Types of Dismissal in UK Employment Law
In the context of UK employment law, dismissals are a critical aspect that employers must handle with care to avoid legal repercussions. The Employment Rights Act 1996 outlines several types of dismissals, each with specific legal implications and procedural requirements. Understanding these types is essential for both employers and employees to ensure compliance with the law and to protect their respective rights.
Fair dismissal
A fair dismissal occurs when an employer has a valid reason for terminating an employee's contract and follows a fair procedure. The Employment Rights Act 1996 specifies five potentially fair reasons for dismissal:
Capability or Qualifications: This reason pertains to an employee's ability to perform their job duties effectively. It includes situations where an employee lacks the necessary skills or qualifications to fulfil their role. Employers must provide evidence of the employee's incapability and demonstrate that they have taken reasonable steps to support the employee before deciding to dismiss.
Conduct: Dismissal for conduct relates to an employee's behaviour that is deemed unacceptable. This can range from minor misconduct, such as persistent lateness, to gross misconduct, such as theft or violence. Employers must conduct a thorough investigation and follow a fair disciplinary process before dismissing an employee for conduct-related reasons.
Redundancy: Redundancy occurs when an employer needs to reduce their workforce due to business closure, relocation, or a decrease in the need for certain roles. Employers must follow a fair redundancy process, including consultation with affected employees and consideration of alternative employment options.
Statutory Illegality: This reason applies when continuing to employ an individual would result in a breach of the law. For example, if an employee loses a necessary license to perform their job, such as a driving license for a delivery driver, the employer may have grounds for dismissal.
Some Other Substantial Reason (SOSR): This is a catch-all category for dismissals that do not fit into the other four categories but are still considered fair. Examples include a breakdown in trust and confidence or a conflict of interest that cannot be resolved.
Unfair dismissal
Unfair dismissal occurs when an employer terminates an employee's contract without a fair reason or fails to follow a fair procedure. Employees with at least two years of continuous service have the right to claim unfair dismissal. However, certain dismissals are automatically unfair, regardless of the employee's length of service. These include dismissals related to pregnancy, maternity leave, whistleblowing, or trade union activities.
To defend against an unfair dismissal claim, employers must demonstrate that they had a fair reason for the dismissal and that they followed a fair process. This includes conducting a proper investigation, providing the employee with an opportunity to respond to allegations, and allowing them to appeal the decision.
Constructive dismissal
Constructive dismissal occurs when an employee resigns due to their employer's conduct, which has made their working conditions intolerable. This can include breaches of contract, such as failing to pay agreed wages, or allowing harassment or bullying to occur. To succeed in a constructive dismissal claim, the employee must prove that the employer's actions constituted a fundamental breach of contract, leaving them with no choice but to resign.
Constructive dismissal claims can be challenging to win, as the employee must demonstrate that the employer's conduct was serious enough to justify their resignation. It is advisable for employees to seek legal advice before resigning and pursuing a claim.
Wrongful dismissal
Wrongful dismissal is a breach of contract claim that arises when an employer dismisses an employee without providing the required notice period or pay in lieu of notice. Unlike unfair dismissal, wrongful dismissal does not require the employee to have a specific length of service. The focus is on whether the employer breached the terms of the employment contract.
Employees can pursue wrongful dismissal claims in either the Employment Tribunal or the civil courts. The remedy for wrongful dismissal is typically compensation for the notice period that the employee should have received.
Summary dismissal
Summary dismissal is an immediate termination of employment without notice or pay in lieu of notice, usually due to gross misconduct. Gross misconduct includes serious offenses such as theft, fraud, or physical violence. Employers must ensure that they have clear evidence of gross misconduct and follow a fair disciplinary process before proceeding with summary dismissal.
Even in cases of gross misconduct, employers should conduct a thorough investigation and provide the employee with an opportunity to respond to the allegations. Failure to follow a fair process can result in claims for unfair or wrongful dismissal.
Automatically unfair dismissal
Certain dismissals are deemed automatically unfair, regardless of the employer's reasons or the process followed. These include dismissals related to:
Pregnancy and maternity leave
Family-related leave, such as parental or adoption leave
Whistleblowing
Health and safety activities
Trade union membership or activities
Employees do not need to have a minimum length of service to claim automatically unfair dismissal. Employers must be cautious when dismissing employees for reasons that could fall into these categories, as they carry significant legal risks.
Conducting a dismissal process
Before initiating a dismissal, it is crucial for employers to understand the valid grounds for termination under the Employment Rights Act 1996. As noted above, these include: Conduct; Capability; Redundancy; Statutory Illegality; and Some Other Substantial Reason (SOSR).
Following a fair procedure
A fair procedure is essential in any dismissal process to mitigate the risk of unfair dismissal claims. The following steps outline a fair procedure:
1. Investigation
Conduct a thorough investigation to gather all relevant facts. This may involve reviewing documents, interviewing witnesses, and collecting evidence. The investigation should be impartial and comprehensive to ensure that the decision to dismiss is based on solid grounds.
2. Notification
Inform the employee of the allegations against them in writing. This notification should include details of the alleged misconduct or performance issues, the evidence gathered, and the potential consequences. The employee should be given sufficient time to prepare their response.
3. Disciplinary hearing
Hold a disciplinary hearing where the employee can present their case, ask questions, and provide evidence. The employee has the right to be accompanied by a colleague or trade union representative. The hearing should be conducted by an impartial decision-maker who has not been involved in the investigation.
4. Decision making
After the hearing, the decision-maker should consider all the evidence and decide whether dismissal is warranted. The decision should be communicated to the employee in writing, outlining the reasons for dismissal, the effective date of termination, and the employee's right to appeal.
5. Right to appeal
The employee should be informed of their right to appeal the decision. The appeal process should be conducted by a different manager who was not involved in the original decision. The outcome of the appeal should be communicated to the employee in writing.
Legal considerations and compliance
Employers must ensure compliance with the Acas Code of Practice on Disciplinary and Grievance Procedures. Failure to follow the Code can result in increased compensation awards in the event of an unfair dismissal claim.
Notice and pay
Employees are generally entitled to notice or pay in lieu of notice unless they are dismissed for gross misconduct. The notice period should be specified in the employment contract and must comply with statutory minimums.
Discrimination and protected characteristics
Employers must be cautious to avoid discrimination based on protected characteristics such as age, sex, disability, or race. Any dismissal that is linked to a protected characteristic could be deemed automatically unfair.
Documentation and record keeping
Maintain detailed records of the entire dismissal process, including investigation notes, correspondence, and meeting minutes. This documentation will be crucial in defending against any potential claims of unfair dismissal.
Special considerations
Dismissing an employee under special circumstances requires careful consideration of legal obligations and best practices. UK employment law provides specific protections for employees in certain situations, including those with less than two years of service, employees who are disqualified from driving, dismissal and rehire scenarios, and employees who are pregnant or on maternity leave. This guide outlines the key legal principles and best practices to ensure fair and compliant dismissal procedures.
Dismissal before two years of service
Legal framework and exceptions
Under the Employment Rights Act 1996, employees generally require two years of continuous service to claim unfair dismissal. However, there are significant exceptions where this qualifying period does not apply, such as dismissals for:
Discrimination (Equality Act 2010 – race, gender, disability, etc.)
Pregnancy or maternity-related reasons
Whistleblowing
Trade union activities
Asserting statutory rights (e.g., holiday pay claims)
Dismissals falling under these exceptions are considered automatically unfair, meaning an employee can bring a claim regardless of their length of service.
Notice period and wrongful dismissal
Employees with at least one month of service are entitled to at least one week’s statutory notice. Contractual notice periods may be longer. Failure to provide proper notice or pay in lieu of notice could lead to wrongful dismissal claims, which do not require a qualifying period.
Best practices for employers
To mitigate legal risks, employers should:
Follow a fair process – While not legally required for employees under two years, a documented dismissal process reduces risk.
Hold formal meetings – Allow employees to respond to concerns.
Provide written notice – Clearly outline the reason for dismissal and appeal rights.
Avoid automatically unfair dismissals – Ensure terminations are not linked to protected rights.
Adhere to the ACAS Code of Practice – Even if unfair dismissal protections do not apply, this strengthens an employer’s legal position.
Managing an employee disqualified from driving
Legal and employment considerations
If an employee’s role requires driving and they become disqualified, employers may consider dismissal. However, this must be handled fairly to avoid unfair dismissal claims.
Employer responsibilities
Assess the impact on the employee’s role – If driving is essential, continued employment may not be viable.
Explore alternative roles – Can the employee be reassigned to a non-driving role?
Follow a fair disciplinary process – Conduct an investigation, hold a hearing, and allow an appeal.
Comply with health and safety laws – Under the Health and Safety at Work Act 1974, employers must not allow disqualified employees to drive for work.
Best practices
Review company policies – Clearly outline driving requirements and consequences of disqualification.
Communicate expectations – Employees should understand potential consequences in advance.
Consider temporary solutions – If the disqualification is short-term, alternative duties may be assigned.
Keep detailed records – Document all communications and decisions to demonstrate fairness.
Dismissal and re-engagement ("Fire and Rehire")
New Code of Practice (2025)
Employers considering dismissal and re-engagement must comply with the statutory Code of Practice on Dismissal and Re-engagement, which requires:
Genuine consultation – Engage in meaningful discussions with employees.
Transparency – Share detailed information on proposed changes and alternatives.
Extended notice periods – Provide employees sufficient time to adapt to changes.
ACAS involvement – Employers should seek guidance from ACAS before dismissing and re-engaging employees.
Legal risks
Employment Tribunal penalties – Failure to follow the Code may result in a 25% increase in unfair dismissal compensation.
Protective awards – Non-compliance with collective consultation obligations could lead to awards of up to 90 days’ gross pay per affected employee.
Discrimination claims – If changes disproportionately impact specific groups (e.g., working parents, disabled employees), employers could face discrimination claims.
Best practices
Assess business needs – Consider alternative measures such as voluntary redundancies or reduced hours.
Consult thoroughly – Provide employees with a full explanation and seek feedback.
Engage ACAS – Ensure compliance with best practices.
Provide reasonable notice – Allow employees time to adjust or seek alternative employment.
Maintain records – Keep detailed documentation to demonstrate compliance.
Dismissal of employees who are pregnant or on maternity leave
Legal protections
Pregnant employees and those on maternity leave are protected under:
Equality Act 2010 – Prohibits dismissal based on pregnancy or maternity.
Employment Rights Act 1996 – Provides protection against unfair dismissal.
Regulation 10 of the Maternity and Parental Leave Regulations – Requires employers to offer a suitable alternative role if redundancy occurs during maternity leave.
Protection from Redundancy (Pregnancy and Family Leave) Act 2023 – Extends redundancy protection from the notification of pregnancy until 18 months after childbirth.
Redundancy considerations
Redundancy must be genuine – Employers must show a legitimate business reason.
Selection criteria must be fair – Attendance-based criteria should exclude pregnancy-related absences.
Consultation is required – Employers must engage employees in discussions and provide suitable alternative vacancies.
Documentation is critical – Records of redundancy decisions must be maintained to defend against claims.
Legal risks
Automatically unfair dismissal – Dismissal based on pregnancy or maternity leave is unlawful.
Employment Tribunal compensation – Includes basic awards (up to £16,140) and compensatory awards (capped at £88,519 or one year’s gross pay). Discrimination claims have no cap.
Best practices
Ensure redundancy is legitimate – Provide objective evidence.
Use fair selection criteria – Avoid criteria that disproportionately impact pregnant employees.
Conduct meaningful consultations – Keep employees informed and involved.
Offer suitable alternative employment – Prioritize employees on maternity leave when vacancies arise.
Keep detailed records – Documentation is essential to demonstrate compliance.
Post-dismissal considerations
Handling a Request for a Written Statement of Reasons for Dismissal
Under UK law, employees with two or more years of continuous service have the right to request a written statement of reasons for their dismissal. Employers must respond within 14 days, in line with Section 92 of the Employment Rights Act 1996 (ERA 1996). Failure to comply may lead to a tribunal order and compensation of up to two weeks’ pay.
Legal importance
Providing a written statement ensures transparency, helps prevent disputes, and serves as evidence of a fair dismissal process. It is both a legal obligation and best practice.
What to include in the dismissal letter
Reason for Dismissal: Clearly state the grounds and factual basis.
Factors Considered: Summarise key issues, including warnings or mitigating factors.
Process Followed: Outline steps taken, such as investigations or hearings.
Notice Period: Clarify whether notice is worked or paid in lieu.
Termination Date: Confirm the contract end date.
Right to Appeal: Provide appeal details and timelines.
Fair reasons for dismissal
The ERA 1996 identifies five potentially fair reasons:
Capability – underperformance or ill health.
Conduct – misconduct, such as lateness or absence.
Redundancy – role no longer required.
Statutory Illegality – continued employment would break the law.
Some Other Substantial Reason (SOSR) – e.g. third-party pressure or breakdown in trust.
Procedural fairness
Employers should follow the ACAS Code of Practice:
Investigate thoroughly.
Inform the employee in writing.
Hold a hearing.
Allow representation.
Offer the right to appeal.
Risks of non-compliance
Failure to provide a statement or follow fair procedures can lead to claims of unfair dismissal, with potential compensation including basic and compensatory awards.
Practical steps for employers
Acknowledge the request within 14 days.
Draft a clear, complete dismissal letter.
Ensure the reason is fair and procedure followed.
Seek legal advice if needed.
Keep detailed records throughout.
Prepare for tribunal claims with documentation.
Guidelines for making a Payment in Lieu of Notice (PILON)
What is PILON?
Payment in Lieu of Notice (PILON) allows an employer to terminate employment immediately by paying the employee the amount they would have earned during their notice period. This avoids requiring the employee to work their notice. PILON must be contractually permitted or agreed with the employee.
Legal framework
Contractual PILON: If included in the employment contract, the employer can terminate without notice and pay the employee instead.
Non-contractual PILON: If not provided for in the contract, paying in lieu will usually be a breach of contract, although it may still be lawful with agreement.
PILON is governed by contract law, not statute. There is no statutory right to PILON in the UK.
The employment contract should state:
When PILON applies (e.g. on termination)
What’s included (basic pay only or also benefits, commissions, bonuses)
How it's calculated
When to use PILON
PILON is commonly used:
In redundancies
For dismissals where immediate exit is preferred (e.g. misconduct or strategic reasons)
By agreement, when the employer or employee wishes to end the relationship quickly
Calculating PILON
If the contract limits PILON to basic salary, only that must be paid. If not, the employee is entitled to full compensation for the notice period, as if they had worked it - including:
Basic pay
Contractual benefits (e.g. car allowance, pension contributions)
Bonus or commission, if it would have accrued during notice
Example
Salary: £3,000/month
Benefits: £200/month
Notice period: 3 months
PILON: £9,000 (salary) + £600 (benefits) = £9,600
Taxation of PILON
Under the Post-Employment Notice Pay (PENP) rules in ITEPA 2003, PILON is usually taxable as general earnings:
PENP is always taxable and subject to Class 1 NICs
Any excess payment (e.g. ex gratia) may qualify as a termination payment
The first £30,000 of a qualifying termination payment is exempt from income tax, and not subject to employee NICs
Employer NICs still apply above £30,000
Note: This applies whether or not PILON is contractual.
Advantages and disadvantages
Employers
Enables immediate termination
Avoids workplace disruption
Involves lump sum cost
Risk of dispute if poorly handled
Employees
Receive immediate payment
Free to seek new employment
May lose benefits during notice period
Tax liability may be higher than expected
Best practices
Include a well-drafted PILON clause in the contract
Specify whether it covers salary only or full remuneration
Communicate clearly and issue a written confirmation of termination terms
Keep detailed records for payroll and legal compliance
Seek legal advice in complex or high-risk situations
Termination date and tribunal implications
When PILON is made, the effective date of termination is the actual termination date - not the end of what would have been the notice period. This is critical for:
Calculating statutory entitlements (e.g. redundancy pay)
Determining eligibility to claim unfair dismissal
Limitation periods for bringing a tribunal claim (usually 3 months from the termination date)
Handling annual leave for an exiting employee
When an employee resigns or is dismissed, employers must handle any accrued or excess annual leave in line with the Working Time Regulations 1998 and the employment contract.
Statutory entitlement
Full-time employees are entitled to 5.6 weeks (28 days) of paid annual leave per year, including bank holidays.
Part-time employees receive a pro-rated entitlement based on hours worked.
Leave accrues from day one of employment.
Accrued leave calculation
Use the formula: (A × B) – C
A = Annual leave entitlement
B = Proportion of leave year worked
C = Leave already taken
Example:
28 days × (6 ÷ 12) = 14 days accrued – 3 days taken = 11 days owed
Overused leave
If an employee has taken more leave than accrued:
Employers may deduct the equivalent amount from final pay if the contract allows and the employee has agreed to deductions in writing.
Without such agreement, recovery may be unlawful.
Leave during notice period
Refusing Requests
Employers can refuse holiday during the notice period based on business needs, provided decisions are fair and communicated clearly.
Requiring Leave to Be Taken
Employers can require employees to use statutory leave during notice by giving double the length of the leave as notice (e.g. 10 days’ notice to enforce 5 days’ leave).
Payment in Lieu of Untaken Leave
Any unused statutory holiday must be paid on termination. This should be calculated using the employee’s normal rate of pay and included in final pay.
Accrual during absence
Sickness: Statutory leave continues to accrue. Employees may carry over up to 4 weeks, to be used within 18 months if they could not take it due to illness.
Maternity/Family Leave: Full statutory leave accrues during these periods and can be carried over without restriction.
Policy and communication
Employers should have a clear annual leave policy, including processes for requesting, approving, or refusing leave, and how leave is calculated for irregular or part-time hours.
Policies should be well communicated, and line managers trained to apply them consistently.
Handling disputes
If an employee believes leave has been unfairly refused:
They may raise the issue informally or through a formal grievance.
If unresolved, they can pursue a claim through an employment tribunal, following ACAS early conciliation.
Managing final arrangements
Exit interviews should confirm leave balance, discuss any deductions or payments in lieu, and ensure clarity on final pay.
Employers must issue a P45, deduct correct tax/NICs, and retain records of leave and pay.
Final handovers should be arranged to ensure continuity of work.
