Termination of Employment Contracts in United Kingdom

1. Individual dismissals and grounds for termination

There are several ways in which a contract may be terminated. These include:

  • Notice being given by either the employer or the employee;
  • Mutual agreement;
  • Expiry of a fixed-term contract. A fixed-term contract automatically terminates at the end of the fixed-term without the need for notice;
  • Dismissal by the employer;
  • Summary termination by the employee (that is, constructive dismissal).

An employee who has been continuously employed for at least one year or, where their employment began on or after 6 April 2012 continuously employed for two years’ or more, has a statutory right not to be unfairly dismissed.

An eligible employee who is dismissed will have a successful claim for unfair dismissal. Employers will not be liable for dismissals where:

  • they follow a fair procedure; and
  • the reason for dismissal is one of the designated fair reasons set out in the legislation (provided there is no discriminatory act).

These fair reasons are:

  • capability or qualifications;
  • conduct;
  • redundancy;
  • contravention of a duty or restriction imposed by or under an enactment; or
  • some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held e.g. personality clash, a reorganisation.

Certain dismissals are automatically unfair and there is no requirement for any qualifying service (for example, dismissals relating to the employee’s pregnancy, certain health and safety matters, trade union membership and trade union activities).

2. Redundancy dismissals

A redundancy situation arises where the business, workplace or job disappears, or fewer employees are needed. For a fair redundancy, the employer must show:

  • the reason for the dismissal is redundancy;
  • it is reasonable to dismiss the employee for redundancy; and
  • a fair procedure was followed.

There must be fair selection of employees for redundancy and genuine consultation with the affected employees. Although redundancy is a fair reason for dismissal, a redundant employee is still entitled to a statutory redundancy payment. Employees with over two years’ service have the right to a statutory redundancy payment currently capped at £13,500.

3. Collective dismissals

If an employer proposes to dismiss as redundant a total of 20+ employees across any sites in the UK within a 90 day period, it must also follow a collective consultation procedure involving a minimum consultation period of 30/45 days, depending on the number of redundant employees, in addition to any individual redundancy procedure. Employers that breach these collective obligations may be liable for protective awards of up to 90 days’ pay for each affected employee.

4. Severance payment

Except in relation to redundancy dismissals (where an eligible employee will be entitled to a statutory redundancy payment) there is no statutory entitlement to a severance payment as such. As explained above, an employee is entitled to notice and it is common for employees to be paid a sum in lieu of notice, usually equal to the value of pay over the notice period. Sometimes, however, an employer might offer a severance payment in return for the employee’s agreement that they will not bring any claims against the employer. This is usually achieved by the parties signing a settlement agreement in a form prescribed by law.

5. Options for employee

If the employer terminates an employee’s employment against their will, the employee will generally have no choice but to accept the dismissal. The employment contract will end and the employee will have to consider their options in terms of any claims they may have against their employer for either breach of contract (such as failure to give proper notice or failure to make payments under the contract of employment) or breach of some other statutory right such as unfair dismissal or discrimination. Commonly, an employee might threaten a tribunal claim and secure a settlement with the employer through legal advisors, particularly if the employer is keen to avoid the publicity of an employment tribunal claim or if the employer is concerned that there is a good chance they will lose at tribunal. An employee who has been unfairly dismissed may ask for reinstatement but it is very rare for a tribunal to make a reinstatement order; and even where one is made, the employer can opt to pay compensation instead.

6. Unfair dismissal (consequences)

An unfair dismissal award, which is currently capped at a maximum of £87,700, is made up of:

  • a basic award (calculated according to the employee’s age, length of service and pay) – currently capped at £13,500; and
  • a compensatory award (a “just and equitable” amount) – currently capped at the lower or one year’s gross pay (excluding pension contributions, benefits in kind and discretionary bonuses) and the overall cap of £74,200.

The length of time a claim takes from start to finish depends on the complexity of the case and the particular region the claim is brought in. However, it is not uncommon for a case to take, from claim until hearing, anything between 3 months and one year.

For more information on these articles or any other issues involving labour and employment matters in United Kingdom, please contact Robert Hill, Partner at Clyde & Co ( at
This entry was posted in Termination of Employment Contracts on .