August 2015: Employers will welcome an Employment Appeal Tribunal (EAT) decision that recognises the challenges that businesses face when dismissing an employee. The EAT held that an employee’s dismissal was fair despite serious procedural failings at the first stage of the disciplinary process.

The EAT also held that the composition of the appeal panel did not render the dismissal unfair despite not all members of the panel meeting the standards set out in the Acas Code. Businesses often encounter practical difficulties when identifying an appropriate appeal manager and small organisations may find that there is no one of sufficient seniority who is also independent.

March 2014: Two recent Employment Appeal Tribunal (EAT) cases highlight some of the issues a business needs to consider when contemplating dismissing an employee.

The first case is a reminder to employers that contractual termination provisions must be clearly drafted and will be interpreted according to general contractual principles regarding repudiatory breach. The EAT held that an employer was not entitled to rely on a contractual termination provision to dismiss an employee without notice for breach of its customer’s security requirements. Although the employee had breached those requirements, the EAT interpreted the termination provision against the backdrop of the general principle that a summary dismissal is not justified unless there has been gross misconduct or gross negligence.

In the second, the EAT found that an employer who had dismissed an employee for gross misconduct was not required to follow the decision of an independent panel, who had heard the employee’s appeal and which overturned the employer’s decision to dismiss. The fact that the employer did not implement the panel’s decision did not render the dismissal unfair. This case shows that an employer, who has outsourced its appeal process to an independent panel, will not always be bound to implement the panel’s decision. Nevertheless, the decision should not be seen as carte blanche for employers to disregard such appeal decisions.

This business briefing sets out the steps a business should follow when it is considering dismissing an employee.

Why is it important to follow the law when dismissing an employee? Dismissing an employee for a reason other than one allowed by law, without following the correct procedure or giving adequate notice, may lead to a claim for unfair or wrongful dismissal against the business. Compensation for a successful claim can potentially be substantial. Regardless of whether a claim succeeds, the costs of defending it, in terms of management time and legal costs, may be significant and are not usually recoverable.

Establish whether there are grounds for dismissal: There are several potentially fair reasons for dismissing an employee:

  • Their conduct at work (for example, they have filed a fraudulent expenses claim or persistently arrive late at work)
  • Their inability to carry out their job because they lack the necessary skills required (for example, a sales manager has consistently failed to meet reasonable sales targets despite receiving additional support and training)
  • Their absence on long-term sick leave and inability to return to their job
  • Their job is redundant (for example, if the business is declining or the workplace is facing closure). Do not use redundancy as an easy alternative to dismissing an employee for poor performance. The “redundant” employee could make a claim for unfair dismissal
  • Their continued employment would be illegal (for example, the business has discovered that an employee’s immigration status does not permit them to work)
  • They are being dismissed for what is known as “some other substantial reason”, that is something not falling into one of the above categories which nevertheless warrants dismissal, such as where the relationship between the parties has broken down

Dismissing an employee for any reason other than those listed above will be unfair.

Always follow the correct procedure

  • Even if a business has established a potentially fair reason for dismissing an employee, it must still follow the correct procedure. Failure to do so could lead to a claim for unfair dismissal
  • Generally, an employee must have completed a qualifying period of service before they can bring a claim for unfair dismissal. The qualifying period is two years
  • However, certain dismissals are deemed to be automatically unfair and an employee is protected as soon as they start work. These include dismissals connected with:
    • pregnancy
    • parental leave
    • requests for flexible working
    • whistleblowing, or
    • a TUPE transfer

Check the employee’s contract: It is possible to dismiss an employee fairly but still be in breach of contract if the business has not given them the correct notice under their contract. A business does not want to take any action that could breach an employee’s contract because:

  • It may lose valuable protections in the contract such as post-employment restrictions (for example, stopping an employee going to work for a competitor)
  • The employee may have a claim for wrongful dismissal in breach of contract (for example, if the business fails to give them their contractual notice period or pay a contractual bonus)

PILON clauses

  • A payment in lieu of notice (PILON) clause is a contractual right that enables a business to pay an employee a lump sum rather than require them to work out their statutory or contractual notice period
  • Before terminating employment and making a PILON, the business should ensure that the contract of employment they wish to terminate allows for termination in this way. If the contract does not allow for a PILON to be made, then it will probably be a breach of the contract to do so
  • If a business decides to make a PILON, it must notify the employee that a PILON is being made to them in exercise of the employer’s contractual right to terminate the employment with immediate effect. Simply making the PILON will not be sufficient to bring the contract to an end

The content of this Business Briefing is for information only and does not constitute legal advice. It states the law as at August 2015. We recommend that specific professional advice is obtained on any particular matter. We do not accept responsibility for any loss arising as a result of the use of the information contained in this briefing.