Reasons for Terminating Employee Contracts

Dismissing an employee can be a legal minefield for employers.

If you fire someone or terminate their contract of employment, you must be able to show that your reason for doing so was fair – or you could be looking at an unfair dismissal claim.

Under UK law there are five potentially fair reasons for dismissing an employee. They are:

1. Incapability

2. Misconduct

3. Redundancy

4. Contravention of a duty or restriction; and

5. Some other substantial reason.

There might be countless reasons for your decision, but for the purposes of statutory fair dismissal, there must be one principal reason which fits within one of the five potentially fair reasons given above.  You can’t rely on facts that emerge after the dismissal to justify why you terminated the employee’s contract.

If you’re contemplating dismissing an employee, HR:4UK strongly advises that you follow the ACAS Code on discipline and grievance.

Where the main reason for dismissal has been established, you must be able to show that you acted reasonably in all the circumstances (taking into consideration your size and administrative resources) in treating that reason as sufficient reason for dismissal.

Additionally, the dismissal must be within the band or range of reasonable responses that a reasonable employer might make.   This is essentially a matter of fact and will depend on what you knew at the time of deciding to dismiss your employee.

To avoid a Tribunal claim, you should not only consider the way in which you dismissed that staff member, but also whether you acted reasonably in relation to the situation leading up to their dismissal.

To act reasonably an employer must be able to illustrate best practice. This includes being consistent in your treatment of the employee; providing warnings in cases of substandard performance; giving the employee sufficient detail of the allegations they face at disciplinary hearings; warning them that a possible sanction of dismissal may be imposed and ensuring that the various stages of the disciplinary process (namely investigation, disciplinary and appeal hearings) are heard by someone who has not previously been involved in the matter.

Can I fire an employee for not being very good at his or her job? 

You have a fair reason to dismiss an employee if the reason (or principal reason) for dismissal relates to their capability or qualification to perform the work they were was employed to do.  Incapability must relate to the kind of work the employee was employed to undertake.

Incompetence incapability covers employees who fail to meet the employer’s standards; who work too slowly or who are physically incapable of doing their job.

Ill health incapability may relate to persistent short-term illness or to long-term illness.   An employee’s ill health may be a fair reason for dismissal when considering the following factors – the nature of the illness; length and frequency of absence; likely length of continuing or future absence; the employer’s need to have work done by that employee and the effect their absences is having on their colleagues and the business.  

Being able to show a fair procedure of incompetence and ill health is crucial when assessing whether the dismissal was fair. 

It may still be appropriate to treat incompetence as a disciplinary matter; in which case you should follow your disciplinary procedure which normally requires:

• Carrying out an employee appraisal to identify areas of concern
• Giving guidance and supervision and where necessary additional training
• Giving the employee a specific time frame for improvement
• Warning the employee of the consequences of failing to improve
• Reviewing the employee’s performance after a specified period

You might not need to follow these steps in cases of gross incompetence.

Managing ill health should be dealt with under a separate procedure to the disciplinary procedure. For long-term illnesses, the employer will usually:

• Consult with the employee
• Obtain medical evidence to ascertain whether the employee’s health will get better and if so, the timescale of improvement
• Give a warning if there are a large number of short absences and where dismissal is being considered
• Consider alternatives to dismissal; for example, changing working hours or offering other suitable employment

Can I fire an employee for poor conduct?

To constitute a fair reason for dismissal, the misconduct must in some way reflect on the employer-employee relationship.   Dismissal for poor conduct may be appropriate after a series of incidents, provided the employer follows a fair process.  Unless an employee has committed an act of gross misconduct, a dismissal without prior warning will only be fair in exceptional circumstances.

You must follow a fair procedure and implement best practice principles as set out in the ACAS Code on discipline and grievance.  These normally include:

• Having clear rules on required standards of conduct and sanctions for their breach
• Making employees aware of what constitutes gross misconduct
• Applying the disciplinary rules consistently
• Carrying out a thorough investigation to establish the facts
• Giving the employee an opportunity to put forward their side of their case
• Having more than one manager involved in the dismissal and disciplinary process
• Taking into to account the employee’s representations, including any mitigating circumstances
• Deciding on the appropriate sanction
• Clearly explaining the reason for dismissal if the employer decides to dismiss
• Giving the employee the opportunity to appeal

Employees have a statutory right to be accompanied at certain disciplinary and grievance hearings.

At the time of dismissal, you must be satisfied that the disciplinary officer genuinely believed the employee to be guilty of that conduct; had reasonable grounds to hold that belief and carried out such investigation that was reasonable in all the circumstances.

Making staff redundant

You will have a fair reason for dismissal if the principal reason is redundancy.  Be aware though that it is automatically unfair to select an employee for redundancy for certain reasons, including pregnancy and health and safety.

Note, too, that a business reorganisation will not always fall within the statutory definition of redundancy.

To show that you have acted reasonably, you must demonstrate that you followed a fair procedure.   This normally includes:

1. Identifying that the employer is facing a redundancy situation

2. Identifying those employees at risk of redundancy and addressing a number of issues such as:

• Number of employees in the redundancy pool
• Fair selection
• Individual consultation
• Alternatives to dismissal
• Collective consultation (if more than 20 employees)
• Notice of dismissal
• Time off

Contravention of a duty or restriction

You will have a fair reason for dismissal if you can show that you would be breaking the law by continuing to employ the employee. An example of this could be where someone is employed as a driver and loses their driving licence or where an employee is refused a work permit and so cannot legally work in the UK.

Your obligation to act reasonably may require you consulting with your employee, informing them of the situation and inviting their views.  You should consider reasonable adjustments to their duties to allow them to continue in their job and/or whether any suitable alternative employment is available.

Some other substantial reason (SOSR)

Employers may be able to use this catch-all category which covers fair reasons not specifically provided for.

To fall within SOSR, you must show that the reason (or principal reason) for dismissal is a substantial one.

SOSR dismissals most commonly apply to action taken by the employer to protect their business including:

• Reorganisations/changes requiring variations to terms of employment to which the employee refuses to agree
• Dismissals of employees who refuse to enter into restrictive covenants needed to protect the employer’s legitimate business interests
• Dismissals where there is a breakdown of mutual trust and confidence
• Dismissals where there is a breakdown of the working relationship
• Dismissals at the request of a third party
• Imprisonment

Again, employers must ensure that they follow a fair procedure.  It is essential that you implement best practice principles which normally include:

• Consulting with employees 
• Discussing the proposed changes
• Explaining the impact
• Considering and responding to representations and objectives raised
• Considering alternatives to dismissal

As you can see, firing an employee, or terminating their employment, is not a decision to be taken lightly.  You need to be very sure of your grounds for dismissal first.

HR:4UK has vast experience in handling difficult situations with employees, and we can help you with your issues. We can provide you with the HR advice and consultancy you’ll need to correctly manage the dismissal process. For more information call us today on 01455 444222