What is Unfair Dismissal?

The new Labour government plans to legitimise a number of statutory proposals during their first 100 days in charge. One of the main employment areas their manifesto covers is dismissal.

Unfair dismissal is already unlawful under current employment law. However, the boundaries are set to change after the introduction of the Employment Rights Bill 2024.

Without proper understanding or compliance, employers may end up causing unfair dismissals to their staff – resulting in facing tribunal claims, compensation penalties, and reputational damage.

Let’s take a look at what unfair dismissal is, what the new law covers, and what steps do you need to follow to conduct a fair dismissal process.

What is unfair dismissal?

Unfair dismissal is when you terminate an employee’s job contract without fair reason or process. An example of unfair dismissal can include one of the following:

• One of the fair reasons for dismissal wasn’t applied.
• A fair dismissal process wasn’t followed.
• The dismissal wasn’t in the reasonable range of responses.

If employers decide to let someone go, they must follow the proper dismissal processes. Any legal breaches or improper practices could result in your termination being illegal.

Unfair dismissals don’t just affect the employee in question. It negatively impacts staff morale, trust, loyalty, and engagement. In the end, your business could suffer hefty consequences which can be hard to recover from.

Who can claim unfair dismissal?

Currently, employees can raise an unfair dismissal claim if they’ve completed at least two years of service (either in the same role or business).

The government is looking to extend this statutory right to all employees under upcoming legislation.

What is an automatic unfair dismissal?

An automatic unfair dismissal is when you terminate an employee’s contract in such a way that it violates their basic statutory rights. Here, the employee doesn’t need to meet service year requirements.

An example of an automatically unfair dismissal could be:

• Raising a health and safety issue relating to the work duties or environment.
• Being involved in whistleblowing.
• Participating in trade union activities.
• Asserting a statutory employment right.

Is unfair dismissal unlawful?

Yes, it’s unlawful to dismiss an employee unfairly from their job. This is outlined under the Employment Rights Act 1996. The act states employers must demonstrate one of five fair reasons for dismissal:

1. Capability: If the employee lacked capability or qualification relating to their work duties. For example, an employee doesn’t pass their probation due to lack of experience.
2. Conduct: If the employee presented actions of gross misconduct. For example, an employee shows acts of violence towards the customer.
3. Redundancy: If the employee was made redundant from their job. For example, if the business faces bankruptcy and will no longer trade.
4. Legal breach: If the employee’s job cannot continue as it’s in breach of the law. For example, if a delivery employee is no longer allowed to work due to a driving ban.
5. SOSR: If there was some other substantial reason. For example, if the employee was covering another person who’s returning from maternity leave.

If you cannot prove one (or more) of these legitimate reasons, your dismissal may count as an unfair dismissal under the law. However, this decision falls to the employment tribunal who will decide if your actions were reasonable.

When employers decide to dismiss someone, they should follow the ACAS’s Code of Practice on Disciplinary and Grievance Procedures.

Will there be new laws on unfair dismissal in the UK?

In April 2024, the new Labour government introduced their plans on passing the much-awaited Employment Rights Bill. Through their manifesto proposals, they highlighted changes to unfair dismissal rights (the last one being 40 years ago). For example:

Protection from day one

All employees now have a statutory protection from unfair dismissal from the first day of their job. That means for employees under two years, unfair dismissal law will stand.

Now, employers will have to follow stronger recruitment and performance processes to attain staff. If they do decide to dismiss someone, they’ll have to consider the costly consequences that may fall onto their business operations.

Change to probationary periods

Probation periods are set to last for a statutory minimum period of nine months for all employees. The change means employees face less emotional impact when it comes to performing well in their new role.

Employers are expected to engage and invest in their new hires. Fairer and transparent processes mean you’ll get a better idea on whether they’re a suitable person for your business.

Who cannot raise an unfair dismissal claim?

There are certain types of people who don’t have a statutory right in claiming unfair dismissal to the employment tribunal. For example:

• Self-employed people.
• Independent contractors.
• Members of the armed forces.
• Employees who already reached settlement through ACAS or an internal agreement.
• Employees hired under an illegal contract.

Are workers protected from unfair dismissal?

Currently, workers aren’t legally protected from unfair dismissal. However, under new government proposals, day-one dismissal protection is set to include all employees.

The wording might seem like an inclusion of both employees and workers. Actually, the government plans to merge these two roles into one – a single worker status. Note: this legislative change is still being drafted and hasn’t passed yet, as of 2024.

What’s the difference between unfair and constructive dismissal?

An unfair dismissal is when an employee’s job is terminated in ways that are considered unlawful. For example:

• One of the fair reasons for dismissal wasn’t applied.
• A fair dismissal process wasn’t followed.
• The dismissal wasn’t in the reasonable range of responses.

Constructive dismissal is when an employee is forced to resign due to their employer’s conduct. In practical terms, the employee has decided to quit. But they were made to take this decision due to events related to their workplace.

For example, an employee is bullied by their supervisor. After raising their grievance, they were told to keep quiet about the case. As a result, they decide to leave their job.

What’s the difference between unfair and wrongful dismissal?

Wrongful dismissal is when you breach an employee’s contract when terminating their job. This might situations like:

• Not giving them proper notice periods.
• Ending their fixed-term contract earlier than agreed to.
• Breaching a contractual disciplinary procedure.
• Breaching a contractual redundancy process.

How to manage an unfair dismissal claim

Employers must demonstrate a fair and reasonable purpose for dismissing someone. This is nothing new within employment law. However, as Labour plans to amend dismissal laws, you must keep on top of these legislative changes.

Without proper compliance, you could end up causing unlawful dismissals – resulting in compensation penalties, reputational damages, and business disruption.

Let’s take a look at how to comply with the new laws on unfair dismissal, and how to manage a claim raised against your business.

Review employment contracts

Employers will need to review and update all employment contracts, particularly terms on dismissal. This applies to all staff members – from new hires to tenured employees.

One of the main contractual amendments you’ll need to make relates to probation periods and day-one protection from unfair dismissal for all employees.

As the law hasn’t been implemented yet, it’s important to be aware of upcoming legislative changes. That way, employers can avoid any risk of legal breach that falls within their business practices.

Update workplace procedures

When the law is officially passed, employers must also make appropriate updates to their workplace procedures relating to dismissal.

The most vital areas include performance and disciplinary procedures. The new law could introduce statutory nine-month probation periods in the near future. However, employers can still exercise their rights to terminations where necessary.

This still includes following proper disciplinary measures; like warnings, meetings, and actions – before dismissing anyone. If the employee isn’t showing any signs of improvement, your dismissal may be perceived as reasonable and (most importantly) lawful.

Amend workplace policies

Any policies related to dismissal should be amended to comply with the bill. This will help ensure the right steps will be followed when managing unsatisfactory employees.

Employers should know how to pass or fail new candidates lawfully. Your decision should be based on your performance policies, which should be accessible to all staff members.

Having transparent policies ensures employees are fully aware of why they passed or failed within their position.

Improve recruitment processes

The new legislation on dismissal will present a heavier hand on employers. That’s because the government is concentrating on keeping more people in their jobs, to help prosper the economic value of the country.

It can lead to hiring (and tolerating) employees who don’t meet your business expectations. To avoid this, employers should improve recruitment processes – from inductions to onboarding.

This also means having more rigorous and additional steps before candidates are hired. Through these methods, you’ll be content with bringing talented and valuable employees into the business.

How to manage an unfair dismissal claim raised in your workplace

Employers are well within their remit to dismiss a person who they believe isn’t compatible with their workplace.

This involves following the right procedures outlined under ACAS’s Code of Practice on Disciplinary and Grievance Procedures. For example:

• Investigation: Conduct a thorough investigation to establish the facts (without unreasonable delay).
• Hearing: Inform the employee that you’re aware of their allegations and invite them to a hearing (in writing).
• Evidence: Provide them with enough time to gather evidence to prepare their case.
• Representation: Make sure they’re aware of their right to representation (like a fellow colleague, trade union spokesperson, or a legal representative). Allow either party to
• Records: Consider any previous records of disciplinary measures that led to the decision of dismissal. 
• Notify: Inform the employee in writing about your final decision. Notify them about your reasons for dismissal, date of termination, and their right to appeal.
• Appeal: If an employment tribunal find your dismissal decision was unfair, they may enforce compensation damages for unfair dismissal.

What is the average payout for unfair dismissal?

Under UK law, compensation for unfair dismissal is left to employment tribunals to decide. If an employee’s appeal for unfair dismissal is successful, they could be rewarded either:

Basic awards

Basic awards for unfair dismissal are based on a person’s service years, age, and weekly pay. Unfair dismissal payment is calculated as the following:

• Under 22 years old: Half a week’s pay per service year completed.
• Between 22-40 years old: One week's pay for each service year completed.
• Over 41 years old: One and a half week’s pay for each service year completed.

From the 6th of April 2024, weekly pay is limited to a maximum of £700. (This doesn’t include overtime payments). So, for basic awards, the maximum compensation for unfair dismissal that an employee can receive is £21,000.

Compensatory awards

Compensatory awards for unfair dismissal are calculated following basic award calculations. The main areas covered are loss of wages, future wages, legal rights, and pension benefits.

Contractual benefits can also include; for example, company cars or health insurance. It can also include non-contractual benefits, too. Employees can also claim loss of bonuses or commission.

As of 2024, the maximum award for unfair dismissal is £115,115 or 52 weeks of gross salary – whichever amount is lower. This payment is in addition to the maximum basic award of £21,000.

Get expert advice on unfair dismissal with Peninsula

It’s crucial for all employers to know all appropriate legislation when it comes to terminating jobs. Through the wrong reason for unfair dismissal, you could end up facing huge compensation payouts, reputational damages, and even business disruptions.

Peninsula offers expert advice on unfair dismissals. We also offer 24-hour HR advice – ensuring your business follows the right steps when terminating employment contracts.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.