Although an employer may effectively terminate an employment relationship for almost any reason, an employer must have a ‘fair’ reason to lawfully terminate an employment relationship; and an employee who has two years’ or more of continuous service (and in some limited cases, employees with less than two years’ employment), has a right to bring an unfair dismissal claim if there is no fair reason for the dismissal.  A ‘fair’ reason can be one of the following:

1. Conduct (including one off acts if serious enough);
2. Capability (this includes not having the skills or ability to do the role but could also be an ongoing health issue which means they are no longer able to perform their duties or role);
3. Redundancy (meaning there is no longer a need, or there is a reduced need for employees to do particular work in a particular location, or at all);
4. Illegality (for example, if there is a statutory restriction on employing or continuing to employ an individual in a certain role); and
5. Some other substantial reason (a catch-all reason where the reason for the dismissal doesn’t quite fit into one of the above, for example a fundamental breakdown in a relationship, or when continuing to employ an individual would lead to reputational damage for the business).

Even if an employer has a fair reason for terminating an employment relationship, to reduce the risk of dismissal being ‘unfair’ the employer must also follow a fair procedure in terminating the employment relationship. The correct procedure will depend on the reason for the dismissal and the particular circumstances. For example, for a redundancy situation, individual or collective consultation obligations will apply, depending on the number of employees whose roles are at risk.

Where an employee does not have two years’ continuous service, they are not able to bring an ordinary ‘unfair dismissal’ claim and as such, the risk for an employer is lower – even if they do not have a fair reason to dismiss, or do not follow a fair procedure to terminate an employment relationship. However, other risks do still exist and should be assessed so an employer may wish to follow an appropriate procedure as best practice and to minimise the risk of any Tribunal claims.

When large numbers of redundancy dismissals are proposed, an employer must consider and comply with collective consultation obligations. These apply where an employer proposes to dismiss as redundant, 20 or more employees within a 90-day period at one establishment (though the UK Government is currently proposing to remove the reference to “one establishment”).

Importantly, the collective consultation obligations apply in addition to the individual consultation obligations, they are not a substitute.

The additional considerations that apply for an employer in these circumstances include:

• The duty to inform the Secretary of State for Business and Trade about the proposed redundancies, noting that a failure to do so is a criminal offence.
• The duty to collectively consult with the representatives of the affected employees (not just at-risk employees but those affected by the proposed redundancies e.g., a change in reporting line or having to take on extra work). Appropriate representatives may be trade union representative or, in the absence of a trade union representative, employee representatives. The relevant legislation, the Trade Union and Labour Relations (Consolidation) Act 1992 sets out the procedure to be followed in appointing employee representatives, which is done by an election.
• Consultation should then start at a ‘formative’ stage i.e., at the time consultation starts no decisions must have been made about the redundancies, so an employer should be open to proposals to avoid them.
• Where an employer proposes to dismiss between 20 and 99 employees, consultation must start at least 30 days before the date of the first dismissal; and this increases to at least 45 days before that date, where an employer proposes to dismiss 100 or more employees (again, all within a 90-day period).
• The consultations should effectively be about ways to avoid the redundancies (included in this is the business rationale for the proposed redundancies), reducing the number of employees to be dismissed and mitigating the effects of any dismissals. Consultation must be carried out “with a view to reaching agreement with the appropriate representatives”.
• The duty to inform – an employer should also provide written information to the relevant representatives, including the reason for the proposed redundancies, how many employees are involved and the categories, the number of employees in each category, how the employer proposes to select employees for redundancy (e.g., using a scoring matrix), the proposed timeframe for the process and the formula for calculating any redundancy payment (i.e., statutory or enhanced).

A worker’s employment rights in the context of a business sale (as opposed to a simple share sale) are protected by the Transfer of Undertakings (Protection of Employment) Regulations 2006 (a complex piece of legislation referred to as ‘TUPE’).

If TUPE applies, the employment and employment contracts of employees employed immediately before the sale by company A (the transferor whose business or assets are being sold to company B, the transferee) will automatically transfer to company B on the same terms and conditions that they previously had with company A. Any employee dismissed for a reason connected with such a transfer will therefore have been dismissed unfairly – although the right to bring such a claim usually remains subject to having two years’ continuous employment, and is also subject to certain exceptions.

Employment will not transfer if an employee formally ‘objects to the transfer’. Also, an employee may be fairly dismissed if there is an economic, technical or organisational reason (and ‘ETO reason’) that justifies redundancies. Changes to an employee’s terms and conditions may also be justified by an ETO reason.

An employer is also subject to a duty to inform and (if relevant) consult with representatives of affected employees (which can be a larger group than just those whose employment will transfer to company B). This involves:

• Duty to inform – representatives (similarly to redundancy, this is either trade union or employee representatives) must be provided with certain information, including the following:
  • That a transfer is to take place
  • When the transfer is set to take place
  • Why the transfer is taking place
  • How the transfer will affect employees and which employees
  • The legal, economic, and social implications
  • Any “measures” which the transferor or transferee thinks may be taken (see below)
• Duty to consult – this is required if employers envisage taking “measures” in relation to affected employees. “Measures” is a broad concept and can include any changes to working conditions or practices that an employer intends to introduce in connection with a transfer. Similarly to redundancy, consultation must be carried out with a view to seeking the representatives agreement to the measures envisaged.

Significantly the obligation to inform and consult lies with both transferor and the transferee. Each should consult with appropriate representatives of their own employees and this should be carried out well before the business sale, to allow for a sufficient period of consultation.

There is an exception for employers who employ less than 10 employees. In such cases if there are no employee representatives, the transferor can inform and consult with the employees directly.

Yes, generally employees need a minimum period of two years’ continuous service before they may bring a claim for unfair dismissal.

Employers should proceed with caution, however, as in some circumstances an employee does not need two years’ continuous service to benefit from termination rights. For example, ‘day one’ termination rights include circumstances where the reason for the dismissal is ‘automatically unfair’, such as (non-exhaustively) where the reason for the dismissal is:

• The employee has made a protected disclosure i.e., ‘whistleblowing’;
• Discriminatory, by reference to one of the protected characteristics under the Equality Act;
• Being pregnant or on maternity leave or wanting to take a type of family leave such as parental, paternity or adoption leave;
• Making a flexible working request.

Notice periods are typically agreed and set out in a contract of employment. However, minimum notice periods are set out by statute. Generally an employer must give:

• At least 1 weeks’ notice for an employee employed between one month and 2 years;
• 1 weeks’ notice for each year of service for an employee employed between 2 and 12 years; and
• 12 weeks’ notice for an employee employed for 12 years or more.

Senior employees or directors are likely to have a longer contractual notice period to ensure protection of certain roles and duties, and to ensure a smooth transition and handover.

Yes. This is referred to as a “payment in lieu of notice” often shortened to PILON.

However, an employer’s entitlement to make a payment in lieu of notice should be recorded in the employee’s contract of employment. The contract should also stipulate whether payment in lieu of notice includes just the employee’s basic pay, whether it also includes certain benefits.

If there is no contractual entitlement for an employer to make a payment in lieu of notice, an employer seeking to end the employment relationship could be in breach of contract by seeking to end the contract with immediate effect and paying an employee in lieu of their notice period. This can have implications for the enforceability of other contractual provisions, such as any post-termination restrictions or restrictive covenants.

Yes. Similarly to PILON, an employer can place an employee on garden leave during their notice period. However, to avoid contractual uncertainty, it is important to include an express entitlement to do so within an employee’s contract of employment and to describe the terms, duties and obligations that will apply during garden leave.

Whilst there is no single defined process that an employer must follow in order to effectively terminate an employee’s employment, the risk of employment claims and related liabilities is higher if an employer does not follow a fair and appropriate process.

What is fair and reasonable will depend on factors such as the employee’s length of service and the reason for the dismissal. For example:

• If the reason for the proposed dismissal is misconduct, an employer should usually explain the allegations, provide the employee with time and the opportunity to consider them, meet with the employee and consider relevant evidence and mitigating factors, before reaching a decision. Employers should also follow the ACAS Code of Practice on Disciplinary and Grievance Procedures and compensation for any successful unfair dismissal claim may be increased if they fail to do so.
• If the reason for the proposed dismissal is redundancy, an appropriate level of consultation must be undertaken.

Generally speaking, however, if an employee has less than two years’ of service, the risk of adopting a shorter and simpler process will be much reduced, unless there are particular unlawful reasons for the dismissal.

All of the above must be considered alongside any policies or procedures included in any staff handbook, which may define particular rights, duties or expectations and in some bases, may be contractual.

In all cases the appropriate notice for termination must be provided, save where the reason for dismissal is gross misconduct allowing for summary dismissal.

If an employer has failed to identify a fair reason for dismissal and / or has failed to follow a fair process in reaching the decision to dismiss, an employee with two years’ continuous service, or more, may bring an unfair dismissal claim before the Employment Tribunal. Note that there are some certain circumstances in which an employee may be able to bring this claim, even with less than two years’ service (as above).

If an unfair dismissal claim succeeds before the Employment Tribunal, the potential remedies include:

• Reinstatement or re-engagement – i.e., effectively, an employee is treated as if they had never been dismissed and they are reinstated on the same terms and conditions, or an employee is re-engaged by the employer in a role that is comparable to that which they were dismissed from (which means terms must be a favourable as reasonably practicable).
• Compensation – this consists of two limbs in an unfair dismissal claim:
  • The first is a basic award which is calculated using a formula based on an employee’s age at the date of dismissal, their length of service (capped at 20 years) and their weekly pay (currently capped at £700 but set to increase to £719 from 6 April 2025 onwards).
  • The second element is a compensatory award and the Tribunal will determine this based on what is just and equitable in all the circumstances; it is however, capped at the lower of the statutory cap (currently £118,223) and an employee’s yearly gross pay. Significantly, for unfair dismissal claims, the compensation will be uncapped in certain circumstances, including where the reason for dismissal was that the employee made a protected disclosure (i.e., they blew the whistle) or certain other reasons.

An employee has a duty to take reasonable steps to mitigate their losses, for example by seeking to secure new employment.

Collective agreements are more common in the public sector than in the private sector. If a collective agreement is in place, it may include agreed procedures that define the process that must be followed, or certain agreement as to enhanced payments or benefits (such as an enhanced redundancy payment formulae).

No, the ability of the employer to validly terminate the employment relationship is not contingent on permission from or notification to any third party, although for larger scale redundancies, an employer is under a legal obligation to inform the Secretary of State for Business and Trade.

Under the Equality Act 2010 it is unlawful to discriminate against workers on the basis of their age, disability, gender reassignment, marital or civil partner status, pregnancy or maternity, race, colour, nationality, ethnic or national origin, religion or belief, sex or sexual orientation (“protected characteristics”).

There are various types of protections from discrimination that exist:

• Direct discrimination: Workers are protected from being treated less favourably because of one or more of the protected characteristics. For example, dismissing someone because of their race would be direct discrimination.
• Indirect discrimination: Workers are protected from being disadvantaged by an unjustified provision, criterion or practice that puts people with the same protected characteristic at a particular disadvantage. For example, a requirement to work full-time may put women at a particular disadvantage because they generally have greater childcare commitments than men. Such a requirement would be discriminatory unless it can be objectively justified.
• Harassment: Workers are protected from sexual harassment or harassment related to a protected characteristic that has the purpose or effect of violating their dignity or creating an intimidating, hostile, degrading, humiliating or offensive environment for them.
• Victimisation: Workers are protected from being treated less favourably because they have complained or given information about discrimination or harassment or supported someone else’s complaint. For example, if an employee raises a grievance about discrimination and are dismissed as a result.
• Disability discrimination: Workers are protected from direct and indirect discrimination, any unjustified less favourable treatment because of the effects of their disability and failure to make reasonable adjustments to alleviate the disadvantages caused by their disability.

Workers are protected from discrimination prior to starting their employment (e.g. any discrimination in recruitment), throughout their employment, and following termination of their employment (e.g. any victimisation with regard to the giving of references).

An employee can make a claim regardless of how long they have been employed, either following termination of their employment or whilst they remain in employment.

The claim can be made against their employer, who can also be held vicariously liable for discrimination perpetrated by their employees in the course of their employment, if they have not taken all reasonable steps to prevent such discrimination.

If they are successful in their claim, an employee could be awarded:

• Uncapped compensation for any financial loss they suffered due to their discrimination. For example, if they have been dismissed for a discriminatory reason, they could be awarded any loss of earnings flowing from the termination of their employment.
• Compensation for any injury they suffered to their feelings due to their discrimination, in accordance with the so-called “Vento bands” which are updated in April every year.
• Compensation for any personal injury they suffered due to their discrimination. For example, if they became clinically depressed.
• Potentially, “aggravated” or “exemplary” damages to punish the employer in the most serious cases, although these awards are rare.

The Employment Tribunal could make a declaration to confirm that the worker suffered discrimination. It could also make a recommendation that the employer takes specific steps to eliminate or reduce the adverse effect on them. For example, that senior staff undergo further training or by making workplace adjustments.

If the employee has been dismissed, the Tribunal could also make an order for their re-engagement or re-employment, although such orders are rare.

Additionally, from 26 October 2024, employers are under a new duty to take reasonable steps to prevent sexual harassment in the workplace. If an employee is successful in their claim for sexual harassment and the employer failed to meet the new duty, their compensation could be increased by up to 25%.

Under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002, fixed-term employees have a right not to be treated less favourably than a comparable permanent employee, if it cannot be objectively justified. They also have a right not to be subjected to detriment or be dismissed on the grounds that they have complained about their treatment as a fixed-term employee.

Under the Part-Timer Workers (Prevention of Less Favourable Treatment) Regulations 2000, part-time employees have a right not to be treated less favourably to a comparable full-time employee (on a pro-rata basis), if it cannot be objectively justified. They also have a right not to be subjected to a detriment or be dismissed on the grounds that they have complained about their treatment as a part-time employee.

Employees who are on maternity leave, adoption leave, or shared parental leave (for six consecutive weeks or more) have additional protections on redundancy. If their post is affected by a redundancy situation occurring during their leave, they have a right to be given first refusal on any suitable alternative vacancies that are appropriate to their skills for a period of 18 months from the child’s birth or adoption.

Under the Public Interest Disclosure Act 1998 and Employment Rights Act 1996 whistleblowers are protected from a dismissal or detriment on the grounds that they had made a “protected disclosure” (i.e. blown the whistle).

In order for a disclosure to be protected it must convey information, either verbally or in writing, and the worker has to have a reasonable belief that:

• it tends to show one or more of the six specified types of wrongdoing has taken place or is likely to take place, namely: criminal offence, breach of any legal obligation, miscarriage of justice, danger to health and safety, damage to the environment or deliberating concealing of information of any of the above;
• it is made in public interest.

A worker can bring a claim for detriment on the grounds they had made a protected disclosure, either following termination of their employment or whilst they remain in employment. If the Tribunal finds that their protected disclosure has materially influenced their detrimental treatment, they will succeed in their claim and could be awarded uncapped compensation for any financial loss they suffered due to the detriment as well as an award for injury to their feelings.

If the Tribunal finds that a protected disclosure was the reason or principal reason for an employee’s dismissal, they will be successful in a claim for automatic unfair dismissal, and could be awarded uncapped compensation for any financial loss they suffered flowing from the termination of their employment. The Tribunal has a power to make a declaration or a recommendation. Additionally, the Tribunal could also make an order for their re-engagement or re-employment, although such orders are rare.

In rare cases, the Tribunal could grant an employee interim relief by making an order for the continuation of their employment, provided such application is made within 7 days of the employee’s last day of employment.

There have been developments in this area of law recently, as well as proposed future reforms. The direction of travel is that it will become more difficult for employers to dismiss and re-engage employees on less favourable terms.

The current position is that employers can dismiss and re-engage employees on less favourable terms. This practice tends to be used as a last resort where changes were not possible under the contract and/or the employees did not agree to the changes. There does not have to be a specific reason, e.g. financial difficulties.

Assuming contractual notice is served, there will usually be no breach of contract. However, ‘fire and rehire’ practises will still be a dismissal in law and therefore may give rise to an unfair dismissal claim or a redundancy situation and collective consultation obligations may apply.

Since 18 July 2024, employers are required to comply with the statutory Code of Practice on Dismissal and Re-engagement. There is no stand-alone claim for breach of the Code, but it must be taken into account by Employment Tribunals in relevant cases, including unfair dismissal. The Code gives Tribunals the ability to uplift compensation by up to 25% if an employer unreasonably fails to follow it. The key provisions of the Code include that ‘fire and rehire’ should only be treated as a last resort, employers should explore alternatives, and employees need to be consulted for as long as possible.

In addition, the Employment Rights Bill proposes to end fire and rehire practices by amending the law to make a dismissal automatically unfair, if an employee is dismissed for failing to agree to a change in their contract of employment or replace them with another employee on varied terms to carry out the same role.

There will be a very limited exception where the employer can demonstrate that the reason for the variation was to significantly mitigate financial difficulties, and it could not reasonably be avoided. However, the threshold for this is expected to be high (perhaps, on insolvency).

Using AI in recruitment may raise issues of compliance with the Equality Act 2010. For example:

• Applicants who are disabled may require reasonable adjustments if they are put at substantial disadvantage by an AI recruitment tool. In some cases, it may be appropriate to remove the AI recruitment tool from the recruitment process altogether to alleviate any disadvantage.
• There could also be an inherent bias in an AI recruitment tool trained on particular data sets, which favours applicants from certain backgrounds. This could give rise to an indirect discrimination claim by any excluded applicants.

Since any AI recruitment tool will process individuals’ personal data, there are also risks under the Data Protection Act 2018 and UK GDPR. For example:

• There could be risks associated with how the individuals’ personal data is stored and processed, especially any sensitive personal data.
• There are also specific restrictions on automated decision taking and profiling, which will be particularly relevant.

To date, there have been very few Employment Tribunal claims brought examining an employer’s use of AI or automated decision making in recruitment or termination process, but it is possible that this may change as the use of AI and automated decision-making becomes more prevalent.

On termination of employment, employees are entitled to receive:

• notice under their contract, subject to minimum notice required by law (provided that they did not commit a repudiatory breach of their employment contract which would entitle their employer to dismiss them without notice or payment in lieu), and
• a payment in respect of any accrued untaken holiday entitlement on termination of their employment.

On redundancy, employees who have two complete years’ service or more, will also be entitled to receive a statutory redundancy payment, calculated in accordance with a statutory formula, based on the employee’s age, length of service and week’s pay (subject to a statutory limit).

Some employers may offer an enhanced redundancy payment (which tends to be inclusive of any statutory redundancy payment) and/or other contractual entitlements on termination of employment (e.g. a guaranteed termination payment).

An employer and employee can record the agreed terms on which employment will terminate, within a Settlement Agreement or a COT3 Agreement and in either case, it is common to include the waiver of the employee’s employment rights. This also, generally includes a termination payment to the employee, but could include some other incentive.

There are specific requirements that must be met for a Settlement Agreement (and the waiver of claims) to be legally valid:

• it must be in writing and signed by the employee;
• the employee must receive independent legal advice from an insured and qualified legal adviser (such as a solicitor or certified trade union adviser) on its terms and effect;
• it must identify the legal adviser;
• it must identify the specific legal claims being waived; and
• it must state that the conditions regulating settlement agreements under the relevant statutory provisions have been satisfied.

A COT3 Agreement is an agreement where a dispute has been settlement following conciliation by ACAS. There are certain types of claims (such as relating to failure to collectively consult) which can only be waived via a COT3.

It is usual to see non-disclosure and confidentiality provisions recorded in these agreements, however there are limitations on these. For example, it is not permitted to restrict an employee’s rights to make protected disclosures, report certain wrongdoing or to report a criminal offence.

The #MeToo campaign has also increased scrutiny on sexual harassment in the workplace and the inappropriate or oppressive use of non-disclosure provisions to cover up misconduct, and has resulted in a more detailed legal and regulatory framework which solicitors now have to follow when drafting and advising on such provisions.

Yes, it is possible to agree contractual terms that restrict a worker from working for competitors following termination of their employment. However, preventing competition must not be an end it itself. Restrictions having the sole aim of preventing competition will not be upheld by the court.

To be enforceable a post-termination restriction must be designed to protect a legitimate proprietary interest of the employer for which the restraint is reasonably necessary. Legitimate interests may include an employer’s trade connections with clients or protection of confidential information. Any restriction must also be no wider than is reasonably necessary to protect the interest. If it is too wide (e.g. too long), it will be void.

In 2023, the previous government consulted on the reform of non-compete restrictions in employment contracts. Following the end of the consultation, it stated its intention to introduce a statutory cap of three months on non-compete restrictions (although it would not introduce the same cap would for confidentiality provisions and other restrictions, such as non-solicitation and non-dealing with clients). It ruled out the possibility of employers being required to pay mandatory compensation for the duration of the enforcement period of non-compete restrictions.

The current government’s employment law reform proposals do not refer to these reforms, so any future change to the law in this area remains uncertain at this point.

Generally an employee has implied duties during their employment that they will conduct themselves with fidelity and good faith, which involves respecting the confidentiality of the employer’s commercial and business information.

These duties tend to be supplemented by express contractual duties, which clearly define the information that employer considers to be “confidential” and give it wider protections.

Following the termination of employment, if information can be properly categorised as a trade secret, the employee will be prevented from using or disclosing it, even if there is there is no provision in the employment contract to that effect.

However, in order clearly define what the employer believes to be a “trade secret” and to protect other categories of confidential information, it is advisable to include express confidentiality provisions in employment contracts, which are tailored to the business.

Generally, there is no obligation on employers to provide references when requested. However, employers should be mindful that withholding a reference can be an act of victimisation if it is done in response to someone having complained or given information about discrimination or harassment or supported someone else’s complaint (e.g. by way of an Employment Tribunal claim).

Most employers will provide a so-called “tombstone” reference which will only confirm the position and dates of employment.

If employers provide a reference, they are under a duty to ensure that the reference is accurate and not misleading, hence the reluctance to include more than basic factual details.

In the financial services sector, certain regulated employers must give a reference in a prescribed format.

Terminating an employee’s employment for capability reasons when they have a long-term sickness can be challenging, particularly if the employee is disabled under the Equality Act 2010. If the dismissal is because of something arising from that disability (such as a disability-related absence), the decision must be objectively justified, to avoid a claim for disability discrimination. Employers also have a duty to make reasonable adjustments to alleviate any disadvantage suffered by the employee at work or in connection with the dismissal process as a consequence of their disability.  Medical evidence and advice are often needed where an employer is proposing to dismiss an employee who may be disabled.

Problems also frequently arise when an employer tackles an employee’s performance at work. A variety of issues can be at play from failing to honestly communicate performance issues (e.g., written appraisals may have little, if any record of the issues the employer later wishes to rely on), not communicating such issues early on or failing to do so in a professional and polite manner. Performance management should be conducted in a way that is timely (including in relation to giving an employee sufficient time to improve), open and honest. A botched or pre-determined process can result in a claim for unfair dismissal.

Employees may also go on sickness absence or bring a grievance during any disciplinary or performance management process, which is difficult to manage. This is often a way to delay the dismissal. Ideally, employers should address any grievance before dismissing the employee and, if they are absence for health reasons, give them a proper opportunity to attend meetings or engage with the process in some other way (e.g. by way of written responses) and make representations, before deciding whether or not to dismiss them.

The new government has proposed a raft of employment law reforms which are considered to be “the biggest upgrade to workers’ rights in a generation”.

The biggest change is the right to claim for unfair dismissal from day one of the employment relationship, removing the two-year qualifying period that is currently in place. This will be subject to a ”probationary period’ which is currently expected to be 9 months, during which time an employer will be able dismiss an employee using a ‘lighter touch’ process (except for redundancy).

Whilst this change will deliver more protection to individual employees, it is expected that employers will adopt more robust pre-employment screening checks to ensure that the candidates are right for the role from day one. There is also likely to be more scrutiny on employees during their probationary period as employers will be careful to take advantage of the lighter-touch process.