What is unfair dismissal? What are the rights of the employee and employer? What issues must the employer consider in dismissing a member of staff?

At a Glance

An employee has the right not to be unfairly dismissed unless as an employee shareholder the employee has opted out of unfair dismissal. The employer must act reasonably in all the circumstances.

A dismissal occurs when:

Dismissal is justified, that is 'fair', if the dismissal:

There may be other justifiable reasons for dismissal.

A dismissal is deemed unfair when the employer acts unreasonably. Dismissal is treated as automatically unfair in certain situations (see Overview).

Many employees cannot make a claim for unfair dismissal without two year’s service, but they still have alternative options and often there can be a claim made even without the employment service requirement.

The Statutory Dispute Resolution Procedures were repealed in April 2009 and replaced with an Advisory, Conciliation and Arbitration Service (ACAS) Code of Practice.


ACAS Code of Practice (CoP)

The previous (very unpopular) Statutory Dispute Resolution procedures were repealed in April 2009. Employers are free to determine and follow their own disciplinary procedures. As an ACAS CoP is in place, it is normally advisable to ensure that the employer's procedure complies with the CoP.

Unlike the Statutory Dismissal & Disciplinary Procedures, a failure to follow the ACAS CoP will not make any dismissal automatically unfair. A Tribunal will consider the facts of the case and determine whether a dismissal was fair and proportionate (whether the action was what a reasonable employer would take) in the circumstances. Only where this is not found to be the case, will adherence to the ACAS CoP come into account. Without reasonable grounds not to follow the CoP, a Tribunal may increase an award against an employer by up to 25%.

Two year’s service, the qualifying period

For employments commencing on or after April 2012, an employee must have worked for the employer for at least two years before they can bring a claim for unfair dismissal. Before this, the period was one year.

Automatically unfair dismissal

The qualifying period does not exist for claims where the dismissal is alleged to be unfair and includes a dismissal due to reasons including:

The above list is not exhaustive. Employees have numerous grounds for which an unfair dismissal claim can be made.

Note of caution: do not assume that an employee with less than two years' service can be dismissed freely. While they may not have so many rights as longer-established employees, if an employee can get a claim accepted by an employment tribunal on the basis of an automatically unfair dismissal, it won’t matter much if this claim has no validity or is not the real reason for dismissal. The case will still have to be defended at a potentially significant cost to the employer. 

A Wrongful dismissal (for which no qualifying period is necessary) occurs when the employer does not follow the company’s disciplinary procedures. The awards for wrongful dismissal are normally a lot less than for an unfair dismissal, but employers should still be cautious to avoid these claims as there will be costs to defend any action.

Practical steps to reduce risk

Limit on claims

Claims for unfair dismissal are capped at £78,962 from 6 April 2016. From 29 July 2013, a new rule applies in calculating claims which may reduce claims significantly.

An award is in two parts. The first part is calculated like statutory redundancy pay and so depends on age, pay and years of service. The second part is compensatory, this part is limited to the lower of 12 months pay and £78,962. There is no allowance for loss of pension rights.

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