How-to guide: How to carry out a fair termination of employment (UK)

Introduction

This guide provides in-house counsel, private practice lawyers and human resource professionals with an overview of the key steps and employment law considerations when terminating the employment of employees in England, Wales and Scotland (GB). This guide does not cover employment law in Northern Ireland.

This guide covers:

Key laws and principles
Potentially fair reasons
Procedure
Unfair dismissal
Automatically unfair dismissal
Constructive unfair dismissal
Unfair dismissal remedies
Settlement agreements and protected conversations

This guide can be read in conjunction with Checklists: Carrying out a disciplinary process, Carrying out a capability process and Conducting a redundancy exercise.

Employers should be aware that the Employment Rights Bill 2024, introduced on 10 October 2024, aims to significantly enhance worker protections in the UK. Key provisions include granting day-one rights for unfair dismissal, paternity, parental, and bereavement leave, changes to sick pay and flexible working rights, protections against zero-hours contracts and restrictions on the use of ‘fire and rehire’ practices. New legislation will be introduced throughout 2025 and 2026. Further information can be found at UK Parliament: Employment rights bill and Employment Rights Bill: factsheets.

Section 1 – Key laws and principles

The concept of unfair dismissal originated in GB with the Industrial Relations Act 1971, which introduced statutory protection against unfair dismissal for the first time. Prior to this, employment was generally ‘at will’, meaning that employers could dismiss employees without justification or notice. The current laws on unfair dismissal are now primarily found in the Employment Rights Act 1996 (ERA 1996).

The right to claim unfair dismissal was introduced to provide employees with some degree of job security and protection against arbitrary or unreasonable termination of employment. It creates a need for employers to show that they had a fair reason for the dismissal and that they acted reasonably in the circumstances, thereby encouraging good employment practices.

Termination of employment by the employer for any reason, including when an employer fails to renew a fixed-term contract, amounts to a dismissal under GB employment law.

1.1 Potentially fair reasons

There are five potentially fair reasons for dismissal:

capability or qualifications;
conduct;
redundancy;
statutory restriction; or
some other substantial reason.

If an employer can show that the dismissal was for one of these reasons and that they acted reasonably, the dismissal will be fair. Otherwise, it may be unfair.

1.2 Additional protections

Over time, additional protections have been introduced, such as protection against ‘automatically unfair dismissal’ (see sections 98B to 104G, ERA 1996). This includes dismissal for reasons including pregnancy, trade union membership, whistleblowing and asserting statutory rights. A dismissal for one of these reasons is inherently unfair, regardless of the employer's procedure or the length of the employee's service.

The concept of constructive dismissal has also developed, allowing an employee to claim unfair dismissal if they resign in response to a serious breach of contract by their employer.

1.3 Enforcement of unfair dismissal rights

To enforce their right not to be unfairly dismissed, an employee can bring a claim to an employment tribunal. If they are successful, they may be awarded compensation or, in rare cases, reinstatement or re-engagement.

However, not all employees have the right to claim unfair dismissal. Generally, an employee must have two years’ continuous service to qualify, although there are exceptions, and this will be removed when the Employment Rights Bill becomes law. Furthermore, the right applies only to employees, not to self-employed people or independent contractors.

The unfair dismissal rights form a central part of GB employment law. However, the laws also strive to strike a balance with the needs of businesses, allowing them to dismiss employees for fair reasons, provided they do so reasonably.

Unfair dismissal should be contrasted with a ‘wrongful dismissal’ which is a dismissal in breach of contract that usually arises where an employer has dismissed an employee without paying the employee their full notice pay. Employers must also take care to comply with any contractual obligations when dismissing employees, including the terms of any contract of employment.

Section 2 – Potentially fair reasons

Information in relation to each of the potentially fair reasons for dismissal, as set out in section 98 of the ERA 1996, is provided below.

2.1 Capability or qualifications

This ground covers the situation where an employee is not capable of doing the job they were hired for or lacks the necessary qualifications. Capability can refer to skill, aptitude, health, or any other physical or mental quality. In terms of qualifications, this could relate to any degree, diploma, or other academic, technical or professional qualification relevant to the position.

2.2 Conduct

Misconduct, whether inside or outside the workplace, that affects the employment relationship can be a fair reason for dismissal. This could involve a single serious act of misconduct (such as theft or violence) or a series of lesser acts of misconduct.

2.3 Redundancy

If an employer needs to reduce their workforce or if the employee’s job no longer exists, this could constitute a fair reason for dismissal. The process must be handled correctly, with suitable consultation and consideration of alternative roles.

2.4 Statutory restriction

An employer might be forced to dismiss an employee because continuing to employ them would contravene a law. For example, a lorry driver losing their driving licence could be fairly dismissed on this ground.

2.5 Some Other Substantial Reason (SOSR)

This is a catch-all category for fair reasons that do not fall into any of the above categories. It could include, for example:

a restructure that doesn’t involve redundancy;
a personality clash between employees which is damaging to the business; and
a breakdown in trust and confidence or pressure from a third party (such as a client) to remove the employee.

Section 3 – Procedure

Whether or not an employer has carried out a fair dismissal procedure will depend upon a number of factors, including the size and administrative resources of the employer’s undertaking (section 98, ERA 1996). The specific requirements for a fair dismissal procedure will therefore vary; however, certain fundamental steps must always be present to avoid an unfair dismissal finding.

3.1 Acas Code of Practice

The Advisory, Conciliation and Arbitration Service (Acas), is an independent public body in GB that provides free and impartial advice to employers, employees and their representatives on employment rights, best practice and policies, and resolving workplace conflict.

One of the key resources provided by Acas is the Code of Practice on disciplinary and grievance procedures (Acas Code), which sets out principles for handling disciplinary and grievance situations in the workplace.

The Acas Code applies where there is some alleged fault on the part of the employee, for example, where the dismissal is said to be because of misconduct. Note, the Acas Code does not apply to redundancy dismissals (Homes v Qinetiq Ltd UKET/0206/15). However, even if it does not strictly apply, the Acas Code still provides a useful framework to structure any dismissal process. The Acas Code does not have legal status, but employment tribunals will take it into account when considering relevant cases. Its key principles are:

Informing the employee of the problem: If an employer is dealing with a disciplinary or performance issue, the first step should be to explain the alleged misconduct or poor performance to the employee. This should be done without unreasonable delay.
Holding a meeting: The employer should arrange a formal meeting to discuss the issue. The employee has the right to be accompanied to this meeting by a colleague or trade union representative.
Deciding on appropriate action: After the meeting, the employer should decide whether disciplinary or any other action is justified and inform the employee accordingly in writing.
Providing an opportunity to appeal: If the employee feels the disciplinary or other action is wrong or unjust, they should have the right to appeal the decision. The appeal should be heard without unreasonable delay and at a time that should be agreed with the employee.

In practice, the Acas Code encourages fair and transparent procedures to resolve issues in the workplace. It is generally expected that employers follow the code or a similar set of procedures when handling disciplinary issues to ensure fairness and consistency.

Failure to follow the Acas Code does not carry legal penalties, but employment tribunals will take it into account when considering whether the employee was unfairly dismissed – and an unreasonable failure to follow the ACAS Code can result in an increase of up to 25 per cent to compensation awarded by an employment tribunal if the matter reaches that stage.

3.2 The processes

The particular process an employer will be expected to follow depends on the reason the employee is at risk of being dismissed:

Capability or qualifications: If an employee’s performance is not acceptable or their absence for ill health is a concern, they should be informed in writing, and a meeting should be arranged to discuss the issues. They should be given a chance to improve their performance over a reasonable time frame and given necessary support or training. Regular feedback and further meetings to review progress should be arranged. If there is no improvement over time, a final written warning can be given before considering dismissal (see, eg, James v Waltham Cross UDC [1973] ICR 398). For further information, see Checklist: Carrying out a capability process.
Conduct: In cases of misconduct, the employee should be informed in writing about the nature of the misconduct, the possible consequences, and their right to be accompanied to a disciplinary hearing by a trade union representative or colleague. At the hearing, they should be given a chance to present their case before any decision is made. If the decision is made to dismiss, the employee should be informed in writing and allowed to appeal the decision. For further information, see Checklist: Carrying out a disciplinary process.
Redundancy: For redundancies to be fair, there must be a genuine need for them. The employer should engage in a consultation process with the affected employees (and with trade unions if appropriate), considering alternative roles and redundancy payments. Selection criteria should be fair and not discriminatory. The employee must be given notice and the right to appeal (Williams v Compare Maxam Ltd [1982] ICR 156). For further information, see Checklist: Conducting a redundancy exercise.
Statutory restriction: If a statutory restriction forces the employer to dismiss an employee, the employer should still hold a meeting to discuss the issue with the employee and consider any alternatives before making the decision to dismiss. The employee should be informed in writing and given the right to appeal (Baker v Ablellio London Ltd [2018] IRLR 186).
Some Other Substantial Reason (SOSR): The exact process will depend on the specific reason for dismissal. Generally, the employer should hold a meeting with the employee to discuss the issue, give them a chance to respond, consider any alternatives to dismissal, and allow an appeal against any decision made. As with all these processes, the employer should communicate in writing (Hollister v National Farmers Union [1979] ICR 542). For further information, see How-to guide: How to carry out a fair dismissal on the grounds of SOSR and Checklist: An employer’s guide to fire and rehire.

In all processes the employee should be given the opportunity to appeal the dismissal.

3.3 Aspects common to a reasonable procedure

When looking at whether or not a procedure was fair, an employment tribunal will consider whether:

the employer has policies in place for the type of process being followed, whether those policies have been notified to employees and are available to employees (eg, in hardcopy format in the office or online via an intranet);
the employer has followed its policies;
the decision-maker was independent, trained and experienced (if possible) in conducting the type of hearing that took place;
the person who conducted the appeal was independent, and ideally more senior to the person who decided to dismiss;
all meetings were minuted and detailed and accurate records were kept of the meetings. With tribunal claims often taking over a year to get to a final hearing, accurate records of meetings are vital;
the decision-makers, dismissal process and decision to dismiss discriminated against the employee on grounds such as age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, or sexual orientation;
the employer has acted consistently, for example, if two employees commit the same act of misconduct, they should generally face the same disciplinary process and the same potential sanctions; and
the employer has acted proportionately – meaning any dismissal should be proportionate to the seriousness of the misconduct or the performance issue. In cases involving poor performance or minor misconduct, the employer should usually give the employee a chance to improve their behaviour or performance before moving to dismissal. This might involve issuing disciplinary warnings, setting performance targets, offering additional training, or implementing a performance improvement plan.

In cases of redundancy, there are additional requirements for a fair procedure, such as using objective criteria to select for redundancy and consulting with employees (or their representatives) about the redundancy situation and any alternatives to redundancy.

Section 4 – Unfair dismissal

An employee who has been dismissed may issue proceedings in an employment tribunal for unfair dismissal.

4.1 The requirements of a claim for unfair dismissal

For an individual to bring a claim of unfair dismissal in GB, several requirements must be met:

Employment status: The individual must have been an employee and not an independent contractor or worker (see Checklist: Determining the difference between an employee, a worker and an independent contractor).
Length of service: In general, the employee must have at least two years’ continuous service with their employer to bring a claim for unfair dismissal. However, there are certain situations in which this requirement does not apply, such as when dismissal is due to discrimination or whistleblowing, or is considered automatically unfair (see Section 5 below), and this will change when the Employment Rights Bill becomes law. The right to bring a claim of unfair dismissal is available in addition to a claim that the dismissal was an act of discrimination: the employee can (and often does) argue both.
Time limit for claim: The employee must bring the claim to an employment tribunal within three months less one day of the dismissal, plus any time spent in early conciliation. Again, this will change when the Employment Rights Bill becomes law and time limits for employment tribunal claims becomes six-months. In certain circumstances, this time limit can be extended, but it is generally strictly applied.
Dismissal: The employee must actually have been dismissed, meaning their employment has been terminated by the employer, they were constructively dismissed (ie, they resigned because of their employer’s conduct), or their fixed-term contract expired and was not renewed.

4.2 Avoiding unfair dismissal claims

Before carrying out a dismissal, employers should carefully consider whether they have satisfied the following requirements, as these will be key issues for an employment tribunal to determine when determining an unfair dismissal claim.

4.2.1 Reason for dismissal

The dismissal must be for one of the potentially fair reasons set out above at Section 2, and not a smokescreen for another reason (eg, discrimination). For example, when dealing with a capability dismissal, the employer must genuinely believe the employee is not able to undertake the role (Taylor v Alidair [1978] ICR 445).

4.2.2 Fairness in the circumstances

If an employee is dismissed and brings a claim of unfair dismissal, an employment tribunal will consider the overall fairness of the dismissal, looking at both the reason for dismissal and the procedure followed by the employer. The tribunal will not substitute its own judgment for the employer’s – it will only consider whether the employer’s decision to dismiss and the process it followed in arriving at that decision was within the range of reasonable responses that a reasonable employer might have made (Iceland Frozen Foods v Jones [1983] ICR 17; Foley v Post Office [2000] ICR 1283).

Unfair dismissal claims can lead to remedies, including an order for reinstatement and payment of compensation (comprised of a ‘basic award’ and a ‘compensatory award’, the latter of which is subject to a statutory cap).

Section 5 – Automatically unfair dismissal

Under GB law, certain grounds for dismissal are considered ‘automatically unfair’ (sections 98B to 104G, ERA 1996). An automatically unfair dismissal is a dismissal that is unfair by its very nature, regardless of the procedure followed by the employer or the employee’s length of service. Automatically unfair dismissals include dismissals for:

pregnancy or maternity-related reasons;
family leave, including paternity leave, adoption leave or parental leave;
acting as an employee representative;
acting as a trade union representative;
joining or not joining a trade union;
part-time or fixed-term employment status;
pay and working hours, such as the national minimum wage, or for asserting statutory rights related to the Working Time Regulations;
whistleblowing (ie, making a protected disclosure - see How to-guide: Understanding the legal protections for whistleblowers); and
taking action on health and safety grounds.

The key difference between automatically unfair dismissals and unfair dismissals (also known as ‘ordinary unfair dismissals’) is the reason for dismissal. In an ordinary unfair dismissal claim, the employer must show that it had a potentially fair reason for dismissal and that it acted reasonably in treating that reason as sufficient for dismissal. In contrast, for an automatically unfair dismissal, the reason for dismissal is inherently unfair, regardless of the employer’s actions – so if the decision to dismiss was principally because of the automatically unfair reason, the process followed is irrelevant, and the dismissal will be unfair.

In most cases of ordinary unfair dismissal, the employee must have been employed for two years before they can bring a claim (see Section 4.1 above). This requirement does not apply to claims for automatically unfair dismissal. Regardless of their length of service, an employee can bring an unfair dismissal claim if they have been dismissed for an automatically unfair reason (save for one exception for certain TUPE related claims).

Certain automatic unfair dismissal claims (including whistleblowing) are not subject to the statutory cap on compensation.

Section 6 – Constructive unfair dismissal

Constructive dismissal occurs when an employee resigns from their job due to their employer’s conduct. It involves a situation where the employer has committed a serious breach of contract, which effectively forces the employee to leave their job. The employee must resign in response to the breach and must not delay any significant time before doing so.

In Western Excavating v Sharp [1977] EWCA Civ 165, the Court of Appeal stated that in order to claim constructive dismissal, the employee would need to prove the following:

their employer committed a serious breach, known as a ‘repudiatory breach’, of the employment contract (this might be an express term or an implied term of the employment contract);
they felt forced to leave because of that breach; and
they did not act in a way that suggested they had accepted the breach or a change in employment conditions.

A few examples of situations that might lead to a constructive dismissal are:

non-payment of wages (eg, if an employer suddenly stops paying the employee or significantly reduces their pay without agreement (Industrial Rubber Products v Gillon [1977] IRLR 389));
significant change in job role (eg, if the employer makes a significant change to the employee’s job role or responsibilities without their agreement, for instance, by demoting them without reason or significantly increasing their workload (Ford v Milthorn Tolman Ltd [1980] IRLR 30));
harassment or bullying (eg, if the employer or colleagues creates a hostile work environment, such as through sustained bullying, harassment or discrimination, and the employer fails to address it despite being made aware (Shaw v CCL Ltd [2008] IRLR 284));
forced location change (eg, if the employer forces the employee to relocate without a mobility clause in their contract or without reasonable notice or consultation);
failure to address grievances (eg, if an employee has raised a legitimate grievance or complaint and the employer fails to investigate it or to take any necessary action in response (Goold WA (Pearmak) Ltd v McConnell [1995] IRLR 516, EAT); and
conduct (eg, where the employer’s conduct, either a one-off act, or a slow accumulation of acts (a ‘last straw’) is said to have breached the implied duty of trust and confidence between it and the employee (Kaur v Leeds Teaching Hospitals NHS Trust [2018] EWCA Civ 978).

An employee who has been constructively dismissed is able to bring an unfair dismissal claim in an employment tribunal. For detailed information about constructive dismissal, see How-to guide: An employer’s guide to constructive dismissal.

Section 7 – Unfair dismissal remedies

If an employer fails to carry out a fair termination of employment and the employee commences an unfair dismissal claim, there are a number of potential consequences for the employer.

7.1 Re-employment

The primary remedy for unfair dismissal is re-employment, be it reinstatement (getting their job back), or re-engagement (being employed in a different job). However, few employees request this and, when they do, the tribunals rarely award it.

7.2 Financial remedies

If an employee is found to have been unfairly dismissed, they may be entitled to a basic award (calculated similarly to a statutory redundancy payment), a compensatory award (intended to compensate the employee for financial loss resulting from the dismissal),

7.3 Interim relief

In some circumstances the employee can request ‘interim relief’. Interim relief is a unique and quite potent remedy available to employees in certain unfair dismissal cases under GB employment law.

If an employee is successful in an application for interim relief, the effect is that they are reinstated in their job or their employment contract continues until the full unfair dismissal hearing takes place. The employer will be ordered to continue paying the employee’s salary even if they are not required to do any work. This can have significant financial implications for the employer, particularly with the timescales for unfair dismissal claims to reach full hearing often being over a year.

However, the right to apply for interim relief is limited to dismissals that are alleged to be automatically unfair for specific reasons, such as:

trade union membership or activities;
acting as an employee representative or a candidate to be an employee representative;
acting as a pension scheme trustee; and
whistleblowing.

An employee must present a claim for interim relief to the employment tribunal within seven days of the effective date of termination of their employment. This is a much shorter timeframe than for most other employment claims.

The tribunal will then hold a brief preliminary hearing to decide the application. To grant interim relief, the tribunal must be satisfied that it is likely that the employee will succeed in showing at the full hearing that the dismissal was automatically unfair for one of the specific reasons outlined above at Section 2.

7.4 Other consequences

While unfair dismissal claims generally do not get much media coverage, all judgments and findings of unfair dismissal, along with (if requested) the written reasons for that finding, are all published on the HMCTS website – so employers can sustain reputational damage if found to have unfairly dismissed an employee. This damage can be substantial if the dismissal is found to have been discriminatory, or on the grounds of a legitimate whistleblowing complaint.

Section 8 – Settlement agreements and protected conversations

Employers often seek to terminate the employment of an employee by mutual agreement and, in doing so, secure a waiver of the employee’s right to bring an unfair dismissal claim or other applicable employment tribunal claim. There are specific rules around the way in which employers should approach any such conversations with employees, if the employer intends for the conversation to be inadmissible during any future tribunal proceedings.

8.1 Protected conversations

In GB, a ‘protected conversation’, also known as a ‘pre-termination negotiation’, is a legal concept introduced by section 111A of the ERA 1996.

The aim of a protected conversation is to enable an employer to discuss with an employee the terms of a proposed exit, such as an exit under a settlement agreement, without the risk that the conversation will be used as evidence in an unfair dismissal claim. This allows employers and employees to have open discussions about ending the employment relationship, without the pressure of formal disciplinary or dismissal processes.

There are some important points to note about protected conversations:

only applies to ordinary unfair dismissal claims – protected conversations are only ‘protected’ in relation to ordinary unfair dismissal claims. They can still be referred to in other claims, such as discrimination or breach of contract claims;
improper behaviour – if either the employer or employee behaves improperly during the conversation, for example, by applying undue pressure or bullying, the protection can be lost and the conversation may be referred to in an employment tribunal hearing;
voluntary – both parties should enter into the conversation willingly. The employer cannot force an employee into a protected conversation; and
legal advice –while not strictly necessary for a protected conversation, it is generally a good idea for both parties to take legal advice before and during the process. For a subsequent settlement agreement to be legally binding, the employee will need to have taken independent legal advice.

The ACAS Code of Practice on settlement agreements provides further guidance on the concept of protected conversations and how they should be conducted.

8.2 Without prejudice discussions

The ‘without prejudice’ principle applies to communications that take place as a genuine attempt to settle an existing dispute. In general terms, a without prejudice communication is not admissible as evidence in court or tribunal proceedings. Employers often seek to rely on the without prejudice principle when proposing an exit under a settlement agreement to an employee, in particular because the without prejudice principle can be used in relation to a wider category of claims than protected conversations. However, employers should proceed with caution when seeking to rely on without prejudice during discussions with an unrepresented employee. Before engaging in any without prejudice discussions, employers should check that:

there is an existing dispute (ie, the employer cannot approach an employee without warning and commence a without prejudice discussion);
the employee understands the meaning of the without prejudice principle; and
the employee agrees to a without prejudice discussion taking place.

8.3 Settlement agreements

A settlement agreement, previously known as a compromise agreement, is a legally binding agreement between an employer and an employee, usually used in situations where the employment relationship is ending and both parties want to set out the terms and conditions on which it ends.

In a settlement agreement, the employee typically agrees to waive their right to bring certain legal claims against the employer, often in return for a sum of money (known as a ‘settlement sum’ or ‘ex gratia payment’) that is usually more than the statutory entitlement. This can provide a clean break, with certainty for both parties.

The key elements of a settlement agreement are:

The agreement must be in writing – it should clearly set out the claims that the employee agrees not to pursue in exchange for the agreed consideration, usually a sum of money.
The agreement must relate to a particular complaint or proceedings – the claims being waived should be clearly specified in the agreement.
The employee must have received legal advice – the employee must have received advice from a relevant independent adviser (usually a solicitor or qualified trade union official) as to the terms and effect of the proposed agreement, particularly its effect on their ability to pursue any rights before an employment tribunal.
The independent adviser must have a contract of insurance covering the risk of a claim by the employee in respect of loss arising from the advice – this provides protection for the employee.
The agreement must identify the adviser – the agreement should specify who provided advice to the employee.
The agreement must state that the applicable statutory conditions regulating the settlement agreement have been met – this ensures that both parties confirm the agreement complies with the law.

Settlement agreements can be proposed by either an employer or an employee, although they are usually proposed by the employer. They can be proposed at any stage of an employment relationship; however, employers will often propose a settlement agreement only when they are in a position to have without prejudice discussions, or during a protected conversation.

For further information, see How-to guide: The framework for resolving employment disputes in England and Wales.