Empower UK Employment

Being dismissed from a job is always difficult, but what happens if the dismissal is unfair or unlawful? In the UK, wrongful dismissal occurs when an employee is fired in violation of their employment contract or without the proper legal justification. This can include firing without notice, breaching contract terms, or dismissing an employee without a valid reason as stipulated by law. As an employee, understanding your rights is crucial to ensure you’re not mistreated.

In this article, we’ll explore what wrongful dismissal is, the legal protections in place for employees, and the steps you can take if you find yourself facing wrongful termination.

Whether you’re currently employed, recently dismissed, or simply want to know more about employment law, this guide will provide clarity on what UK employment law says about wrongful dismissal and how you can take action if it happens to you.

Let’s get into the specifics.

What is Considered Wrongful Dismissal in the UK?

Wrongful dismissal refers to an unlawful termination of employment based on a breach of the terms outlined in an employee’s contract.

Essentially, it is a breach of contract claim where an employer fails to meet their contractual obligations, such as providing the correct notice period as stipulated in the employment contract.

If the employer fails to comply with these obligations, the employee may be entitled to damages for wrongful dismissal, reflecting the financial losses incurred as a result of the breach.

Damages for Wrongful Dismissal

The compensation awarded for wrongful dismissal typically covers salary and any benefits the employee would have received during the notice period. This can include pension entitlements, private health insurance, car allowances, and bonuses, especially if the bonus is tangible and non-discretionary. In some cases, employees may also recover losses associated with missed stock options or opportunities they would have had if proper notice had been given.

High-income employees, particularly those with long notice periods, may prefer to pursue a wrongful dismissal claim over an unfair dismissal claim. This is because the damages from a breach of contract could cover the full notice period, which could be higher than the statutory cap for unfair dismissal compensation (approximately £115k).

Payments in Lieu of Notice

Employers may choose not to require an employee to serve out their notice period, instead offering a payment in lieu of notice. This is typically treated as damages for wrongful dismissal, unless the employment contract states otherwise. In these cases, the employer is not in breach of contract, and a claim for wrongful dismissal would generally not be valid.

However, if there is no contractual provision for a payment in place of notice, and the employer makes such a payment, the employee’s claim for damages may still stand. The employer must ensure that the employee is compensated fully and placed in the same financial position as if the proper notice had been given.

Dismissals for Gross Misconduct

In cases where an employee is dismissed for gross misconduct, such as theft, and the dismissal is justified, wrongful dismissal claims cannot be pursued. This is because the employer is effectively accepting that the employee has broken the implied trust and confidence clause within the contract, justifying a summary dismissal. When an employee engages in gross misconduct, they are viewed as repudiating the contract, allowing the employer to terminate the relationship immediately.

Who Can Make a Wrongful Dismissal Claim?

A wrongful dismissal claim arises when an employee is terminated in violation of their employment contract. This type of claim is based on a breach of contract and can occur in several situations, primarily when an employer fails to follow the notice period or dismisses an employee without adhering to the agreed-upon contractual procedures. It’s distinct from an unfair dismissal claim, which is concerned with whether the reason for dismissal is justifiable under UK law.

Anyone who is employed under a contract—whether permanent, part-time, or temporary—can make a wrongful dismissal claim, provided their dismissal is not justified by a breach of the contract itself. Common scenarios for wrongful dismissal include:

Failure to Provide the Agreed Notice Period
If an employee is dismissed without the correct notice period, as outlined in their employment contract, they may be able to file a wrongful dismissal claim. This applies whether the dismissal is immediate or before the agreed notice period has been completed.
Failure to Follow Disciplinary Procedures
Many employment contracts include a set of disciplinary procedures that the employer must follow before terminating employment. If these procedures are not followed, the dismissal could be wrongful. For example, if the employer fails to issue warnings or conduct proper investigations before dismissing the employee, the employee may be entitled to a claim.
Contractual Breach
A claim for wrongful dismissal can arise when an employer breaches any part of the employment contract. This could be anything from failing to provide the promised benefits or terms of employment to not honouring agreed contractual obligations regarding the termination process.

Difference between Wrongful and Unfair Dismissal

While wrongful dismissal and unfair dismissal are often confused, understanding the distinctions between the two is essential for employers, especially when making decisions about terminating an employee’s contract. Each type of dismissal has distinct legal foundations, and recognising these differences can help employers avoid costly mistakes.

Wrongful dismissal arises from a breach of contract. This occurs when an employer fails to meet the terms outlined in the employee’s contract, such as neglecting to provide the required notice period or failing to follow proper dismissal procedures. It is a contractual claim, meaning it focuses solely on whether the employer has violated the employment contract. The fairness of the dismissal is not relevant in wrongful dismissal cases. What matters is whether the employer adhered to the specific terms outlined in the contract.

On the other hand, unfair dismissal is governed by the Employment Rights Act 1996 (ERA) and is a statutory claim. Under this legislation, employees are protected against dismissal unless it is for one of the five potentially fair reasons: conduct, capability, redundancy, statutory illegality, or some other substantial reason (SOSR).

However, even if a dismissal is based on one of these grounds, employers must follow a fair process. This includes conducting proper investigations, providing warnings where appropriate, and offering the employee an opportunity to appeal the decision. A tribunal will assess whether the employer acted reasonably in dismissing the employee and whether the correct procedure was followed. If the dismissal does not meet these criteria, it will be deemed unfair.

The key difference lies in the basis of the claim: wrongful dismissal is related to a violation of the employment contract, whereas unfair dismissal concerns whether the reason for dismissal was fair and whether the process was followed correctly. For wrongful dismissal, the focus is on the employer’s contractual obligations. For unfair dismissal, the tribunal will consider whether the employer acted reasonably and justifiably under the law, even if the dismissal was based on a valid reason.

For a wrongful dismissal claim, the employee must prove that the employer’s actions violated their contract and resulted in a financial loss, such as a failure to provide the appropriate notice or pay in lieu of notice. In contrast, unfair dismissal claims do not require proof of a breach of contract but focus on the employer’s actions in dismissing the employee, including the reason for dismissal and whether the process was handled fairly.

What Will an Employee Need to Show to Claim Wrongful Dismissal?

To successfully claim wrongful dismissal, an employee must demonstrate that their employer breached the terms of their employment contract when terminating their position. Specifically, the claim often arises when an employee is dismissed without being allowed to serve their notice period or when the employer opts to provide payment in lieu of notice.

The first step is for the employee to prove their entitlement to notice, whether that notice is statutory or contractual. The length of notice an employee is entitled to depends on the terms outlined in their contract. If the contract specifies a notice period longer than the statutory minimum, the employee is entitled to the contractually agreed-upon duration. In the absence of a contractually defined notice period, the employee will still be entitled to the statutory minimum.

For most employees, the statutory minimum notice periods are as follows:

One week if employed for between one month and two years.
One week’s notice for each year of service if employed between two and twelve years, up to a maximum of twelve weeks.

The statutory notice period can be overridden if the employee is dismissed for gross misconduct. In cases of gross misconduct, such as theft or violence, the employer is not legally required to provide notice or pay in lieu. If the employer can justify that the employee’s actions were sufficiently severe to warrant immediate dismissal, the employee is not entitled to any notice or compensation.

It is important to note that payment in lieu of notice (PILON) could still lead to a claim for wrongful dismissal. If the employer pays the employee instead of allowing them to work their notice period, the employee might have grounds for a claim if they can show that they suffered a financial loss as a result.

For instance, an employee may lose out on commission or bonus payments that would have been earned during the notice period, especially in roles like sales. However, if the payment in lieu of notice fully compensates the employee for what they would have earned, including commissions or bonuses, the claim is unlikely to succeed.

Unfair Dismissal Employment Rights Act

Under the Employment Rights Act 1996 (ERA), employees in the UK have legal protection against unfair dismissal. This statute provides a framework ensuring that employees are only dismissed for valid reasons and through fair procedures. If an employee is dismissed unfairly, they may be entitled to compensation, provided they meet certain conditions set out in the law.

To bring a claim for unfair dismissal, an employee generally needs to have two years of continuous service with the employer. The law does not apply to employees with less than two years’ tenure, unless the dismissal falls into the category of automatically unfair dismissal, such as those related to pregnancy, whistleblowing, or discrimination. In these cases, no minimum length of service is required.

While there are no strict legal requirements for how many warnings must be given, following a structured disciplinary process ensures fairness and reduces the risk of a claim for unfair dismissal.

5 Fair Reasons for Dismissal

The ERA outlines five fair reasons for dismissal:

Capability or qualifications – When an employee is unable to perform their job due to a lack of skill, qualifications, or health issues.
Conduct – When the employee has engaged in misconduct, such as theft, dishonesty, or repeated poor attendance.
Redundancy – If the employee’s role is no longer required due to operational changes.
Statutory illegality – When the employee can no longer legally perform their job due to changes in the law, such as losing a required license.
Some Other Substantial Reason (SOSR) – A broad category, used for situations like a breakdown in trust between the employer and employee, or business restructuring.

Even if one of these reasons applies, the employer must act reasonably and follow fair dismissal procedures. This means allowing the employee to explain their side and offering a chance to appeal the decision.

Procedural Fairness

In addition to having a fair reason for dismissal, the process itself must be handled fairly. For example, the ACAS Code of Practice sets out the steps employers should follow when dealing with misconduct or poor performance, including:

Investigation of the allegations.
Written notice to the employee of the allegations and any potential disciplinary action.
A disciplinary hearing where the employee can present their case.
A right of appeal if the decision is unfavourable.

Failure to adhere to these procedures may result in the dismissal being considered unfair, even if the reason for the dismissal is deemed fair.

Automatically Unfair Dismissal

Certain types of dismissals are considered automatically unfair, meaning that no qualifying period of service is required. Examples of automatically unfair dismissals include dismissals related to:

Pregnancy or maternity leave
Whistleblowing (reporting illegal or unethical activities)
Health and safety activities (e.g., reporting unsafe working conditions)
Exercising time-off rights, such as sick leave or jury duty

In these cases, the employee does not need to have been employed for two years to bring a claim.

Polkey Reduction

If an employer fails to follow the proper dismissal procedure, they may still argue that, even if the procedure had been followed, the dismissal would have been the same. This is called the Polkey reduction, based on a legal case in which it was ruled that, in some cases, procedural failings do not necessarily make the dismissal unfair if the outcome would have been the same.

How Much is Compensation for Wrongful Dismissal?

The amount of compensation awarded for wrongful dismissal largely depends on the specifics of the contractual breach involved. For example, if an employer fails to provide pay in lieu of notice, the amount of damages will be based on what the employee would have received during the notice period as set out in their contract.

Similarly, if the employer pays the employee in lieu of notice when the employment contract does not allow for such a payment, the compensation will take into account the potential earnings the employee would have received during the notice period, including commissions or bonuses.

In general, compensation for wrongful dismissal is intended to reflect the salary and contractual benefits the employee would have earned had the employer adhered to the terms of the employment contract. This can include the employee’s regular pay for the notice period, along with any bonuses, commissions, pension contributions, private health cover, and car allowances that were part of their contractual entitlements.

However, the amount of compensation is usually capped at the length of the notice period or the time it would have taken for the employee to go through any necessary contractual procedures (such as a disciplinary or performance process). This means that even if the wrongful dismissal is particularly damaging, the amount awarded is unlikely to exceed what the employee would have received during their notice period or contractual term.

For claims heard by a tribunal, there is a limit of £25,000 for wrongful dismissal claims. However, employees can choose to pursue their claim in the civil courts—such as the county court or high court—if their claim exceeds this limit. This option may be appropriate in cases where the employee was a high earner with a long notice period, or if the dismissal involved the early termination of a fixed-term contract.

In such cases, the employer may be required to compensate the employee for the full remaining term of the contract unless there are clear terms allowing for early termination.

In cases where a fixed-term contract is terminated early, the employee is entitled to compensation for the entire duration of the contract, unless the contract specifically allows for earlier termination or notice.

How Can Employers Avoid Wrongful Dismissal Claims?

Employers must take great care when terminating an employee’s contract to avoid wrongful dismissal claims. It is crucial that they fully understand the employee’s contractual rights, particularly regarding the notice period. Before proceeding with a dismissal, the employer should carefully review the employee’s contract of employment to ensure the proper notice is given or that pay in lieu of notice is provided, if applicable.

In addition to reviewing the contract, employers should be aware of any specific workplace policies or procedural requirements related to dismissal. Many employment contracts outline procedures for disciplinary actions or dismissals that must be followed to avoid breaching the terms of the contract.

For employees on fixed-term contracts, employers must ensure there is a clear contractual provision that allows them to dismiss the employee in certain circumstances. Failure to comply with the terms of the contract could result in wrongful dismissal.

While adhering to the contract reduces the risk of a claim, it does not eliminate it entirely. Employers are advised to seek expert legal advice before proceeding with a dismissal. Legal advice can ensure that the dismissal process is both lawful and fair, and it can help explore alternatives like a settlement agreement. For employees with higher salaries and long notice periods, a settlement agreement may be an effective solution, offering a financial payment in exchange for the employee waiving their right to claim wrongful or unfair dismissal.

Unfair Dismissal UK Payout

When an employee is unfairly dismissed under UK law, they may be entitled to compensation through two main forms of awards: the basic award and the compensatory award. The total payout depends on factors such as the employee’s length of service, age, and earnings, as well as the nature of the dismissal.

Basic Award

The basic award is a fixed amount calculated based on the employee’s age, years of service, and weekly pay. The calculation is as follows:

1 week’s pay for each year of service for employees under 22
1 week’s pay for each year of service for employees aged 22-41
1.5 weeks’ pay for each year of service for employees aged 41 or older

This award is capped at £544 per week (as of 2023) and is limited to a maximum of 20 years of service. Therefore, the longer the employee’s tenure, the higher the basic award.

Compensatory Award

The compensatory award is designed to compensate the employee for the financial loss resulting from the unfair dismissal. It covers the salary, bonuses, benefits, and any other compensation the employee would have received had they not been dismissed. The compensatory award is calculated based on the employee’s actual losses, up to a maximum limit of £88,519 (as of 2023). Typically, the compensation is awarded for the period the employee was out of work, usually up to one year.

Factors Affecting the Payout

Several factors impact the amount of the unfair dismissal payout:

Length of Employment: Employees with longer service are entitled to larger basic awards due to the extended time spent with the employer.
Earnings: The compensatory award reflects the employee’s salary and benefits at the time of termination, with a cap set on the maximum weekly earnings used for calculation.
Mitigation of Loss: Employees are required to mitigate their financial loss by actively seeking new employment. If the employee does not make reasonable efforts to find work, the tribunal may reduce the compensatory award accordingly.

Reduction or Deductions

In some instances, the tribunal may reduce the compensatory award if it finds that the employee contributed to their dismissal. For example, if the employee’s misconduct played a role in the dismissal, the tribunal may adjust the amount of compensation awarded.

Final Conclusion

The basic award and compensatory award offer compensation for unfair treatment during the termination process. While the amount of compensation is influenced by factors such as length of service, earnings, and the employee’s efforts to mitigate their loss, employees with longer service and higher earnings are generally entitled to larger payouts. However, it’s crucial to remember that the tribunal may adjust these amounts based on the circumstances surrounding the dismissal, including any misconduct on the employee’s part.

Employers must ensure they follow the fair dismissal procedures outlined in the Employment Rights Act 1996 to avoid costly claims. To minimise the risk of unfair dismissal claims, employers must ensure dismissals are justified and conducted in a fair, reasonable manner. On the other hand, employees should understand their rights to ensure they are treated justly and can claim compensation if they experience wrongful dismissal.

Wrongful Dismissal -What Uk Employment Law Says

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