March 28, 2007

Unfair and Wrongful Dismissal - UK

Unfair Dismissal - The Current Position in a Nutshell

Recent statistics reveal that of the 86,000 cases brought before tribunals, 46% involved claims for unfair dismissal, making it the single biggest cause of action.

At common law, an employer can dismiss an employee whenever he chooses, whether he has good reason or not. The only criteria are that he gives the employee full notice and complies with the conditions of the contract. If these measures are followed, the employee has no remedy even where the contract is breached.

Employees will be relieved to learn that the law has progressed from the position above and currently incorporates the concept of "fairness" into the determination of contracts of employment. The burden is now on the employer to demonstrate:
  1. He had good reason to dismiss.
  2. He acted fairly in dismissing.
  3. The general way in which he handled the dismissal was not unfair to the employee.

Is There A Potential Claim For Unfair Dismissal?

There are three basic criteria that need to be satisfied for a claim of unfair dismissal:

  1. The employee must be an "eligible employee"

    The first port of call is whether a potential claimant is in fact eligible to claim relief under the Act. Section 94 of the Employment Rights Act 1996, states that every "eligible employee" has the right not to be unfairly dismissed by his employer.

    Who is an "eligible employee"?
    An eligible employee will, as a general rule be an employee that has completed one year's continuous employment in order to qualify to bring an unfair dismissal claim.

    It is worth noting however, that the answer above is over-simplistic; the question of "eligibility" is a potentially complex one.

    It is important to understand that there are a number of exceptions to the one-year qualifying period that need to be considered. These exceptions do not require the employee to have completed one year's employment in order to bring a claim for unfair dismissal. To illustrate this point, a non-exhaustive list follows:

    1. Dismissals related to trade union membership.
    2. Dismissals related to pregnancy, childbirth or maternity.
    3. Dismissals related to health and safety reasons.
    4. Dismissals related to part-time status.
    5. Dismissals related to enforcing the right to be paid minimum wage.

    On the other side of the coin, there are also are categories of employees who will not be able to bring a claim even after one year of employment as listed (non-exhaustive) below:

    1. Employees above normal retirement age.
    2. Member of the armed forces.
    3. Civil servants if national security is involved.
    4. Expiry of a fixed term contract. [Note: a person who has had a series of fixed term contracts of one year or over on aggregate may in some circumstances qualify as an "eligible employee" and therefore be able to bring forth a claim for unfair dismissal.]
    5. Illegal contracts.
    6. Striking workers. [Note: an employee taking part in official industrial action can only complain of unfair dismissal if there has been selective dismissal of employees taking part in that action. If the employer dismisses all the employees taking part in the action, they cannot claim unfair dismissal.]

  2. The employee must have been dismissed

    The second criterion is that the employee must have been dismissed and his employment terminated. If the issue is in dispute, the onus of proof is on the employee to show that he has indeed been dismissed. This would be particularly relevant in the event of a constructive dismissal.

    What is constructive dismissal?
    Constructive dismissal occurs when an employer commits a "repudiatory" or serious breach of an express or implied term of the contract of employment. Contract is a sacred aspect of the English legal system and therefore the breach referred to above must be sufficiently serious to warrant the ending of a contract.

    It is important to realise that unreasonable behaviour by an employer will not of itself be conduct that is sufficiently serious to end the contract. However, if the unreasonable behaviour is sufficiently serious it may amount to a breach of the mutual trust and confidence between the parties which is an implied term in almost any contract.

    Examples of such a situation would be the failure of an employer to pay wages, or to unreasonably change the location of work so as to make the conditions of employment untenable for the employee.

    After the serious breach by the employer, the employee is then entitled to accept the employer's breach and resign from his position. The contract is therefore discharged. It is important that the employee resigns in response to the breach of contract and should make this clear when resigning. If the employee does not make this clear in some circumstances, it may be evidence that he resigned for reasons that may not entitle him to treat himself as constructively dismissed.

    It is vital that the employee accepts the breach within a reasonable time of the repudiation. If he does not, he may be taken to have affirmed the contract and thus lose his right to an unfair dismissal claim.

  3. The dismissal must have taken place unfairly

    The onus is on the employer to show that the dismissal is for one of the five permitted reasons below as defined by the ERA 1996, s. 98.

    It is for the employer to establish the only or principal reason for the dismissal, and it must fall within the following:

    1. Relating to the capability or qualifications of the employee.
    2. Relating to the conduct of the employee.
    3. That the employee was redundant.
    4. That the employee could not continue to work in the position held without contravening some statutory provision; or
    5. There was some other substantial reason justifying dismissal of the employee.

The Concept Of "Fairness" Explained

It is also important to note that it is not only dismissal for an unfair reason, which gives an employee the right to claim unfair dismissal.

The conduct and manner in which an employer dismisses an employee is of paramount importance. This is because a dismissal can and will amount to an unfair dismissal in the eyes of a Tribunal if the manner in which the dismissal was handled is unfair. For example, if an employee is not consulted and/or given a fair chance to improve the dismissal may be found to be unfair.

The current law requires an employer to carefully consider the options before him prior to terminating a contract of employment. It is important to note that there are situations in which an employer is entitled to summarily dismiss, i.e. dismiss an employee without any notice. This would be in cases where the employee is guilty of gross misconduct such as stealing or selling confidential company information. In these situations, the employer can simply "fire" an employee without any notice.

What happens once an employee is found to have been unfairly dismissed?

The remedies available are:

  1. Reinstatement
    A solution provided by the Tribunal where the employee has his previous position returned to him.

  2. Re-engagement
    This occurs when the employee starts a different job with the same employer, his successor or an associated employer. In practice however, the remedies described at 1. and 2. above are rarely ordered by Tribunals.

  3. Compensation
    Compensation is the most common remedy awarded by Tribunals, and is considered in two parts: the basic award and the compensatory award.

The Basic Award

The basic award has a theoretical maximum of £8,700, but is calculated according to a rigid formula that only rarely reaches the maximum amount by applying a formula based on length of continuous service (years), the appropriate age factor and one week's pay.

A maximum of 20 years employment can be taken into account when calculating the basic award. A week's pay may not be higher than £290, but cannot be lower that the national minimum wage.

The age factor applies to the calculation as follows:

  • For each complete year of employment working backwards from dismissal that the employee was aged 41 and over he receives one and a half week's pay.

  • For each complete year of employment working backwards from dismissal that the employee was aged between 22 and 41 he receives one week's pay.

  • For each complete year of employment working backwards from dismissal that the employee was aged below 21 he receives a half week's pay

The basic award will be reduced if:

  • The tribunal considers that the employee's conduct before dismissal justifies a reduction.

  • The employee was within a year of age 65 at the effective date of termination.

  • The employee has unreasonably refused an offer of reinstatement from the employer, or has unreasonably prevented the employer from complying with an order for reinstatement; or

  • The employee has already been awarded or has received a redundancy payment; or

  • The employee has been awarded any amount in respect of the dismissal under a designated dismissal procedures agreement.

The basic award can be expressed mathematically as:

Basic award = [years of continuous employment] x [age factor] x [weekly pay]

The Compensatory Award

This award compensates the employee for the loss suffered as a result of the dismissal insofar as the employer is responsible for this loss. As well as covering the loss of earnings between the dismissal and the hearing and an estimate of future loss, the tribunal will also consider matters such as loss of pension, other rights and any reasonable expenses incurred by the employee as a result of the dismissal.

The compensation awarded may be reduced by the tribunal if, for example, it is found that the employee was partly to blame for the dismissal, or that the employee has not tried to find another job in the meantime.

The compensatory award is difficult to predict and is intended to compensate the employee for financial loss and often involves the inexact science of calculation of future earnings. It is currently subject to a maximum award of £58,400.

Time Limit for Bringing a Claim for Unfair Dismissal

An unfair dismissal claim must generally be presented to an employment tribunal before the end of three months from the date employment ended (otherwise referred to as the 'effective date of termination' or 'EDT').

There are means by which this time limit can be extended, most commonly by following a grievance procedure. This is a complicated part of the law surrounding unfair dismissal and it is therefore always best to act on the advice of a trained employment lawyer.

Wrongful Dismissal

Wrongful dismissal is a common law concept. It is simply another name for a dismissal in breach of contract. The most common example of this is the failure to give employees the contractual notice they are entitled to when the circumstances do not justify instant dismissal.

Wrongful dismissal is most relevant in cases where employees are entitled to a long notice period or to a particularly valuable remuneration package. Wrongful dismissal is therefore particularly relevant if the employee is in a senior position, due to the large amount of compensation that can be recovered from the employer for the breach of contract.

Wrongful dismissal can also occur when the employee is constructively dismissed (see note on unfair dismissal for explanation of constructive dismissal).

However, an employee can be dismissed summarily in situations where the employer is entitled to treat the contract as discharged, and dismiss the employee without notice. This will generally occur in serious circumstances such as where an employee is found to be stealing money, selling trade secrets or behaving in a manner equivalent to gross misconduct so that the reasonable response on the part of the employer is to dismiss that employee instantly.


There is no statutory limit to the amount of damages a Court can award for wrongful dismissal, though Tribunals are limited to a maximum award of £25,000.

Time Limits for Wrongful Dismissal

High Court - An action must be brought within six years, and there is no upper limit on the level of damages, which may be awarded.

Tribunals - The action must be brought within three months of termination. This limit however, can be extended at the discretion of the Tribunal and through the use of the appropriate grievance procedure.

General Advice

Unfair dismissal and wrongful dismissal are totally separate concepts. Thus, a dismissal may be either unfair or wrongful, both unfair and wrongful, or neither.

The Obligation to "Mitigate" the Loss

The employee is under a duty to mitigate the loss of his employment and the consequences that follow. Once employment is terminated, the employee must take steps to obtain suitable alternative employment. This includes accepting reasonable offers of re-employment.

Unfair and wrongful dismissal: Where does one bring the claim?

Currently, the ordinary courts have no jurisdiction to hear unfair dismissal cases. However, since 1994, Tribunals have had jurisdiction to hear both wrongful dismissal claims as well as unfair dismissal claims.

It is important to realise the significance of Tribunals having a limit of £25,000 on the amount of compensation that can be awarded for wrongful dismissal. The result of this is that the most sensible route for a claimant may be to pursue an unfair dismissal claim before an Employment Tribunal, and a breach of contract (wrongful dismissal) claim before a County Court or the High Court.


As a general rule, no costs are awarded in employment tribunals. This means that bringing a claim in an employment tribunal is relatively risk free as far as legal costs vis a vis Tribunals are concerned.

Unlike most cases held in Courts, costs are not generally awarded in employment tribunals. It is prudent to note however, that tribunals do have the power to award costs if they deem it necessary in the circumstances.


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