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Termination of Employment and Dismissal

INTRODUCTION

As with all contracts, the employment contract may be terminated in a number different ways, either with or without notice. Occasionally the contract may come to an end by operation of law through being frustrated. Although all such situations will lead to the contract being terminated, the circumstances will be important in deciding whether or not the termination amounts to a dismissal for statutory purposes. If it does amount to a dismissal, then the employee may have certain other statutory remedies against the employer upon termination of the contract, such as the right to claim unfair dismissal, or an entitlement to a redundancy payment. This will not, however, affect the termination of the contract.  

TERMINATION WITH NOTICE

The employment contract can be lawfully terminated by the employer or employer giving the other party the notice required under the contract (provided this at least equals the minimum notice requirements). Ordinarily the employment contract will set out the notice required to be given in order to terminate the contract. Often the contract will allow the employer to make a payment in lieu of notice, and so terminate the contract immediately. The employment contract will usually state that the notice must be in writing in order to be effective. However, in the absence of this, there is no legal requirement for notice to be in writing. Once notice has been given, then it may only be withdrawn by agreement. Where the employment contract is terminated by the employer with notice, then this will amount to a dismissal for statutory purposes. However, where the employee resigns, then this will not amount to a dismissal, unless a tribunal decides that the resignation was not in reality of the employee’s own volition. If pressure has been applied on the employee to resign (for example, where the employee is told to resign or else he will be dismissed) then it is likely that this will be treated as a dismissal for statutory purposes. 

Where the contract is silent, then the courts will imply a reasonable period of notice, depending upon the particular circumstances. Certain minimum periods of notice are implied into employment contracts (see below), and clearly if the contract is silent then the courts will not imply a notice period less than the statutory minimum. However, longer notice periods may be implied depending upon the specific circumstances. For example, the more senior the employee, the longer the notice period that the courts are likely to imply.

  1. MINIMUM NOTICE REQUIREMENTS 

The ERA 1996 lays down certain minimum notice periods that are implied into all employment contracts (section 86). The right to receive minimum notice applies after an employee has been continuously employed for one month or more, and therefore during the initial month of employment the notice period that applies is a matter for agreement between employer and employee. It should be noted that the rights to  receive minimum notice do not apply in circumstances where a party is entitled to terminate the contract without notice because of the conduct of the other party (i.e. gross misconduct or constructive dismissal). An employee’s minimum notice entitlements are as follows:

  • At least 1 week’s notice when he has been continuously employed more than a month but less than 2 years; and

  • 1 week’s notice for each year of employment when he has been continuously employed for more than 2 years, subject to a maximum entitlement of 12 weeks.

An employee who has been continuously employed for more than a month is required to give his employer at least 1 week’s notice.  

Any provision for shorter notice is ineffective and the higher limits will apply. However, the parties are free to agree longer periods of notice if they choose (and frequently do). Similarly, these provisions do not prevent a party from waiving his right to minimum notice if he wishes, or from accepting a payment in lieu of notice.

Temporary Workers

Where an employee is employed under a contract for a specific period of 1 month or less, but has been continuously employed for 3 months or more, then the contract is deemed to take effect as if it were a contract for an indefinite period, with the result that the minimum notice entitlements apply.

In addition, the minimum notice requirements do not apply to a contract made for the purposes of the employee performing a specific task or project which is not expected to last for more than 3 months, unless the employee has actually been continuously employed for a period of more than 3 months.

  1. RIGHTS OF EMPLOYEES DURING NOTICE PERIOD

The ERA 1996 (sections 87-91) provides that during his statutory notice period the employee is entitled to be paid for periods when he is:

  • ready and willing to work but no work is provided for him by the employer;
  • incapable of work because of sickness or injury;
  • absent from work wholly or partly because of pregnancy or childbirth or on parental leave; or
  • on holiday leave.

The right applies to employees with at least 1 month’s continuous service, and it applies irrespective of who gave the notice to terminate the contract. However, where the employee gave notice, then the employer’s liability to pay the sums mentioned does not arise until the contract actually terminates and the employee leaves. Any payments made by the employer during the notice period in respect of sick pay, maternity pay or holiday pay go towards reducing the employer’s liability.

It should be noted that there is an important exception to this entitlement, and this is where the notice that the employer is required to give to the employee is at least 1 week more than the minimum notice period (section 87(4) ERA 1996). In this situation, the rights do not apply. This can be important in cases of long-term sickness, where the employee’s rights to statutory and company sick pay have been exhausted and he is off work on no pay. Assuming that the contract has not been frustrated, if the employer decides to dismiss, then even though the employee is no longer receiving pay, he will be entitled to be paid during his notice period unless the employer is required to give him at least 1 week more notice than the statutory minimum.

Additional points to note

  • An employee is not entitled to receive payment for periods when he is absent from work on leave at his own request;

  • Similarly, an employee is not entitled to receive payment if he is the one that gives notice and then takes part in a strike;

  • If during the notice period the employee acts in breach of contract entitling the employer to dismiss him summarily, then no further payment is due to the employee after the summary termination (i.e. the employee is not entitled to receive payment for what would have been the balance of his notice period);

  • If an employer fails to give the required notice, then the employee is still under a duty to mitigate his loss, but the payments that he should have received under these provisions are taken into account in assessing the employer’s liability.

TERMINATION WITHOUT NOTICE

  1.  BREACH OF CONTRACT

In a number of situations, an employment contract may be terminated without notice. The most common circumstances are where either the employee or employer commits a serious (repudiatory) breach of contract, entitling the other party to treat the contract as at an end (and claim damages). In the case of the employee’s breach, this is known as summary dismissal for gross misconduct; where the employer is in breach, then this is known as constructive dismissal. However, there are other situations where the employment contract may be terminated without notice, such as where the parties agree to bring it to an end, or the law simply treats it as frustrated by events beyond the control of either party.

It should be noted that the test as to whether or not something is so serious as to entitle the other party to terminate the contract is an objective one, to be determined by the court or tribunal

Summary Dismissal

Summary dismissal is where the employee is guilty of gross misconduct, entitling the employer to dismiss without notice or a payment in lieu of notice. Gross misconduct will typically include conduct such as theft, dishonesty, fraud and acts of discrimination, as well as less tangible actions such as “bringing the employer into disrepute”. In order to dismiss for gross misconduct, the employer must act quickly. If the employer delays, then it is likely that it will be treated as waiving the breach, and therefore lose the right to dismiss without notice. As mentioned above, the test of whether or not conduct does actually amount to gross misconduct is an objective one—it is a question of fact and depends upon the circumstances of the case and the terms of the contract. If the employer gets it wrong, and dismisses without notice when the conduct does not amount to gross misconduct, then he will be liable for wrongful dismissal.

Most employers include within their employment contracts or disciplinary procedures a non-exhaustive list of what they consider constitutes gross misconduct. This may include statements such as “any conduct which brings the employer into disrepute” as well conduct specific to that employment. For example, in a paint factory where highly combustible materials are present, smoking anywhere on the site may be stated to be gross misconduct.

The ACAS code on Disciplinary Practice and Procedures in Employment specifically provides that employees should know what standards of conduct are required of them, particularly when it comes to gross misconduct.  Paragraph 8 of the Code provides: “Employees should be made aware of the likely consequences of breaking rules and, in particular, they should be given a clear indication of the type of conduct which may warrant summary dismissal”.

If the contract was silent on what amounted to gross misconduct, then the law would imply certain standards of conduct, as is the case with most other contracts.  However, employers can go beyond what may be the position at common law, and set out in the contract what conduct may amount to gross misconduct in the employment concerned.  In order to be able to dismiss for gross misconduct in these circumstances, the requirements must be:

  • incorporated into the contract of employment (i.e. either set out in the contract itself, or contained within the disciplinary procedure); and 

  • the employee must, objectively, have breached the relevant term.

Clearly the conduct in question must be serious, but employers should think about what may be sensible to include within their disciplinary procedures.

Constructive Dismissal

Constructive dismissal is effectively the opposite of summary dismissal. Where the employer’s conduct is such that it amounts to a repudiatory breach of contract, then the employee is entitled to accept this breach by resigning and claiming damages from the employer. The employer’s breach may involve an express term of the employment contract, or it may, increasingly commonly, amount to a breach of the implied term of trust and confidence. This is especially the case where, for example, the employee suffers a significant loss of status. Although a one-off breach will, if sufficiently serious, entitle the employee to resign and claim constructive dismissal, so too may a series of more minor breaches, where the last in the series amounts to the “final straw”.

As with summary dismissal, in order to claim constructive dismissal the employee must act quickly. How quickly depends upon the circumstances, but delay beyond even a few days can mean that the employee is treated as affirming the contract, thereby losing his right to claim constructive dismissal. This can clearly put an employee in a very difficult position.

  1. FRUSTRATION

A contract will be frustrated where something unforeseen occurs, which is not the fault of either party, which renders further performance of the employment contract either impossible, or at least radically different from that which was originally envisaged. In this case, then the contracts simply ends by operation of law, and there is no dismissal. The most common examples of where an employment contract may be frustrated arise in cases of long-term sickness, serious injury and imprisonment. Courts and tribunals are, however, understandably reluctant to treat employment contracts as frustrated, particularly bearing in mind the unfortunate circumstances in which frustration will normally arise. In particular, where a detailed disciplinary procedure is in place that could have been used to deal with the particular circumstances, then it is less likely that the contract will be treated as being frustrated (as the eventuality has effectively been anticipated by the parties).

It should be emphasised that frustration occurs by operation of law, and doesn’t require the intervention of either party. In the case of long-term sickness, employers can get themselves into a muddle by continuing to keep employees “on the books” for pension purposes, when all other rights to remuneration have ceased (for example, where statutory and contractual sick pay arrangements have been exhausted). This situation can be allowed to continue for many years unchecked. If the employer then does take action and purport to dismiss the employee, it can give rise to problems. If the contract has not been frustrated, then the employee may be entitled to proper notice and payment during the notice period, even if contractual remuneration ceased long before (see above). If the contract has indeed been frustrated, then there is no right to notice at all, as the contract has ended by operation of law. Unfortunately employers who find themselves in this situation, whether out of kindness or laziness, can end up following a half-way house that leads them into difficulties by acting as if the contract is still effective, but not following any proper procedures.  It should also be borne in mind that issues of disability discrimination may also arise which will need to be considered.

  1. TERMINATION BY AGREEMENT

As with all contracts, it is, of course, open to the parties to bring it to an end by mutual agreement. Provided that the agreement is genuinely mutual, then it will be effective to terminate the employment contract and it will not amount to a dismissal for the purposes of unfair dismissal and redundancy payment purposes. However, precisely because of this, the courts are understandably reluctant to find that this is the case. Under section 203(1) of the ERA 1996, any provision in an agreement that attempts to exclude or limit the rights granted by that Act, including the rights to claim unfair dismissal or a redundancy payment, is void. The courts will therefore be keen to find that what on the surface appears to be a mutual termination of the employment contract is in reality a dismissal. In practice, it is perhaps likely that the wish to “do a deal” and terminate the employment relationship will relate to something that has occurred that leads the employer to wish to terminate the contract. In these circumstances, it is likely that the courts would hold the termination to be a dismissal. As a result, it is very important for employers to be wary when reaching a severance agreement with an employee. The preferable route is for such an agreement to take the form of a compromise agreement in order to ensure that all parties are adequately protected.

  1. TERMINATION UPON EXPIRY OF A FIXED TERM AGREEMENT

Where the employment contract is for a fixed term, then it will terminate automatically when the fixed term expires. However, it should be borne in mind that the expiry of a fixed term contract is treated as a dismissal for statutory purposes.

WRITTEN REASONS FOR DISMISSAL

Under section 92 of the ERA 1996, an employee is entitled to a written statement of reasons for dismissal where:

  • he is dismissed with or without notice by his employer; or

  • he is employed under a fixed term contract which expires and is not renewed by his employer.

Except in certain particular cases, an employee is only entitled to receive written reasons for dismissal where he specifically requests one. The employer then has 14 days within which to provide the statement. The right to receive written reasons only applies to employees who have at least 1 year’s continuous service as at the effective date of termination.

The exception relates an employee who is dismissed:

  • at any time when she is pregnant; or

  • after childbirth during her ordinary or additional maternity leave period.

In these circumstances, no qualifying period applies, and an employee is entitled to a written statement of reasons for dismissal automatically, without having to request one.

It should be borne in mind that a written statement of reasons for dismissal is admissible in any subsequent proceedings, so employers do need to take care.

The effective date of termination is the date when the notice expires (or would have expired if proper notice had been given), the date when the contract terminates where it is terminated without notice (i.e. summary dismissal), or the date on which a fixed term contract that is not renewed expires.

Complaints to an employment tribunal

An employee may present a complaint to an employment tribunal that (i) the employer unreasonably failed to provide a written statement as required; or (ii) the reasons given are inadequate or untrue. If the tribunal upholds the complaint then it may make a declaration to this effect and must make an award that the employer pays the employee an amount equal to 2 week’s pay. The employee must present the complaint within 3 months of the effective date of termination, or such later period as the tribunal considers reasonable where it is satisfied that it was not reasonably practicable for the complaint to be presented within the 3 month time limit.

 

 


 

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