Ending of the Employment Relationship

Question 1

When does a claim for wrongful dismissal arise?

Answer 1

· A claim for wrongful dismissal arises where the employer has dismissed the employee in breach of the terms of the employment contract

Question 2

· The statutory minimum notice period for employees is calculated as

Answer 2

 Employed for up to one month > No minimum notice
 Employed for more than one month but less than two years > One week’s notice
 Employed for two years or more > One week’s notice for every completed year of service
 Employed for 12 years or more > 12 weeks’ notice (i.e. this is the maximum minimum notice period)

Question 3

What happens if the contract of employment provides for less notice than is required by statute?

Answer 3

· If the contract of employment provides for less notice than is required by statute, the statutory notice entitlements apply.

Question 4

When is an employer is not required to give notice?

Answer 4

if it is entitled to carry out a summary dismissal of the employee or if the employment contract had a fixed term which has come to an end.

Question 5

When does summary dismissal arise?

Answer 5

An employer is entitled to dismiss without notice where the employee is in very serious breach of contract / has committed an act of gross misconduct

if the breach goes to the root of the contract, it will be a ‘repudiatory breach’, allowing the employer to treat the contract as at an end without notice or any payment in lieu of notice.

Question 6

What is constructive dismissal?

Answer 6

an employee may resign from their employment, but still treat themselves as having been dismissed by the employer in breach of contract.

Question 7

What needs to be proven for constructive dismissal?

Answer 7

 The burden of proving constructive dismissal is on the employee, who must establish:
* A serious breach of contract by the employer
* That the resignation was a direct result of the breach; and
* That the employee did not ‘waive’ the breach (e.g. by continuing to work without registering a protest)

Question 8

· An employee with a wrongful dismissal claim could bring the claim in:

Answer 8

 Employment Tribunal
 County Court or High Court

Question 9

When can a wrongful dismissal claim be brought to an employment tribunal?

Answer 9

Claim must be made within three months of dismissal – period is paused for obligatory period of up to six weeks’ conciliation process using the Advisory, Conciliation and Arbitration Service (ACAS) > Damages awarded by the Employment Tribunal are subject to a limit of £25,000

Question 10

When can a wrongful dismissal claim be brought to County and High Courts?

Answer 10

· County and High Courts > Normal limitation periods apply – claims to be brought within six years of dismissal > Higher value claims would go to the High Court, lower value to the County Court – there is no limit on damages claimed

Question 11

What is the remedy for wrongful dismissal?

Answer 11

· The remedy for wrongful dismissal is damages for breach of contract.

Question 12

Calculation for damages for wrongful dismissal?

Answer 12

· The normal rule for contractual damages applies – the employee will be placed in the same position as they would have been in if the contract had been properly performed.
· Therefore, the employee should only be compensated for loss of earnings net of tax and national insurance.
· As well as wages, the employee would also be compensated for other net contractual benefits (for example, pension rights, company car, contractual bonus).

Question 13

Mitigation?

Answer 13

· As with other contractual damages, the award will be subject to the claimant taking steps to mitigate their loss.
· The ex-employee is therefore under a duty to mitigate their loss by seeking new employment. If the ex-employee finds a new job, this must be taken into account - and damages will be reduced accordingly.
· If the ex-employee makes no attempt to mitigate their loss (for example, by not trying to find another job) then the amount of damages awarded can be reduced to reflect this.
· In addition, restrictive covenants in the employment contract (preventing the employee from working for a competitor for a period of time after the employment terminates) are likely to be unenforceable following a wrongful dismissal

Question 14

• Payment in lieu of notice clauses?

Answer 14

· A payment in lieu of notice clause (PILON) allows the employer to pay the employee for their notice rather than require the employee to work during the whole or a part of their notice period.
· An employment contract often provides the employer with the discretion to give the employee a PILON. If the employment contract contains a PILON clause and the employer dismisses the employee and then pays them in accordance with the PILON clause – instead of employing them until the end of their notice period – there will be no breach of contract and no claim for wrongful dismissal. The main reason for having a PILON clause is to preserve any restrictive covenants that would otherwise be unenforceable because the employment would have been terminated in breach of contract.
· If a PILON is used, the amount due from the employer is simply the amount the employee would have received had they worked during the relevant period. In most cases, this will apply only to their basic salary and contractual benefits (and not the accrual of any discretionary bonus, for example. Payments made under PILON provisions are usually taxable as earnings for income purposes.

Question 15

What are garden leave clauses?

Answer 15

· An employment contract may also include a Garden Leave clause.
· The purpose of this provision is to enable the employer to require the employee to stay at home for a period of time – for example, during their notice period or during investigations of alleged misconduct - so that they have less opportunity to disrupt the business and/or take valuable know how (such as customer lists) from the employer.
· While the employee is on garden leave, they remain employed by the employer – so the employee cannot get another job and the employer continues to pay them. This gives the employer an additional period to those covered by any restrictive covenants, during which the employee cannot work for a competitor.
· A court will only enforce a garden leave provision by way of an injunction if the employer can demonstrate that it is necessary to protect its interests – taking into account the status of the employee and the employee’s job (so a more senior employee could be subject to a longer garden leave provision).

Question 16

What is the basis for unfair dismissal?

Answer 16

· Unfair dismissal is a statutory claim – it can be brought by employees if they have been dismissed for an unfair reason and/or where they claim that an unfair process was used in bringing their dismissal about.

Statutory basis

Question 17

· To be successful in establishing unfair dismissal under s. 94(1) ERA, the following criteria must be met:

Answer 17

 there must have been a dismissal;
 the employee must qualify for the right to claim; and
 the employer must not have a fair reason for the dismissal and/or the dismissal must not be fair in all the circumstances.

Question 18

· Employees who wish to claim for unfair dismissal must prove they were actually dismissed within the meaning of s. 95(1) ERA:

Answer 18

 An express dismissal by the employer – either termination on notice or summary dismissal.
 The expiry of a fixed term contract without renewal on the same terms.
 An employee resignation (with or without notice) in circumstances where they are entitled to resign because of the employer’s repudiatory breach of contract (constructive dismissal).

Question 19

· In order to qualify to make a claim for unfair dismissal, an individual must:

Answer 19

 be an employee (see s. 230 ERA – an individual working under a contract of employment) who is not within an excluded category (such as the police);
 be employed for at least two years (see s. 108(1) ERA – requires continuous employment); and
 commence the claim within three calendar months of the effective date of dismissal (see s. 111(2) ERA).

· These are commonly called the eligibility criteria. The employee must also be working in Great Britain at the time of the dismissal or have some other sufficiently strong connection with Great Britain.
· Note: If a business is transferred from one person to another, the period of employment of an employee at the time of the transfer counts as a period of employment with the transferee (s. 218(2)): SO a TUPE transfer preserves qualifying employment.

Question 20

· Provided the employee has established eligibility and a dismissal, it is then for the employer to show:

Answer 20

 what the principal reason for the dismissal was; and
 that this reason was a potentially fair reason for the dismissal as defined by s. 98(1) ERA 1996.
· The potentially fair reasons set out in s. 98(1) ERA are:
 Capability or qualifications of the employee
 Conduct of the employee
 Redundancy
 Some other ‘Substantial reason’

Question 21

· Even if a potentially fair reason is established by the employer a dismissal will still be unfair if it fails the second limb of the test in s. 98(4) ERA 1996. This states that whether a dismissal is fair or unfair:

Answer 21

 depends on whether the employer acted reasonably or unreasonably in treating the reason as a sufficient reason for dismissing the employee, given the circumstances, including the size of the employer’s undertaking and its administrative resources; and
 is determined in accordance with equity and the substantial merits of the case.

Question 22

What is the second stage of the unfair dismissal process commonly referred to as?

Answer 22

procedural stage

Question 23

What are the two stages the procedural stage be broken down into?

Answer 23

 was a fair procedure followed by the employer?; and
 was the decision to dismiss the employee within the band of reasonable responses?

Question 24

Fair procedure

· The ACAS Code sets out certain ‘keys’ to handling disciplinary issues in the workplace which the employer will need to show it has followed, namely:

Answer 24

 Establish the facts of each case
 Inform the employee of the problem
 Hold a meeting with the employee to discuss the problem
 Allow the employee to be accompanied at the meeting
 Decide on appropriate action
 Provide the employee with the opportunity to appeal

Question 25

How to establish whether the dismissal within the band of reasonable responses?

Answer 25

· The company must also have acted reasonably in all the circumstances in treating the reason as a sufficient reason for dismissing. Therefore, in this context, the Employment Tribunal will focus on two things:
 the conduct of the employer: whether the action taken by the employer was appropriate; and
 the decision itself: was it within the parameters of a reasonable range of responses?
* (Midland Bank plc v Madden, Foley v Post Office (2000) ICR 1283)

Question 26

What are the remedies available for unfair dismissal?

Answer 26

· There are three remedies available to the unfairly dismissed employee, namely reinstatement, re-engagement and compensation.

Question 27

Reinstatement (s. 114 ERA)?

Answer 27

 This involves returning the employee to the same job with compensation for any loss suffered between dismissal and reinstatement.

Question 28

Re-engagement (s. 115 ERA)?

Answer 28

 This involves placing the employee in a similar job with the same, or an associated, employer – with compensation for the lost wages over the period before re-engagement.

Question 29

Compensation is made up of:

Answer 29

• Basic Award - paid out regardless of loss suffered
• Compensatory Award - intended to compensate for losses suffered

Question 30

Calaculation for damages?

Answer 30

 The statutory formula for the basic award under s. 119 ERA is:
* Age factor x Years’ service x Week’s pay
* The age factor is calculated as:
o 1.5 > For each year of employment when the employee is 41 or over
o 1 > For each year of employment between the ages of 22-40 (inclusive)
o 05 > For each year of employment below the age of 22
* A week’s pay is subject to a statutory maximum (s. 227(1) ERA) which is increased every year - £571 for 2022/23.
* The years’ service has a statutory maximum of 20 years.

Question 31

What guides how damages are assessed?

Answer 31

Section 123 ERA provides that the award shall be “just and equitable in all the circumstances” - taking into account loss attributable to the employer’s actions.

There are a number of circumstances in which the Tribunal has the power to make adjustments to a compensatory award, either upwards or downwards.

Question 32

What is redundancy?

Answer 32

A redundancy procedure allows an employer to dismiss a number of employees without the dismissal being an ‘unfair dismissal’.

Question 33

To be a ‘fair reason’ for dismissal, a redundancy process must fall within the statutory definition set out in s. 139 ERA, which covers dismissals arising from:

Answer 33

• The closure of the business as a whole;
• The closure of a workplace
• A reduction in the need for employees carrying out work of a particular kind – either overall or in any particular workplace.

Question 34

The employer must also show that selection for the redundancy is procedurally fair. The procedure required to demonstrate a fair procedure will vary depending on whether it is:

Answer 34

• Individual Redundancy
• Collective Redundancy

Question 35

What is individual redundancy?

Answer 35

o The rules on individual redundancy apply where fewer than 20 employees at one establishment are to be dismissed by reason of redundancy within a rolling period of 90 days or fewer.

Question 36

What is collective redundancy?

Answer 36

• The rules on collective redundancy apply where 20 or more employees at one establishment are to be dismissed in by reason of redundancy within a rolling period of 90 days or fewer.

Question 37

What should individual redeundancy procedures include?

Answer 37

· As with dismissals generally, the employer would need to follow its own redundancy policy and procedures – at a minimum, case law suggests that its procedures should include:
 informing employees and inviting voluntary redundancies;
 deciding on objective selection criteria (for example, a ‘score sheet’ approach);
 applying the criteria and informing employees if they have been provisionally selected – giving them an opportunity to comment;
 finding alternative work for employees if possible;
 and sending out dismissal notices to redundant employees.

Question 38

What should COLLECTIVE redeundancy procedures include?

Answer 38

· As with dismissals generally, the employer would need to follow its own redundancy policy and procedures – at a minimum, case law suggests that its procedures should include:
 informing employees and inviting voluntary redundancies;
 deciding on objective selection criteria (for example, a ‘score sheet’ approach);
 applying the criteria and informing employees if they have been provisionally selected – giving them an opportunity to comment;
 finding alternative work for employees if possible;
 and sending out dismissal notices to redundant employees.
**
employers must ALSO consult with trade union or other employee-elected representatives

· The employer must also give the same period of notice (30 or 45 days) to The Redundancy Payment Service (acting on behalf of the Secretary of State for BEIS) before giving notice to terminate.

Question 39

when must consulation begin?

Answer 39

• At least 30 days before dismissal if between 20 and 99 redundancies are proposed at one establishment
• At least 45 days before dismissal if at least 100 redundancies are proposed at one establishment

Question 40

· The statutory formula for statutory redundancy pay under s. 162 ERA is

Answer 40

· Age factor x Years’ service x Week’s pay
· The age factor is calculated as:
 1.5 For each year of employment when the employee is 41 or over
 1 For each year of employment between the ages of 22-40 (inclusive)
 0.5 For each year of employment below the age of 22
· A week’s pay is subject to a statutory maximum and the years’ service has a statutory maximum of 20 years.
· A statutory redundancy payment is usually payable to an employee who is made redundant and has at least two years’ continuous employment at the relevant date.

Question 41

Your client (‘Company A’) is proposing to set up a 50/50 joint venture company (the ‘JV Co’) with one other party (‘Company B’). Company A and Company B will each be transferring a subsidiary company to the JV Co when it is set up. The subsidiary that Company A is transferring to the JV Co (‘Sub A’) has recently received a letter from one of its employees (‘Employee A’), dated 1 September 2022. Employee A was employed as a manager on 1 January 2021 and has a notice provision of one month’s notice. The letter contained the following paragraph:

“Over the last three months I have been given only basic administrative filing to do and all the employees I used to supervise have been re-allocated to other managers. I have made repeated requests for a meeting with the head of the department, all of which have been denied, and I am the only employee to have received no bonus at the end of the year. As a result, I have resigned with immediate effect and will no longer be attending the office.”

What is the best advice to give to your client in relation to Employee A?

Employee A may have a claim for wrongful dismissal against Sub A as the circumstances would have allowed Employee A to claim summary dismissal.

Employee A would not have a claim against Sub A, as the employee resigned and was not dismissed.

If Employee A is important to the business of Sub A, this may be an issue, as it is likely that any restrictive covenants in Employee A’s service contract may not be enforceable.

Employee A is likely to have a claim for unfair dismissal, as the circumstances described would amount to a dismissal for the purposes of s. 95(1)(c) of the Employment Rights Act 1996.

Answer 41

If Employee A is important to the business of Sub A, this may be an issue, as it is likely that any restrictive covenants in Employee A’s service contract may not be enforceable.

This answer is correct. As Employee A was forced to resign, this could amount to constructive dismissal (which is why Answers B and C are incorrect), which would allow Employee A to claim wrongful dismissal: this would mean that any restrictive covenants may not be enforceable. Answer A is incorrect because Employee A has worked for Sub A for fewer than two years. See Employment Law: Wrongful Dismissal and Employment Law: Unfair Dismissal.

Question 42

Your client (‘Company A’) is proposing to enter into a joint venture with one other party (‘Company B’). The joint venture would be set up as a limited company (the ‘JV Co’). Each of Company A and Company B is transferring a business to the JV Co when it is set up: this will involve employees of the Company A business transferring to the JV Co pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (‘TUPE’). Company A has recently dismissed one of the employees who was working in the business to be transferred (the ‘A Employee’) for suspected stealing. Although Company A had evidence that strongly implicated Employee A (and suggested that the stealing had been going on for some time), it paid Employee A an amount in lieu of notice (in accordance with Employee A’s service contract) in order to ensure that the dismissal could be managed quietly. Employee A had worked for the business for five years.

What is the best advice to give to your client in relation to the dismissal of Employee A?

The JV Co and Company B may be concerned because any restrictive covenants in Employee A’s service contract are unlikely to be enforceable.

The JV Co and Company B may be concerned because Employee A could claim for unfair dismissal, and the liability for that claim is likely to transfer to the JV Co under TUPE, given that the dismissal was so close to the date of transfer.

The JV Co and Company B may be concerned because if Employee A is successful in claiming unfair dismissal, the court will automatically order that their employment should be reinstated – which will mean that Employee A would end up working for the JV Co.

The JV Co and Company B may be concerned because a longstanding employee had been stealing from the Company A business for some time without being apprehended: this suggests that controls in the Company A business are not fit for purpose.

Answer 42

The JV Co and Company B may be concerned because a longstanding employee had been stealing from the Company A business for some time without being apprehended: this suggests that controls in the Company A business are not fit for purpose.

This answer is correct. The circumstances of the dismissal do suggest that there may be an issue with the controls in the business that will be transferring to the JV Co. Answer A is incorrect because restrictive covenants do not become unenforceable as a result of unfair dismissal (and there is no wrongful dismissal), Answer B is incorrect because the claim should not transfer to the JV Co as the reason for the dismissal was clearly unconnected with the transfer, and Answer D is incorrect because reinstatement would not be automatic. See Employment Law: TUPE on an Asset Sale, Employment Law: Wrongful Dismissal and Employment Law: Unfair Dismissal.

Question 43

Your client (‘Company A’) has entered into a 50/50 owned joint venture company (the ‘JV Co’) with one other party (‘Company B’), which has been operating for five years. JV Co has decided that it needs fewer marketing personnel, and is proposing to dismiss a number of them over a period of four months (the ‘Marketing Employees’). Two of the personnel are on secondment from Company A (the ‘Seconded Employees’): they have been at the JV Co for 12 months. All of the Marketing Employees work at the same JV Co office.

What is the best advice to give to your client in relation to the Marketing Employees (bearing in mind, among other things, the provisions of the Employment Rights Act 1996 (‘ERA’))?

Redundancy only applies under the ERA if the requirement for employees to carry out work of a certain kind has ceased.

If the requirement for marketing personnel is expected to diminish in future, this would be a potentially fair reason for dismissal for the purposes of the ERA.

If the JV Co is planning to dismiss 20 or more Marketing Employees as part of the process, it will have to follow the rules on collective redundancies.

The Seconded Employees will not have a right to statutory redundancy pay as they have only worked for the JV Co for 12 months.

Answer 43

If the requirement for marketing personnel is expected to diminish in future, this would be a potentially fair reason for dismissal for the purposes of the ERA.

This answer is correct. A diminution in the requirement for marketing personnel would be a potential redundancy situation (which is also the reason why Answer C is incorrect) and redundancy is a potentially fair reason for dismissal under the ERA. Answer A is incorrect because the rules on collective redundancies only apply if 20 or more employees are made redundant during a period of 90 days, which is shorter than four months, Answer D is incorrect because the Seconded Employees are still employed by Company A and so cannot be made redundant by the JV Co. See Employment Law: Redundancy.