smallbusiness.co.uk: Helping your business think big

Dismissing an employee can be a difficult area to tackle for employers. This is especially true if the employee has worked for the company for 12 months or more because they have then gained unfair dismissal rights.

This guide from SmallBusiness.co.uk gives an overview of the basics to help you avoid paying any unnecessary compensation and explains the basis for claims of ‘unfair’ dismissal.

‘Wrongful’ and ‘unfair’ dismissal
Wrongful dismissal applies to a breach of contract by the employer. Prior to the Industrial Relations Act 1971, if any employee felt they had been wrongfully dismissed their only option was to pursue a breach of contract claim in the County Court.

That required a solicitor and, if you lost your claim, not only did you have your solicitor’s costs to pay but those of the other side as well. It was a lot of effort and risk for very little return.

The government established the Industrial Relations Act 1971 (now the Employment Rights Act 1996), which introduced the concept of fairness to dismissals.

It stated that there were only five potentially fair reasons for dismissal – conduct, capability, legality, redundancy or some other substantial reason.

What is fair?
What constitutes ‘fair’ has been defined by a mixture of law, case law and codes of practice. From 1 October 2004, the statutory disputes resolution procedure was introduced, making it automatically unfair if the relevant disciplinary/dismissal process was carried out without ‘a letter, meeting and right to appeal’.

Something like 80 per cent of cases that are lost at tribunal are lost because of faults in procedure and small businesses lose twice as often as larger businesses at tribunals. Employers therefore need to ensure that they comply with all aspects of law and best practice to ensure they are not guilty of unfair dismissal.

How to stay within the law
If the employer has put employment contracts in place and can show that they have followed the correct procedures fairly and competently, they are more likely to successfully defend a tribunal case following a dismissal.

The Employment Act 2002 requires employers to follow new statutory discipline and grievance procedures and make employees aware of these procedures and their right to appeal.

Failure to follow the set process is very likely to lead to a finding of unfair dismissal and may increase any compensation payable.

Reasons for dismissal
The following are potentially fair reasons for dismissing an employee:

Conduct - Where the employee's behaviour is seriously unacceptable, for example, repeated lateness or drunkenness at work.

Capability - Where the employee doesn't have the right skills or aptitude to do the job or is frequently absent through ill health. You should always consider training to improve capabilities or moving an employee to a suitable alternative position, with their consent, before dismissal.

Remember that is it unlawful for an employer to discriminate against a person because of a disability. You have a duty to make ‘reasonable adjustments’ to workplaces and working practices to make sure that employees with a disability are not at a substantial disadvantage compared to other people.

Legality - To avoid breaking the law, for example, where the loss of his driving licence means the taxi driver cannot drive legally.

Redundancy - For example, where there is insufficient work or an employer is closing down entirely – although the rules are very detailed in this area, so professional advice should be sought

Some other substantial reason - This is called the catch-all reason but it should be used carefully, as you have to show that the reason was 'substantial'. A major company restructuring could be an example.

Remember that these are not 'fair’ reasons until the procedure is followed and the allegations investigated and proven. If the procedure is not followed it is likely to be regarded automatically as an unfair dismissal. The maximum compensatory award for unfair dismissal currently stands at £63,000.

If you wish to dismiss an employee for something other than the five potentially fair reasons listed above, you are likely to find yourself in hot water and facing a costly tribunal.

You are advised to take legal advice in respect of the particular case before dismissing any employee.