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Unfair Dismissal - Constructive Dismissal

The Principle

The law provides protection for an Employee from being unfairly dismissed from their job or from being forced out of their work by the actions of their Employer. To claim unfair dismissal, the Employer must have clearly terminated the Contract of Employment orally, in writing or by conduct. 

Where there has been no dismissal but the Employer has acted so unreasonably as to force the Employee to resign their position, this is known as ‘constructive dismissal’ and the Employee may act as if dismissed by the Employer. This is the case even if the employee is in breach of contract as a result of their own conduct. To claim constructive dismissal, the Employee must resign as a result of the employer's conduct and show that the Employer has acted in serious breach of contract. A minor breach is not enough. Examples of serious breaches would include imposing changes to hours, pay or work location without the Employee’s agreement, or being in serious breach of the implied term of mutual trust and confidence. An Employment Tribunal will generally expect the Employee to have first exhausted all internal avenues of grievance with the Employer and not to have resigned as a first option. Constructive dismissal is a last resort action. However, it is important that the employee does not delay too long before resigning. If they do so they could be taken to have accepted any alleged breach and lose their right to claim constructive dismissal. However, it is usually the conduct of the employee, rather than the period of delay, which is most important. Where an employee is off sick and therefore not carrying out any work for the employer a delay in resigning during the sickness absence will not necessarily defeat any claim.

Similarly, if an employee chooses to resign with notice then this will not in itself defeat any claim, but where an employee gives longer notice than which they are contractually required to give, then it is likely an employment tribunal will find that the employee has accepted the conduct of the employer (affirmed the contract) and, as above, has therefore lost their right to claim constructive dismissal.

‘Resign or be dismissed’ ultimatums resulting in a resignation would also be covered by an application to a Tribunal for constructive or unfair dismissal.

Finally, it should be noted that the non-renewal of a Fixed Term Contract by the Employer is a dismissal and therefore can amount to an unfair dismissal. It is not possible for Employees employed under Fixed Term Contracts to agree to waive their unfair dismissal rights.

Exclusion

Not all Employees are protected from being unfairly dismissed.  The Employee must have been employed for at least two years in order to bring a claim (but see automatic unfair dismissal cases below).  If the Employee is excluded by reason of this, they will not be able to challenge the unfairness of their Employer’s actions whatever the circumstances.  Their only hope of redress will be a claim for breach of contract against the Employer.

The Potentially Fair Reasons for Dismissal

The Employee must first prove that they have been dismissed or constructively dismissed. Once this is shown, the Employer is then under a legal obligation to demonstrate that the dismissal was for one of five permitted potentially fair reasons for dismissal. These reasons may afford the Employer a defence to their act of dismissal. They are:

  1. Capability or qualifications.
  2. Conduct.
  3. Redundancy.
  4. Statutory ban.
  5. Some other substantial reason.

Capability and qualifications

Generally ‘capability’ will include the following:

  • The Employee’s skill in the performance of their duties.
  • The aptitude of the Employee in relation to the job for which they are employed.
  • Their physical and mental ability to perform the tasks required.

‘Qualifications’, on the other hand, includes any degree, diploma or other academic, technical or professional qualification relevant to that person’s position as an Employee. 

Conduct

Misconduct is, for obvious reasons, a potentially fair reason for dismissal. The law supplies no definition of ‘conduct’. However, it does include acts of gross misconduct, for example:

  • Theft or dishonesty.
  • Fraud.
  • Violence.
  • Damage to the Employer’s property.
  • Sexual harassment.
  • Any form of discrimination.
  • Gross insubordination, etc.

Conduct will also include acts of ordinary misconduct such as:

  • Persistent poor time-keeping.
  • Persistent absenteeism.
  • Attitude problems.
  • Carelessness, etc.

An act of gross misconduct and one of ordinary misconduct are, as the lists show, different in nature. Gross misconduct is so serious that it acts to bring the Contract to an immediate end without warning or notice to the Employee, provided always that they have had an opportunity to defend their position against the initial allegation at a disciplinary hearing before the Employer arrives at their decision. An act of gross misconduct will therefore provide an Employer with a potentially fair reason for dismissal. 

Ordinary misconduct does not bring the Contract to an immediate end. In order for the Employer to have a defence against dismissal for such conduct they must usually have followed a fair disciplinary procedure in respect of warnings. In practice, Employment Tribunals require the application of the ACAS Code of Practice on Disciplinary and Grievance Procedures, which requires the implementation of three formal stages:

  1. A written warning.
  2. A final written warning.
  3. Dismissal.

There should be an opportunity for the Employee to state their case at a formal disciplinary hearing prior to the imposition of each stage of the procedure. Failure to follow a fair disciplinary procedure is likely to lead to a finding of unfair dismissal. 

Redundancy

It is a potentially fair reason for dismissal where an Employee’s Contract has been terminated because the requirement of the Employer for Employees to perform work of a particular kind has diminished considerably or ceased to exist at their normal place of work. 

Statutory bans

This potentially fair reason for dismissal is aimed at those situations where an Employer has to dismiss an Employee because they are not able to continue in that job without contravening some law. For example, a driver who loses their driving licence for a year because of a drink- driving conviction will not be able to undertake driving duties for their Employer during that period of time. 

Some other substantial reason

This fifth potentially fair reason was designed to be a ‘catch-all’ for those reasons that did not fall neatly into the other categories but nonetheless should rightfully, on their facts, provide the Employer with a defendable position in law. 

One common type of dismissal persistently presents itself within this group. That is, where an Employer re-organises their business and as a necessary part of that restructuring is forced to impose Contract changes on the Employee, ie, the business re-organisation falling short of a full-blown redundancy but similarly being driven by economic factors. In such situations, to dismiss an Employee who refuses to accept such Contract changes will be a potentially fair dismissal ‘for some other substantial reason’.

The Fairness of Dismissal

Where a dismissal falls within one of the categories of potentially fair dismissals, it is the role of an Employment Tribunal to consider all the facts of a particular case and to determine whether in all the circumstances the dismissal was fair and reasonable. The Employer, having dismissed an Employee, will be under an initial burden to defend their action on the basis of one of the potentially fair reasons for dismissal. Having done that, the Tribunal will then look into the following factors:

  • Was the reason for dismissal sufficient given the facts of the case?
  • What are the size and administrative resources available to the Employer?
  • Was there sufficient investigation by the Employer prior to the decision to dismiss?
  • Was there a fair hearing for the Employee prior to the decision to dismiss?

The Tribunal must then ask itself whether, in accordance with equity and the substantial merits of the case, it believes the Employer acted reasonably or unreasonably in treating the reason as a sufficient reason for dismissing the Employee. One of the factors that will be taken into account when determining whether the decision to dismiss is reasonable is consistency of treatment. Employers need to consider the level of sanction that has been issued to other employees in similar circumstances and ensure that there is consistency with previous decisions, unless there are material differences in the circumstances.

A dismissal can be unfair on substantive grounds, on procedural grounds or on both.

When assessing the fairness of a dismissal the Tribunal will take into account what was in the mind of the person who dismissed at the relevant time. However, case law has shown that there are certain circumstances where information will be taken into consideration that was not known by the person who dismissed; such as where another employee has deliberately mislead or manipulated facts known to the decision maker in arriving at their conclusion.  

Fairness and the Potentially Fair Reasons for Dismissal

Capability and qualifications

For an Employer to dismiss an Employee on the grounds that they were incapable of performing the tasks required of them, the Employer must satisfy the Tribunal that they honestly felt this to be the case, on reasonable grounds. The Employer must adopt a fair procedure. A fair procedure should include the following:

  • Monitoring the Employee.
  • Meetings with the Employee to discuss the problem.
  • Clear details of the Employee’s shortcomings.
  • Implementation of a fair warnings procedure or a capability procedure if the Employee fails to improve.
  • Reasonable opportunity to improve.
  • Consideration of training requirements. 
  • Consideration of alternative work for which the Employee may be more suited. 

Dismissal of an Employee for not having the required qualifications is rare, since the relevant information should have been checked by the Employer at interview stage. If an Employee misleads an Employer at interview or within the job application in respect of qualifications and the Employer subsequently discovers the truth, the Employee may reasonably be dismissed if the required qualifications are essential for the performance of the job. If, however, during the course of employment a qualification is taken away, the Employee should only be dismissed if it is not reasonable or possible to provide suitable employment in some other capacity.

An Employee may become incapable of working due to ill-health. Before dismissing an Employee who is ill, the Employer is obliged to consider any medical evidence reasonably available. Often this will necessitate requesting the permission of the Employee to approach their Doctor or Consultant for a report or asking the Employee to undergo a medical examination by an independent Doctor appointed by the Employer. The Employee may refuse permission, but if they do, the Employer will be able to make a decision on their future employment without the benefit of an expert medical opinion. This decision may not favour the Employee. Having obtained a report from the Employee’s Doctor or from an independent Doctor, the Employer is in a position to make a reasoned decision as to the Employee’s future employment within their business. The Employer must consider:

  • The needs of the business.
  • The prospects of a quick return to work by the Employee.
  • The availability of lighter duties to help the Employee in getting back to work.
  • The Employee’s past record of health.
  • The nature of the illness and the likelihood of illness recurring.
  • The likelihood of a full recovery and return to full duties.
  • Where the employee has a disability, what reasonable adjustments the employer could make to assist the employee in their return to work.

Finally, the employer should consult with the employee before taking any decision to dismiss and should have first discussed with the employee the contents of the medical report and the options available to enable them to return to work in some capacity. 

Conduct

Dismissal for misconduct must have been subject to the following:

  • Proper investigation of the facts by the Employer.
  • Implementation of a fair warnings procedure.
  • A fair hearing of the Employee’s case at each stage of the warnings procedure.
  • The implementation of a reasonable disciplinary sanction at each stage of the warnings procedure.
  • Consistent treatment with similar misconduct.
  • Proper consideration by the Employer of any mitigating factors put forward by the Employee.
  • Giving Credit in respect of ‘lapsed’ warnings.

In the case of an allegation of gross misconduct, the Employer is still required to convene a disciplinary hearing. If after that hearing the Employer has an honest belief, based on reasonable grounds after all reasonable investigation, that the Employee did act as alleged, there may be a finding of dismissal without notice on the ground of gross misconduct.

Redundancy

For a dismissal on the ground of redundancy to be potentially fair there must be:

  • A situation where the requirements of the Employer for Employees to carry out that particular job at that place of work has diminished considerably or ceased to exist.
  • Prior meaningful consultation with any relevant Employee.
  • A fair selection of the Employees for redundancy.
  • Full consideration of any alternative work available.
  • Full consideration of any methods whereby redundancy may be avoided.

Statutory bans

The mere fact an Employer may be able to show, due to contravention of law, they are no longer able to employ a certain individual, will not absolve them from the responsibility of following a fair procedure in implementing that dismissal. The procedure should include:

  • A full consultation with the Employee concerned.
  • Full consideration of the length of the ban and whether the impact on their role can be managed. 
  • Full exploration of suitable alternative employment with that business.

Some other substantial reason

As previously stated, a dismissal which habitually falls into this category is that involving a business reorganisation and changes to the Employee’s Contract of Employment. In this case and in all the others within this category, formal procedures on consultation and hearings are pre-requisites before the dismissal will be regarded as potentially fair. Whatever the business needs of the Employer, the Tribunal will not accept that any situation is so urgent that Employees may be unfairly treated in substance or by the failure to observe procedural fairness and principles of natural justice.

Automatic Unfair Dismissal Cases

There are a number of types of dismissal which fit within those categories of dismissal deemed ‘automatically unfair’ dismissals. These will not allow the Employer any defence at all.

The following categories have no minimum service requirement.

Trade Union membership and activity

It is automatically unfair to dismiss an Employee because they were, or proposed to become, a member of an independent Trade Union. It is also automatically unfair to dismiss an Employee for refusing to become or to remain a member of an independent Trade Union.

Where an Employee is dismissed for having taken part or having proposed to take part in the activities of an independent Trade Union, outside working hours or within working hours if permitted by the Employer, they will be deemed to have been automatically unfairly dismissed.

Finally, it is an automatic unfair dismissal where the reason for dismissal relates to the employer contravening the rules prohibiting the compilation, use, sale or supply of blacklists of Trade Union members or activists.

Official industrial action

The dismissal of an Employee for participating in official industrial action will be automatically unfair if it occurs during the first twelve weeks of such participation. A dismissal will also be unfair after that period if the Employer has failed to take reasonable procedural steps to resolve the dispute. 

There is no equivalent protection for Employees participating in unofficial industrial action. Where the action is unofficial, the Employer has greater latitude under the law to selectively dismiss and re-engage without penalty. This, in practice, will allow an Employer to dismiss the ring-leaders of the industrial action.

Assertion of a statutory right

Where an Employee seeks to assert a statutory right (for example, to demand a written statement of Terms and Conditions of Employment or not to have unlawful deductions made from his wages) and is dismissed, that Employee will be deemed to have been automatically unfairly dismissed. This prevents Employers from dismissing Employees if all they seek is the enforcement of their statutory rights.

Family reasons

To dismiss an Employee for reasons connected with pregnancy, childbirth, maternity leave, paternity leave, adoption leave, parental leave or shared parental leave is an automatic unfair dismissal. 

Health and safety dismissals

Employees are protected from dismissal where they:

  • Carry out health and safety activities on behalf of their Employer.
  • Bring to the attention of the Employer a concern over a risk to health and safety.
  • Propose to leave, or leave, the work place and refuse to return while danger persists, in the event that they reasonably believe their well-being is in serious and imminent danger and this cannot reasonably be averted.
  • In the circumstances immediately above, take appropriate steps to protect themselves or others from danger.

There is no maximum compensatory award for health and safety-related dismissals.

Shop workers and Sunday trading

From August 1994, the law has recognised the following types of shop worker in respect of Sunday trading:

  • The protected shop worker.
  • The opted-in shop worker.
  • The opted-out shop worker.

In brief, the protected shop worker is one who before that date was not employed to work Sundays. Where the Employee is asked to work Sundays and has no objection, by written notice to the Employer the Employee thereby becomes ‘opted-in’ and no longer a ‘protected shop worker’. The written notice to the Employer must be signed and dated and clearly state there is no objection to working Sundays. The Employee is under no legal obligation to comply with the Employer’s request in such circumstances. The Employee has freedom of choice.

An ‘opted-out’ worker is one who is not protected but, in complying with similar formalities above, has given their Employer clear notice of their objection to Sunday working. To prevent the disturbance to the Employer that may ensue if Employees were allowed to opt-in and out with regularity, the Employer may insist that for a period of three months after having received an opting-out notice the Employee undertakes Sunday work.

Every new Employee has the right to receive from the Employer an explanatory statement that they may choose to work or not to work on Sundays. If the Employee wishes to object to Sunday work and does so within the first eight weeks of service, the Employer is discharged from the obligation to provide an explanatory statement. In these circumstances workers who object will become ‘opted-out’ shop workers. The right to work or not to work on Sundays as a shop worker applies irrespective of length of service.

It is automatically unfair to dismiss a shop worker for refusing to work on a Sunday where they are either protected or opted-out. This is also the case in relation to the same categories of betting shop worker. 

National minimum wage dismissals

It is automatically unfair to dismiss a worker simply because the Employer does not wish to pay the national minimum wage (NMW) or because the Employee has taken action to enforce their rights to the NMW. In addition, if a worker is subjected to any detriment, such as hours being reduced, they may bring a claim in the Employment Tribunal.

Public interest disclosure dismissals

The Public Interest Disclosure Act 1998 protects Employees who ‘blow the whistle’ about wrongdoing. In certain circumstances, disclosures are protected and the Employees who make them similarly protected. Employees are protected from unfair dismissal and from suffering any other detriment from their Employer. In cases of dismissal it will be relevant what was in the mind of the person who dismissed at the time of dismissal. Detriment may take a number of forms, such as denial of promotion, facilities or training opportunities which the Employer would otherwise have afforded.

Certain kinds of disclosure qualify for protection, for example, where the Employee reasonably believes one or more of the following matters is either happening, took place in the past, or is likely to happen in the future:

  • A criminal offence.
  • The breach of a legal obligation. 
  • A miscarriage of justice.
  • A danger to the health and safety of any individual.
  • Damage to the environment.
  • Deliberate covering up of information tending to show any of the above five matters. 

The reasonable belief held by the Employee might be discovered subsequently to be, in fact, wrong. This will not matter provided it was a reasonably held belief in the circumstances at the time of disclosure and the disclosure was made in the public interest. The Employee may make the disclosure to the Employer or to a third party if they reasonably believed they would be subject to a detriment by the Employer if disclosure were made to them.

Employees protected by the provisions who have been dismissed or have suffered other detriment can complain to an Employment Tribunal. There is no limit to the amount of compensation that may be claimed for public interest disclosure dismissals.

Working time cases

It is automatically unfair to dismiss an Employee for refusing to forego a right conferred on him/her by the Working Time Regulations 1998 (eg, the right to paid annual leave) or refusing to comply with a requirement imposed on him by the Employer in contravention of those Regulations (eg, refusing to work on average more than 48 hours per week). In addition, it is also unlawful to subject an Employee to a detriment for reasons related to those Regulations.

Pension scheme trustees

An Employee’s dismissal is automatically unfair if the reason relates to the Employee performing his/her functions as a trustee of a pension scheme related to his/her employment.

Trade Union recognition

It is automatically unfair to dismiss an Employee on grounds related to compulsory Trade Union recognition or de-recognition and it is unlawful to take adverse action short of dismissal on these grounds. 

Dismissal for exercising right to be accompanied at disciplinary and other hearings

An Employer who dismisses an Employee for exercising his/her statutory right to be accompanied at a disciplinary or grievance hearing (or at another meeting to which the statutory right to be accompanied applies), or for accompanying another Employee, will be dismissing that Employee unfairly. An Employee also has the right not to be subjected to any detriment on these grounds.

Employee representatives

An Employee’s dismissal will automatically be regarded as unfair if the reason relates to the Employee carrying out his/her functions as an Employee representative on a transfer of an undertaking or where the Employer proposes to make collective redundancies or where the Employee is a negotiating or information and consultation representative under the Information and Consultation of Employees’ Regulations 2004.  It is also unlawful to subject an Employee to a detriment for reasons relating to being an Employee representative. 

Right to time off for study or training

Regulations provide that Employees who are aged 16 or 17 and who have not attained a certain standard of achievement in their exams are entitled to be permitted by their Employer to take a reasonable amount of paid time off work to undertake study or training leading to a relevant qualification. The provisions also apply to an 18 year old who is in the middle of his/her study or training.

An Employee’s dismissal for exercising his/her statutory right to time off for study or training is automatically unfair.

Right to request time to train

It is automatically unfair to dismiss an employee because they have made, or proposed to make, an application for time off work for the purposes of study or training under the statutory right to request time to train, or they exercised a right under the time to train procedure. 

Working tax credit cases

It is automatically unfair to dismiss an Employee because they qualify for working tax credit to be paid through the payroll or because they took steps to enforce their rights in this regard.

Part-time workers

It is automatically unfair to dismiss an Employee because they have sought to exercise their rights under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000. The Regulations provide that part-time workers should be treated no less favourably in their working conditions than comparable full-time workers.

Employees on Fixed Term Contracts

It is automatically unfair to dismiss an Employee because they have sought to exercise their rights under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. The Regulations provide that Fixed Term Employees should be treated no less favourably in their working conditions than comparable permanent Employees.

Zero hours contracts with exclusivity terms

It is automatically unfair to dismiss an individual employed on a zero hour’s contract if the reason for this is in connection with the breach of an exclusivity term in that contract. 

Flexible working requests

It is automatically unfair to dismiss an Employee because he has made an application to work flexibly under the statutory right to request flexible working arrangements. It is also unlawful to subject an Employee to a detriment on these grounds.

Jury service

It is automatically unfair to dismiss an Employee who has been summoned or is absent from work to attend jury service.  It is also unlawful to subject an Employee to a detriment on these grounds.  Note that the protection against dismissal does not apply if the Employer can show that his/her business was likely to suffer substantial injury if the Employee was absent, that the Employer had made this known to the Employee and that the Employee nevertheless unreasonably refused or failed to apply to be excused from jury service or to have his/her jury service deferred. 

Pension enrolment

If the reason for dismissal is the Employer's statutory duties of pension auto enrolment or its contravention of those duties, it is automatically unfair.

Agency workers

It is automatically unfair to dismiss an individual in connection with exercising prescribed rights as an agency worker. 

Political opinions or affiliation

The qualifying period for unfair dismissal will not apply where the main reason for the dismissal is the political opinions or affiliation of the employee. This is not, however, an automatically unfair dismissal.

The following categories set out automatically unfair reasons for dismissal where the 2 year qualifying period does apply:

Dismissals on a transfer of an undertaking

To dismiss an Employee further to a business transfer will be regarded as unfair. The dismissal may be before or after the transfer date and the Employer is only afforded a defence if they can show that the reason for dismissal was either an economic, technical or organisational reason which would necessarily lead to changes being required in the work force.

Spent convictions

It is automatically unfair to dismiss an Employee because of a spent conviction that he/she was not required to disclose. 

Retirement dismissals

Following the abolition of retirement as a potentially fair reason for dismissal, it is automatically unfair to dismiss an individual by reason of retirement.   Although this is subject to minimum length of service requirements, those individuals who are dismissed in these circumstances may still bring an age discrimination claim even if they cannot bring a claim for unfair dismissal due to their short service. 

Written Reasons for Dismissal

Every Employee who has at least 2 years' continuous service with their Employer and who is dismissed is entitled to request a written statement of reasons for that dismissal from the Employer. The Employee may make their request orally or in writing and the Employer must comply with the request within 14 days. In addition, an Employee who is dismissed during pregnancy or maternity or adoption leave, irrespective of length of service, is entitled to a written statement of reasons for dismissal without having to request it. The written statement is admissible in evidence in any Tribunal proceedings.

Should the Employer refuse the request or supply inadequate or untrue reasons, the Employee may bring a complaint before an Employment Tribunal. The complaint may lead to an award against the Employer to pay the Employee a sum equal to two weeks’ pay and a declaration as to what the real reasons were for the termination.

Time Limits

Provided that the employee complies with the ACAS Early Conciliation ("EC") process (and they will not be able to issue a claim if they do not), the three month time limit (starting with the effective date of termination) will be "stayed" to enable the EC process to be completed. The Employment Tribunal has power to extend the time limit where they consider it was not ‘reasonably practicable’ for the Employee to present the complaint in time. In practice, it is rare for Tribunals to grant extensions of time on unfair dismissal applications.

Remedies for Unfair Dismissal

When an Employee has succeeded in their claim for unfair dismissal, the Tribunal must then decide on an appropriate remedy. The most common remedy is compensation, but some individuals may also wish the Tribunal to consider whether it is appropriate for them to return to work. Returning to work is known as re-instatement or re-engagement. The difference between the two is that re-instatement provides return to the same job whilst re-engagement is the return to a comparable job. 

Re-instatement

This is an order made by the Tribunal that the Employer shall treat the ex-Employee in all respects as if they had not been dismissed. The Tribunal will consider:

  • The wishes of the complainant.
  • Whether it is practicable for an Employer to comply with such an order. 
  • The conduct of the complainant when they were employed. 
  • Whether there has been an actual breakdown of trust and confidence in the relationship. 

In practice, the Employer is entitled to object to an order being made and the Tribunal will consider evidence from the Employer in respect of the following:

  • Whether further conflict or industrial unrest would follow. 
  • The resources of the Employer. 
  • Whether it would lead to a redundancy situation or would result in over manning. 

If the Employer’s argument against re-instatement fails, the Tribunal will clarify for the Employer and complainant:

  • Arrears of pay.
  • Other financial benefits payable. 
  • The rights which must be restored to the complainant upon returning to work.
  • The date by which the Employer must comply with the order. 

Re-engagement

This order is one in which the Employer is told to engage the complainant in a comparable position to that from which they were originally dismissed. The Tribunal will hear objections to the order and take into account the points raised above. In addition to the clarification points above, the Tribunal will also clarify:

  • The type of employment.
  • The wage or salary to be paid. 

It should be noted that whilst a Tribunal will consider the changed circumstances of the Employer post-dismissal, it will not allow the mere fact that the Employee has been replaced to provide a defence for the Employer. That would make avoidance of re-instatement and re-engagement orders too easy.

Additional award

If the Employer refuses to comply with an order for re-instatement or re-engagement, the Tribunal is empowered to make what is known as an additional award. This is an amount of compensation of between 26 and 52 weeks’ pay (subject to the statutory limit on a week's pay, details of which can be found in the Rates and Limits document on our website). 

The additional award is made on top of the other awards, typically the basic and compensatory awards.

Basic award

Where it is impractical to order re-instatement or re-engagement, the Employee must look to financial compensation. The first element of compensation will be the basic award which is payable when there is a finding of unfair dismissal. The amount to which the Employee is entitled is dependent upon the following:

  • The age of the Employee.
  • Their length of service. 
  • Their average gross weekly wage. 

Calculation is made by taking into account the statutory maximum sum of a week's pay and a maximum length of service of 20 years starting at the end of the period of service and working backwards in complete years. The Employee is entitled to:

  • 1½ week’s pay for each year during which the Employee was aged 41 or over. 
  • 1 week’s pay for each year during which the Employee was aged 22-40 inclusive.
  • ½ week’s pay for each year during which the Employee was aged 21 or under. 

The amount of the basic award may be further reduced in the following circumstances:

  • Where the conduct of the complainant prior to dismissal would make it just and equitable to do so.
  • Where the complainant has unreasonably refused an offer made by the Employer which would have had the effect of re-instatement prior to the Tribunal hearing.
  • Where the complainant has already received from their Employer an ex gratia payment of such an amount that it may be seen as sufficient to cover the amount of any basic award.
  • Where a redundancy payment has been awarded by the Tribunal or paid by the Employer, by the amount of that payment (provided the Employee was redundant). 

Compensatory award

The amount the Tribunal may grant as a compensatory award may be anything up to a maximum statutory ceiling figure which is the lower of the claimant's gross annual pay or the maximum figure which changes from year to year. For further details please see:

Statutory Rates and Limits table. 

In deciding how much it should award, a Tribunal will take into account the loss to the complainant, including expenses reasonably incurred as a result of the dismissal.

Other damages are assessed in accordance with their net value and include:

  • Loss of wages, from the effective date of termination to the hearing.
  • Future loss of earnings.
  • Loss of personal use of a Company car.
  • Loss of benefits in kind. For example, medical insurance, free accommodation, use of mobile phone or computer, etc.
  • Loss of pension rights.
  • Loss of statutory rights. This covers the loss of employment protection, statutory redundancy pay and the entitlement to statutory minimum notice. Awards are commonly in the region of £250 for loss of statutory rights. 

As with the basic award, the compensatory award may be reduced by the Tribunal. Factors taken into account include:

  • Contributory fault on the part of the complainant whilst in employment. The Tribunal is at liberty to reduce the amount by 100%.
  • Did any procedural failing by the Employer resulting in the finding of unfair dismissal make any difference to the outcome? The compensatory award can be reduced to reflect the ‘no difference’ element. For example, an 80% chance that a dismissal would have occurred in any event will result in the Employee only recovering 20% of the compensatory award.
  • If the employer failed to follow the ACAS Code of Practice in cases where disciplinary proceedings have been or ought to have been invoked the Tribunal could uplift any compensatory award by 25%.
  • Mitigation.
  • Payments already made by the Employer.

Mitigation is an obligation on the Employee, having been dismissed, to do everything reasonably practicable to secure alternative work. In short, Employees will be penalised by the Tribunal if they have not made reasonable attempts to obtain some suitable alternative work. The burden of proving that the complainant has not made every effort to reasonably mitigate their loss is on the Employer. Should the Employee incur necessary expenditure in attempting to mitigate their loss (eg, travel costs), such amounts are recoverable within the compensatory award.

Where the complainant has received State benefits from the date of dismissal, the Tribunal must identify how much of the award covers lost earnings. This amount may then have deducted from it the State benefit element which may be recouped by the State.

The order of deductions is as follows:

  • Calculate the total loss suffered by the Employee.
  • Deduct any payments made by the former Employer.
  • Make any reduction for whether the fairness of the dismissal made any difference or any reduction for failure to mitigate loss. 
  • Make any reduction for contributory fault.
  • Apply the statutory maximum. 

Note that the statutory maximum is only applied after all reductions have been made.

Interest on Tribunal awards

Interest will accrue on awards made by an Employment Tribunal at the rate of 8% per annum starting the day after the relevant decision day, unless paid within 14 days. Interest accrues on a daily basis. Awards of costs or expenses do not carry interest.

Settlement

There are two forms of settlement of claims (or potential claims) acceptable in law:

ACAS (Advisory, Conciliation and Arbitration Service) settlements

Once proceedings have been issued before an Employment Tribunal, an ACAS Officer will become involved with the case in an attempt to resolve the dispute by settlement through negotiation. Where agreement is achieved the details of the settlement are formalised in a document drafted by the ACAS Officer known as a COT3 form. COT3 settlements are binding on both parties.

Settlement Agreements

Where there is a dispute between Employer and Employee that could lead to proceedings being issued, in certain circumstances their differences may be settled using a settlement agreement. The settlement agreement is a simple means of resolving disputes but a number of conditions must be satisfied. For the agreement to be valid in law it must:

  • Relate to a particular dispute between the parties.
  • Be in writing.
  • Have been agreed to by the Employee, who must have received independent legal advice from either a qualified Lawyer (Solicitor or Barrister), a fellow of the Institute of Legal Executives, or a competent Trade Union Officer or official or a competent Advice Centre worker.
  • Identify the independent adviser in the agreement.
  • The independent Adviser must be insured against claims for professional negligence.
  • Contain a declaration that the formalities stated above are satisfied. 

If the Conditions are satisfied the agreement will be legally binding on both parties and will act as full and final settlement of the particular dispute.

ACAS have published a Code of Practice on Settlement Agreements to give guidance on the law of negotiation of settlement agreements, in particular on the confidentiality of such negotiations and the circumstances in which they may be referred to in an employment tribunal.

The Code of Practice gives the following guidance regarding settlement negotiations:

  • Where there has been some improper behavior for the purposes of settlement negotiations this does not mean that an employer will necessarily lose any subsequent unfair dismissal claim that is brought to an employment tribunal. Equally, the fact that an employer has not engaged in some improper behavior does not mean that they will necessarily win any subsequent unfair dismissal claim brought against them.  
  • It may be helpful if any reasons for the proposal are given when the proposal is made. Whilst the initial proposal may be oral, one of the requirements for a settlement agreement to become legally binding is that the agreement must ultimately be put in writing.
  • Parties should be given a reasonable period of time to consider the proposed settlement agreement. What constitutes a reasonable period of time will depend on the circumstances of the case. As a general rule, a minimum period of 10 calendar days should be allowed to consider the proposed formal written terms of a settlement agreement and to receive independent advice, unless the parties agree otherwise.
  • The parties may find it helpful to discuss proposals face-to-face and any such meeting should be at an agreed time and place.
  • Whilst not a legal requirement, employers should allow employees to be accompanied at the meeting by a work colleague, trade union official or trade union representative. Allowing the individual to be accompanied is good practice and may help to progress settlement discussions.

The full Code of Practice is available here:

www.acas.org.uk/media/pdf/j/8/Acas-Code-of-Practice-on-Settlement-Agreements.pdf

This document has been created by, or on behalf of ESP Ltd, as a general document and as a guide in relation to its subject matter and has not been bespoke drafted for you or the specific circumstances in which you are looking to use it. Prior to using this document and undertaking any HR process you must consult your organisation’s own policies and procedures to ensure that you do not do anything in conflict with your own policies and procedures.  If in any doubt as to how to use this document or, if you require any legal advice, please feel free to contact ESP Ltd on 0333 006 2929 and our legal team will be more than happy to assist.  ESP Ltd will not be liable in any way for any actions undertaken by you or your use of this document unless we have been consulted regarding your use of this document as legal advisor to your business or have bespoke drafted any documentation in response to a specific support request.