by a tribunal in cases of unfair dismissal consist of a basic award to compensate for loss of job security and a compensatory award to reflect immediate and future loss of earnings. In rare cases an additional award may be made where an order for reinstatement or re-engagement is made but not complied with by the employer.
The amount of a statutory payment depends on an employee's age, length of service and the rate of a week’s pay (up to a maximum). There is also a salary-based cap on the unfair dismissal compensatory award.
For more on how these awards are currently calculated and the changes to the maximum limits, CIPD members can see our law Q&As on Unfair dismissal, Wrongful dismissal and Redundancy and our Statutory rates and compensation limits page.
Useful contacts and further reading
RUBENSTEIN, M. and FROST, Y. (2017) Unfair dismissal: a guide to relevant case law. 35th ed. London: Butterworths.
INCOMES DATA SERVICES. (2015) Unfair dismissal. Employment law handbooks. London: Incomes Data Services.
BUTLER, M. (2014) Unfair dismissal: where are we? Tolley's Employment Law Newsletter. Vol 19, No 8, June. pp62-63
BIRKINSHAW, C. (2015) What is a fair dismissal? [dismissal on the grounds of capability]. Employers' Law. September. pp18-19.
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Members and People Management subscribers can see articles on the People Management website.
Rachel Suff: Employee Relations Adviser
Rachel joined the CIPD as a policy adviser in 2014 to increase the CIPD’s public policy profile and engage with politicians, civil servants, policy-makers and commentators to champion better work and working lives. An important part of her role is to ensure that the views of the profession inform CIPD policy thinking in ER areas such as health and well-being, employee engagement and employment relations.
As well as developing policy on UK employment issues, she helps guide the CIPD’s thinking in relation to European developments affecting the world of work. Rachel is a qualified HR practitioner and researcher; her prior roles include working as a researcher/editor for XpertHR and as a senior policy adviser at Acas.