Unfair Dismissal Against Wrongful Dismissal

In the United Kingdom (UK) the two areas of dismissal, Unfair dismissal and Wrongful dismissal have grown and adapted due to changes in the work force, governments and the world itself. In this paper we shall look in detail at each of these areas of dismissal, and compare and contrast the following:- a) service qualifying period, b) remedies, and c) the controversial area of “some other substantial reason”. We will begin by reviewing the foundational aspects of both unfair and wrongful dismissal before we compare and contrast to give a better understanding of these sometimes confusing areas.

In unfair dismissal as per the Employment Rights Act 1996 (“ERA 1996”) [1] s. 94(1) ‘An employee has the right not to be unfairly dismissed by his employer.’ However, ERA 1996, s.108(1) states that this does not apply to the dismissal of an employee unless he has been continuously employed for a period of not less than one year ending with the effective date of termination. The only exceptions to this one year qualifying period are where a dismissal is ‘automatically unfair’, including inter alia family dismissals connected with pregnancy or maternity [2] , membership of a trade union [3] or health and safety cases. [4] In all other cases an employee must prove that he qualifies for statutory protection, that he was actually or constructively dismissed from employment that was legal [5] , and that such dismissal was unfair, which may include reasons relating to the employee’s capability or qualifications [6] , conduct [7] , retirement [8] , redundancy [9] , contravention of statutory restriction [10] or some other substantial reason. [11]

In addition to the requirement of one year of prior work, an essential element is the correct determination of the date of termination, which can differ under S. 97 (1) ERA 1996 if a contract is terminated by notice then the effective date of termination is the date on which the notice expires. Also, if a contract is terminated without notice then the effective date is the date on which termination takes effect. Finally, if a contract has ended by not being renewed then the termination date is the date that the termination took effect.

It is essential that if an employee has been unfairly dismissed and wants recourse they must apply within 3 months to the Employment Tribunal, which is strictly adhered to, as once this period ends all rights to bring claims against the employer ends. An interesting caviat is that an employer must give a warning to the employee before they can dismiss them. In wrongful dismissal, the period for making a claim is six years and there is no provision that an employee has to receive a written warning before dismissal. Also, an employer has the choice of making a Payment in lieu of notice (PILON) which can be seen in two different ways :- a) as payment in lieu of damages or b) dismissal with notice.

The second area of dismissal is termination of employment at common law, wrongful dismissal, which took as its base the contract of employment, be it express or implied, and allowed an employee to bring a claim against his or her employer for wrongful termination of such contract. Naturally, a breach of contract allowed the injured party to claim for contractual damages, albeit such damages were limited to the employee’s losses which were required to be mitigated. [12] Thus wrongful dismissal covered situations involving an employer terminating employment without notice, or without the express notice required under the employment contract or by statute. It may also involve those situations where an employer wrongfully permanently repudiates a contract [13] or does not follow contractual disciplinary procedures [14] , albeit as with unfair dismissal an employer is entitled to make a payment in lieu of the giving of the required notice period such as a PILON (payment in lieu of notice). [15]

The inherent difficulty with wrongful dismissal is that damages are limited to the losses occasioned by the breach, which in practice simply means the loss of the notice period (but includes loss of pension rights [16] ). By statute, an employee is entitled to not less than one week’s notice if he has been continuously employed for between one month and two years [17] , plus an additional week for every year of continuous employment greater than two years but less than twelve years. [18] An employee is entitled to at least twelve week’s notice if he has been continuously employed for twelve or more years. [19] In effect, this remedy was wholly ineffectual because usually the loss of one week’s notice in pay was de minimis to say the least. However, because there was no upper limit for damages it may prove a fruitful avenue of redress for those employees that have been wrongfully dismissed in breach of a long period of notice [20] , or those who do not wish to be limited to the statutory maximum in respect of damages for unfair dismissal. Moreover, employees are not required to fulfil a statutory ‘qualifying period’, as is the case for unfair dismissal, and therefore a wrongful dismissal claim may be the only option available to new recruits. While damages are not awarded for loss of future earnings, employees can apply for compensation for injury to feelings or stigma for loss of job or in the case of Malik v BCCI [21] .

This will bring us into our first area of comparison the qualifying notice period. However, we must point out that before reaching this point, an employee must go through the procedural process as with unfair dismissal, it must be confirmed that the person is in fact an employee by determining if the employee has been in continuous service for the required amount of time. This area has always been contentious with government, employers and employees as it has continually changed due to new governments being in place and economic conditions.

It began in the 1970’s as six months, growing to one year in 1980 for those companies which employed more than twenty employees, and by 1985 it had changed to two years including all companies, not just those with a specific employee amount, but in 1999 due to more governmental changes, Tony Blair again changed it to the current one year. In an effort to promote enhanced growth and opportunity for small to medium sized businesses, the current government of David Cameron, are proposing to change the qualifying period back to two years.

The logic behind this is that if an employee is dismissed in the first two years of employment the employer will not be liable to make financial pay outs thus giving the business more money for the running and continuation of the business coupled with installing employment tribunal fees to reduce the number of vexatious allegations. For the employee, this time adjustment of one or two years is quite harsh as an employee for the time of employment we can say performed their duties and enhanced the business in some way. If a person has been employed for say, one year, eleven months and fifteen days, and then is abruptly dismissed, the employee has nothing to show for the time he has been employed. He has no financial cushion on which he can use to help him during the new recruitment process, and in fact is in a “temporary” job with no job security until they passes the two year mark. This would put an undue stress unto the employees as they will be cognizant of this fact and will be compelled to perform at a high level in order to try and maintain their employment thus possibly encountering psychological issues as they may lose enthusiasm for the job, in the fear that at the two year mark they are dismissed.

In addition, this time period will make it hard for an employee to gain valuable experience as experience is gained from forming a relationship with the company and having a mutual relationship of trust and confidence. A further down side is that if the employee has no recourse from the employer upon dismissal it is safe to say that they will be forced to apply for unemployment benefits which puts an increase strain on government coffers. On the other hand the employer may enjoy the benefits of having no responsibilities for two years and may even go to the drastic step of renewing their work force every two years in order to avoid financial payouts. It is a fact that employees are an asset and in fact make the companies, and businesses should treat employees accordingly. On further thought, it was the company who interviewed and selected the employee, and if within the probationary period the employer does not see any issues with continuing employment then it stands to argue that anything after the probationary period of say three to six months an employee should be awarded compensation.

This proposal will have some heated debates from the Trade Unions and other organizations that represent employee interest, and it has been rejected by Hurley that the lengthening of the qualifying period will reduce barriers to employment or limit the perceived compensation culture and cost to business, as it will simply result in more discrimination claims. [22] In contrast, in wrongful dismissal employees are not required to full fill a statutory ‘qualifying period’, therefore a wrongful dismissal claim may be the only option available to new recruits.

Contrary to the trade unions and employee representations, Levinson notes that there has been ‘much pressure from employer organizations protesting at what is perceived as the inefficiency of tribunals, the cost of the system, the length and complexity of hearings and the case with which claims can be brought.’ [23] It is clear that the Government has bowed to such political pressures and has proffered a new ’employers’ charter’ which will allow companies to dismiss employees during the first two years of employment as well as installing employment tribunal fees to reduce the number of vexatious allegations: ‘David Cameron hopes that relaxed employment laws will help to boost the private sector and encourage firms to take on thousands of new workers.’ [24] While there are valid arguments to both sides, at this moment the proposed change has not come to fruition, and if and when it does we will have to wait for a period to observe the effect it has on the economy, tribunals, the employer and the employee.

The second area of comparison is remedies which as previously mentioned under unfair dismissal the remedies for dismissal are vastly different from the common law remedies under wrongful dismissal. When a claim has been brought to an employment tribunal within the three month window the employee has the possibility of three remedies only. 1) re instatement to the same job and position that you previously had before dismissal with no loss of money, benefits or security. Tribunals rarely order reinstatement as there has been too much contention between the parties and neither would want to continue. 2) re engagement to another position within the company and 3) compensation which has been capped at 65,300 British Pounds but increases every year according to the price index. Tribunals rarely give this maximum award unless the employee has a implied term in their contract that specifies the amount they will receive and the period that they will receive it for upon dismissal. Employers are also advised to follow the ACAS Code of Practice 1 Discipline and grievance procedures in order to comply with all aspects of the dismissal process.

This is in stark contrast to wrongful dismissal where the remedy is essentially static in nature. Under wrongful dismissal the damages that an employee can receive is quantum. It can be argued in a court of law that this is the correct and fair course as if it is no fault of the employee for being dismissed then why should the employee have to suffer financial hardship which will impact their personal lives. In light of this, the employee can ask for pay and benefits they would have lost out if their employment had continued such as health care, company car, air travel, or discretionary bonus [25] . The award is intended to put the employee back in the position that they would have been in had the employer not breached the terms of the contract. The courts takes into consideration mitigating facts such as the employee’s efforts in obtaining new employment, which is an extreme problem now due the world’s economic conditions, and it is highly likely that if the employee is fortunate to secure new employment it will not be to the same level that they previously had and the salary level will be less as most salary scales are being reduced or increasing by a minute percentage. Taxation and damages are not normally awarded for loss of future prospects or injury to feelings or stigma damages. [26] In unfair dismissal the maximum an employee can be awarded is 65,300 British Pounds as of 2010, but this linked to the retail price index and changes annually.

The third area of comparison is under unfair dismissal and is located under potentially fair reasons to dismiss: Some other substantial reason (SOSR) [27] . This category is very broad and wide and was designed to give tribunals the discretion to accept as a fair reason for dismissal something that would not conventionally fit into any other categories. In Hollister v National Farmers Union [28] it was held by the Court of Appeal that a business had the right to based on sound business reason to dismiss an employee for some other substantial reason due to reorganization of the business as a result of pressure from a third party such as a client. An employer may want to reorganize his business for a legitimate business reason as is very common considering the current economic climate, and thus will interfere with an employee’s contractual rights which are static.

In conclusion we have seen that there are many areas that differ between wrongful dismissal and unfair dismissal from the time period an employee has to make a claim, to where they are able to make the claim (court or tribunal), the qualifying notice period and lack of one in wrongful dismissal to the remedies, and finally the broad area of some other substantial reason. While the policies underlying employment security are continually developing in order to strike the correct balance between employee protection and competitive businesses and economic growth. Thus, polices will inevitably change over time and reflect current socio-economic and market conditions.