Wrongful Dismissal v Unfair Dismissal

9 February 2021

Employers often have to make tough decisions on dismissing employees; however, it is important that employers have a fair and justifiable reason for dismissing an employee.

Employers must also follow the proper procedure and failure to do so can lead to negative consequences, such as the time and costs of defending an Employment Tribunal claim

Claims that are brought against employers by employees for dismissal are “Wrongful Dismissal Claims” and “Unfair Dismissal Claims.” These are often confused but are two completely different concepts and are filed for very different reasons.

What is Wrongful Dismissal?

A wrongful dismissal claim is brought by an employee because they believe their employer has breached the contract of employment. This kind of claim is called a contractual right claim, as opposed to a statutory claim. Wrongful dismissal claims are often relevant in situations where the employer has not followed the correct procedure in dismissing or disciplining an employee.

The most common scenario that leads to a wrongful dismissal claim is the employer dismissing an employee without notice. If the employment contract specifies that the employee shall receive a minimum notice period, then the employer must comply with this term. If, on the other hand, no such term has been included in the contract, the employee can rely on statute which lays down the minimum notice period that every employee is entitled to receive from their employer.

The law requires that the minimum notice period for all employees should be at least one week, if they have continuous employment for one month – less than two years. Furthermore, extra weeks will be added for each year of service, up to a maximum notice period of 12 weeks. For example, if A has been working at Company X for 2 months, and if the statutory notice period applies, they will be entitled to a one week notice period. Similarly, if B has been working at Company X for 3 years, they will be entitled to a three week notice period.

If the notice period provided in the contract is longer than the one that an employee is entitled to under statute, then the former is given effect. If the notice period provided in the contract is shorter than the one that an employee is entitled to under statute, then the latter is given effect.

An employer can avoid the possibility of being sued for Wrongful Dismissal, even if they have not followed the correct procedure, provided that the dismissed employee receives payment instead. For example, if employer A wants to dismiss employee B without giving them notice, then A can offer B payment in lieu. If B accepts payment, then there will be no breach of contract and a wrongful dismissal claim will most likely fail.  However, the right to pay in lieu of notice must be in the employee’s contract of employment in order to be enforced by the employer.

For a wrongful dismissal claim, employees must approach the Employment Tribunal within 3 months from the date of termination. The employee will have to establish that there was a wrongful dismissal without notice, or as a result of a breach of contract and, as a result of this, the employee suffered a loss.

The employer can defend themselves by arguing that there was justified reason for dismissal, for example, the employee committed gross misconduct. If the employer is unable to justify the dismissal, the claim will succeed. The maximum an employee can claim is £25,000. The damages will also include any loss of salary or benefits that the employee lost out on as a result of the dismissal.

What is Unfair Dismissal?

Unfair Dismissal claims are brought when an employee believes their employer has breached the former’s statutory rights as laid down in the Employment Rights Act 1996 (the ‘ERA 1996’). This kind of claim is called a statutory claim.

While wrongful dismissal claims focus on breach of contract, unfair dismissal claims focus on the fairness of the dismissal in general. This kind of claim protects those employees who have provided their employers with 2 years (or more) of continuous service. Again, an employee filing an unfair dismissal claim must file it within 3 months from the date of termination.

In order to understand what amounts to unfair dismissal, you must first examine what amounts to a fair dismissal, as set out in detail in section 98 of ‘ERA 1996’. The provision specifies that, if an employee is dismissed due to the following reasons, the dismissal is considered to be fair:-

  • The employee was found guilty of gross misconduct;
  • The employee needs to be made redundant due to genuine reasons;
  • The employee lacks qualifications or skills to handle the relevant tasks;
  • Allowing the employee to work in the relevant organisation / company will result in a breach of law;
  • The employer has some other genuine and justifiable reasons for dismissing the employee.

If the reasons for an employee’s dismissal do not fall within the parameters of section 98 (as listed above), then the dismissal may be considered to be unfair.

The employer’s conduct is also relevant in deciding whether the dismissal of an employee was unfair. To determine this, there would be an examination of whether the reason for dismissal was fair and justifiable. For example, it does not make sense to dismiss an employee over a minor offence; however, dismissing an employee due to gross misconduct seems like a fair decision.

Another aspect that may be considered is whether the employer followed the proper procedure for dismissal. The employer should follow protocols, procedures or terms set out in the contract of employment or organisation / company handbook.

Relevant laws and regulations should also be kept in mind. For example, if complaints are made against an employee with regards to misconduct, then a good idea would be to follow the ACAS Code of Practice on Disciplinary and Grievance Procedures. This would allow the employee to feel that the process followed was fair.

In summary, for an unfair dismissal claim to be successful, the employee will have to prove the following:-

  • That the reason for dismissal did not fall within the parameters of section 98 of the ERA 1996; and
  • That the employer was not fair and reasonable in dismissing the employee.

If the claim is successful, the award that an ex-employee receives is a mixture of compensation (capped at a year’s salary), statutory redundancy payments and any losses as a result of the dismissal. The employee must also mitigate their losses and find alternative employment e.g. they cannot simply not look for a new job in order to accrue a higher loss figure. If the employee is successful in proving only one of the aspects, then the claim may either fail, or the amount to be awarded may be reduced accordingly.

Additionally, a sub-category that must be considered is automatic unfair dismissal. This essentially means that any reason for dismissal that breaches the employees’ rights will result in an automatic unfair dismissal. This covers all employees and does not require a minimum period of continuous service. The following are a few examples of reasons for dismissal which may be categorised as automatic unfair dismissal:-

 

  • The employee was pregnant and the employer was aware;
  • The employee had taken a maternity or paternity leave;
  • The employee was involved in certain trade union activities;
  • The employee was insisting on enforcing their statutory rights (such as national minimum wage, receiving a paid holiday, or working in a safe and healthy environment, etc.)

For an automatic unfair dismissal claim, the employee is required to prove that the reason for dismissal falls within the category of automatic unfair dismissal. If the employee is successful, then the claim will be automatically successful and the employer will not be given a chance to justify themselves.

For further information on making or defending a claim for wrongful or unfair dismissal contact our award winning Employment law team today on 03330 144 455.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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