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.”
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.