Dismissal or Termination of Employment Contract

The dismissal or termination of an employment contract by an employer may entitle an employee to seek redress through the courts based on a finding of wrongful and/or unfair dismissal.

The pertinent distinction between the two is that a claim for wrongful dismissal is essentially an allegation of breach of contract, a common law action, whilst unfair dismissal is a dismissal committed in breach of relevant statutory provisions. In defence of such an action, an employer may wish to argue that a dismissal was justified or indeed may wish to raise a defence of “fair” dismissal.

Examination of legal authority in this highly contentious area of Employment Law will reveal the circumstances in which the dismissal of an employee may be deemed to be wrongful, fair or unfair.

Dismissal in breach of contract may lead to a finding of wrongful dismissal. This may occur where an employee, without being afforded the notice, which their employment contract stipulates they are entitled to, is dismissed. In fact any dismissal which is in breach of a contract of employment may be tantamount to a wrongful dismissal and this position is neatly dealt with by Smith and Thomas:     “…if a contract is for a fixed term, or expressly stated to be terminable only in     certain ways, and it is terminated before the term expires or in an improper way,     that may be a wrongful dismissal. More typical, however, is the case where the     employer dismissed the employee with no or inadequate notice, or purported to     dismiss him for cause where the facts did not justify such action.”

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It should be noted that the Employment Rights Act (ERA) 1996, s.86(1) applies minimum notice periods to be given by an employer in terminating a contract of an employee who has been continuously employed for one month or more. However, an employer may be liable for damages for wrongful dismissal where the contract of employment specifies a longer notice period than that laid down by ERA 1996 and the employer in reliance on the statutory provisions, serves the minimum notice.

The court may nonetheless import a reasonable notice period into a contract of employment as occurred in the decision of Hill v CA Parsons & Co Ltd. In this case a chartered engineer had refused to join a trade union, despite his employer’s request for him to do so. The employer did not wish to dismiss the employee, but had negotiated terms with the union which required employees to join the union. The employer gave one month’s notice of dismissal., but should have provided three months notice under the relevant statutory provision at that time.

It was held by the Court of Appeal, by a majority decision, that reasonable notice in this case would have been between six and twelve months in length.

In defence of an action for wrongful dismissal an employer may contend that the dismissal was justified and such a defence will succeed where, for example, the employee’s behaviour amounts to gross misconduct.

In accordance with s.94(1) of the ERA 1996, an employee has the right not to be unfairly dismissed. However, the first hurdle for an employee to overcome in an action for unfair dismissal is that he must have been continuously employed by that employer for a period of at least one year: s.108(1), ERA 1996.

The employee must also show that he has been dismissed in accordance with one of the definitions of dismissal contained within the ERA 1996. Section 95 of the Act deals with the circumstances in which an employee is dismissed. The first situation under which an employee is dismissed is where the employment contract is simply terminated by the employer, “whether with or without notice”: s.95(1)(a), ERA 1996. This type of dismissal is otherwise known as direct or express dismissal.

Difficulties may arise in interpreting an employer’s words and whether or not these can be said to have amounted to a dismissal. In Tanner v Kean the words used by the employer were “you’re finished with me”. It was held by the Employment Appeals Tribunal that the words used should not be interpreted to signify a dismissal by the employer and that the test was what a reasonable employee would understand from the words used. In fact bad language by the employer used to signify the employee leaving the work place, will not amount to a dismissal: Futty v Brekkes. In this case the words “Fuck off!” were held not to constitute a dismissal, but it should be noted that such words were common in the dock yard workplace in question.

The next category under which an employee is deemed to be dismissed by his employer is where an employee’s limited term contract terminates “by virtue of the limiting event” without being renewed. Sections 235(2A) and (2B) provide that a limited term contract is one which is not intended to be permanent. A “limiting event” in a contract for a fixed term means the expiry of the term, in a contract made in contemplation of performance of a specific task means the performance of the task and in a contract which provides for termination on the occurrence of an event or the failure of an event means the occurrence of the event or the failure of the event.

The third category of dismissal under s.95 of the ERA is where:     “the employee terminates the contract under which he is employed (with or     without notice) in circumstances in which he is entitled to terminate it without     notice by reason of the employer’s conduct”: s.95(1)(c), ERA 1996.

This is otherwise known as constructive dismissal as best explained by Lord Denning MR in Western Excavating v Sharp:     “If the employer is guilty of conduct which is a significant breach going to the     root of the contract of employment, or which shows the employer no longer     intends to be bound by one or more of the essential terms of the contract, then the     employee is entitled to treat himself as discharged from any further performance.     If he does so, then he terminates the contract by reason of the employer’s conduct.     He is constructively dismissed.”

Lord Denning went on to explain that the conduct of the employer must be “sufficiently serious” to entitle the employee to leave at once and the Court of Appeal went to great lengths to stress that the employer’s conduct must have amounted to a repudiatory breach of the employment contract. This will occur where, for example, the employer breaches a fundamental term implied into employment contracts, to treat the employee with trust and confidence.

In Stanley Cole (Wainfleet) Ltd v J F Sherridan the behaviour of the employer was held to open the door for a constructive dismissal claim as the employer issued a final warning to the employee for conduct which was considered to be minor in nature. As explained by Gwyneth Pitt:     “This illustrates how the standards of acceptable behaviour have risen over the     years, so that there is more likelihood of bad behaviour being held to destroy     mutual trust and confidence.”

It should be noted that even if an employee does not initially commence an action for constructive dismissal, where the employer commits repudiatory breaches of the contract, but remains in employment, the employee may still rely on those breaches as establishing breach of trust and confidence, at a later date: Lewis v Motor world Garages Ltd. In this case the Court of Appeal held that numerous, relatively minor repudiatory breaches could cumulatively amount to a breach of trust and confidence and that the employee could rely on earlier breaches committed by the employer, despite the employee initially having remained in employment following those breaches.

It should be noted that before taking the draconian measure of dismissing an employee, an employer should follow the standard procedure set out in the Employment Act 2002, Schedule 2, Part 1. For example the employer should invite the employee to attend a meeting and must set out in writing the employee’s alleged misconduct which has led to the dismissal. If the employer does not follow these procedures the employee will be regarded as unfairly dismissed unless the employer can show that would have decided to dismiss the employee even if he had followed the standard procedure.

Upon the employee establishing that he meets the requirements of one year’s continuous employment and that he has been dismissed, the burden of proof shifts to the employer to establish the reason for the dismissal and that the reason falls within one of the fair reasons for dismissal, contained within s.98, ERA 1996.

The first of the reasons relating to fairness relates to the capability or qualifications of the employee: s.98(2)(a), ERA 1996. Capability means the employees capability assessed by reference to skill, aptitude, health or any other physical or mental quality (s.98(3)(a), ERA 1996) whilst qualifications relate to any degree, diploma, or other academic, technical or professional qualification relevant to the position held (s.98(3)(b), ERA 1996).

The second reason relates to conduct (s.98(2)(b), ERA 1996) for which the ACAS Code of Practice on Disciplinary and Grievance Procedures (2004) provides guidance. For example, the Code makes provision for a written warning to be given in the case of a first finding of misconduct, other than gross misconduct: Para 21.

However, where a warning would clearly not prevent an employee from committing the act of misconduct in future, dismissal in the absence of a warning may be held to be fair: Retarded Children’s Aid Society v Day.

Other factors which are considered fair reasons for dismissal are redundancy and that the employee could not continue in his employment without breaching statute law: s.98(2)(c) and (d), ERA 1996. Finally, a dismissal may be fair if it is for “some other substantial reason” of a kind such as to justify dismissal (s.98(1)(b), ERA 1996) and it shall be for a tribunal or court to determine whether a dismissal fair for some other substantial reason.

In any case, whether or not the dismissal is construed to be fair will depend on whether, in the circumstances, the employer acted reasonably or unreasonably in treating the reason as a sufficient reason for dismissal: s.98(4)(a), ERA 1996.

In interpreting s.98(4), Lord Browne-Wilkinson in Iceland Frozen Foods v Jones stated that in many cases there is a band of “reasonable responses” to the employee’s conduct within which one employer might reasonably take one view and another employer might reasonably take another view. His Lordship stated that the function of an employment tribunal is to determine:     “whether in the particular circumstances of each case the decision to dismiss the     employee fell within the band of reasonable responses which a reasonable     employer might have adopted.”

It should be noted that it is sufficient for the employer to hold an honest belief, based on reasonable grounds, in the set of facts justifying dismissal. This position is best explained by Lord Denning MR in Alidair Ltd v Taylor:     “If a man is dismissed for stealing, as long as the employer honestly believed it on     reasonable grounds, that is enough to justify dismissal. It is not necessary for the     employer to prove that he was in fact stealing. Whenever a man is dismissed for     incapacity or incompetence it is sufficient that the employer honestly believed on     reasonable grounds that the man is incapable or incompetent. It is not necessary     for the employer to prove that he is in fact incapable or incompetent.”

If an employer fails to establish a fair reason for dismissal it is quite possible that an employee may succeed in an action for unfair dismissal and the employer may in fact be liable for both wrongful and unfair dismissal in the same action. However, provided that the employer follows the procedural safeguards contained within the Employment Act 2002 and the ACAS Code of Practice he should generally speaking, be safe in an action for unfair and/ or wrongful dismissal.