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; Termination by the employee based on a serious breach of contract by the employer (that is, constructive dismissal).
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 GBP 15,750.
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, 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.
An employee who has been continuously employed for two years or more has a statutory right not to be unfairly dismissed.
Is severance pay required?
Except for 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. 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.
Is a Separation Agreement required or considered best practice?
Although there is no statutory requirement for parties to settle their dispute by way of a settlement agreement, it is advisable for employers to make an offer of a payment, which is more than the employee’s statutory and contractual entitlement on termination, conditional on the employee waiving all claims they have against the employer. Employees can only waive unfair dismissal and other statutory claims if the waiver is contained in a settlement agreement or ACAS agreement (ACAS being the body that provides advice, training, conciliation and other services for employers and employees to help prevent or resolve workplace problems). ACAS agreements are generally only used when settlement is reached after the employee has brought a claim in the employment tribunal.
Employers must take care when raising the issue of a settlement agreement. An offer of a settlement agreement will not be treated as being “without prejudice” unless: there was a pre-existing dispute between the parties; or it was introduced as part of a “protected conversation”. Protected conversations are not protected from disclosure in automatically unfair dismissal or discrimination claims, or where the employer had acted improperly.
There are also new rules that apply in relation to tax and National Insurance Contributions (“NICs“) on termination payments. The distinction between contractual and non-contractual payments has been removed so that all payments made in lieu of notice on termination of employment, regardless of whether there is a contractual entitlement, will be subject to income tax and NICs. From April 2020, employers will be liable to pay employer’s NICs on termination payments over GBP 30,000.
Remedies for employee seeking to challenge wrongful termination
In a successful claim, the employee will generally be entitled to compensation equal to the net value of the salary and benefits, which they would have received if they received their full notice period. However, the employee is under a duty to mitigate their loss i.e. to take reasonable steps to seek alternative employment.
If the employer terminates an employee’s employment against their will, the employee will generally have no choice but to accept the dismissal. 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.
An unfair dismissal award, which is currently capped at a maximum of GBP 102,194, is made up of:
- a basic award (calculated according to the employee’s age, length of service and pay) – currently capped at GBP 15,750; and
- a compensatory award (a “just and equitable” amount) – currently capped at the lower of one year’s gross pay (excluding pension contributions, benefits in kind and discretionary bonuses) and the overall cap of GBP 86,444.
The dismissal of an employee will be automatically unfair if the reason or principal reason for their dismissal is that they have made a “protected disclosure”. Workers are protected from being subjected to any detriment on the ground that they have made a protected disclosure. A qualifying disclosure arises where a worker discloses information which in their reasonable belief shows a certain type of wrongdoing has and/or will take place within the workplace. The worker must also have a reasonable belief that the disclosure is in the public interest. There is no requirement for good faith. A qualifying disclosure is “protected” if it is made directly to the employer, a “responsible” third party or a “prescribed” person such as a regulator. Wider disclosures (e.g. to the police or to the media) may be protected but only if they meet certain rigorous conditions. Workers should be encouraged to raise concerns internally in the first instance. A whistleblowing policy should be put in place to encourage this. As with discrimination claims: there is no qualifying period of employment necessary to bring a “whistleblowing” claim nor is there a cap on the level of compensation that may be awarded.