Unfair Dismissal Regime and Employees Job Security

Unfair dismissal is the term used to illustrate an employer’s action when terminating an employee’s employment contrary to the requirements of the Employment Rights Act 1996.It is crucial to differentiate unfair dismissal from the common law remedy for wrongful dismissal which is a civil law remedy based upon breach of the contract of employment. There are considerable insufficiencies in the civil law relief as a remedy from the employees’ point of view. This is due to the fact that the employer is generally entitled, according to the contract terms to dismiss after giving the appropriate period of notice as specified by the contract; damages are often limited to the loss of earnings during that period.

A remedy by way of reinstatement is not offered by the civil law. There is no remedy based on breach of contract for failure to pursue suitable grievance and punitive procedures prior to dismissal.

The innovation of the notion of unfair dismissal and the many accessible remedies in respect of it has possibly empowered the employee to too great an extent with the ironic result that he will be worst off as a result of a subsequent unwillingness on the part of potential employers to expose themselves to the consequences of employing an individual who will eventually be in a position to pursue such a powerful array of relief against them.

Unfair dismissal was introduced by the Industrial Relations Act 1971. Section 94 of the Employment Rights Act 1996, [1] states that an employee has the right not to be unfairly dismissed by his employer [2] . Philips J described unfair dismissal in Davis & Sons Ltd v Atkins [3] , as narrowly and to an extent arbitrarily defined a form of words that could be interpreted as being equivalent to dismissal ‘contrary to statute’ [4] . This highlights the fact that unfair dismissal law is more codified than civil remedy and wholly a creature of statute.

The legal machinery that awarded unfair dismissal was established in an era of strife in industrial relations, thus it is not surprising that the balance between the employees’ job security and the interests of the employer is rather controversial and political. A highly debated issue is that whether employee is adequately protected, or conversely, the law has overwhelmed the employer by such procedural requirements that recruitment and dismissal of employees is not a task carried out freely by the employer on merits of an individual employee.

The three types of dismissal are direct dismissal, expiry of a fixed term and constructive dismissal [5] . Direct dismissal seems straight forward to the layman but will not necessarily amount to a dismissal once interpreted by the Employment Tribunal or the Employment Appeal Tribunal. In Futty v brekkes ltd [6] , during an argument between the employee and his foreman the employee was told by the foreman, “If you don’t like the job you can f-off.” The employee regarded this as a dismissal. It was held that in the context of the work place (a fish processing plant) the employee had not been dismissed. However, a dismissal may be found even though the termination of employment is not conveyed in that way. In Robertson v Securicor Transport Ltd [7] the applicant had broken a company rule by signing for a container which had not been received. When this was discovered, he was given the option of resigning or being dismissed. He chose the respectable course. It was held that he had been dismissed nonetheless.

In comparison, the second type of dismissal is rare. It occurs where the employee is employed under a contract for a specified term, dismissal occurs if that term expires without being renewed under the same contract. In such a case, the reasonableness of the employer who does not wish to renew the contract must be assessed. If legitimate circumstances are detected that give rise to a fixed term contract such as the nature of the work being temporary, it could be reasonable not to renew the contract. [8]

Constructive dismissal [9] occurs if the employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer’s conduct. Constructive trust was demonstrated in Western Excavating ECC v Sharp [10] . An employee was suspended without pay as part of disciplinary proceedings. This caused financial problems for the employee, he asked his employer for a loan. When this was refused, he resigned in order to avail himself of accrued holiday pay. The tribunal and the Employment Appeal Tribunal (EAT) found this to be a case of constructive dismissal. However, the employee lost on further appeal when Lord Denning held that for there to be a constructive dismissal, the employer’s actions had to amount to a considerable breach of the contract of employment. This thus applied a contractual analysis more akin to the civil law wrongful dismissal approach. However, cases of constructive dismissal are now regulated by the statutory disciplinary and grievance procedures introduced by the Employment Act 2002 (EA 2002). These new requirements benefit the employer in many cases. [11]

Whether the dismissal is fair [12] or unfair (in regards to the reason shown by the employer) depends on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as a adequate reason for dismissing the employee, and in accordance with equity and the substantial merits of the case.

It is worth noting that s.34 EA 2002 included a new s.98A into ERA 1996 which provides that breach by the employer of a statutory procedure on dismissal, which sets down the minimum procedural requirements, this means that the dismissal is in any event automatically unfair. Therefore, fair is connected to reasonable and will be a question of fact to be determined by the tribunal drawing on the experience and common sense of its members who are selected [13] from a representative cross section of the employment environment. However, it has been held that there is to some extent an objective test. In British Leyland Ltd v Swift [14] it was proposed that the question to answer must be: if a reasonable employer had faced such facts, would he dismiss? In Haddon v Van den Bergh Foods Ltd [15] , the EAT advocated that the tribunal should consider whether the employer acted reasonably in invoking the ultimate sanction of dismissal. It was not, sufficient for the tribunal to merely ask what they would have done without recognising that their personal views may not accord with reasonableness. Both approaches can be risky. The objective test of the reasonable employer may be regarded by the employee as leaving him vulnerable since it is the reasonable employer as opposed to the reasonable man that is set as the benchmark. If the function of the tribunal is to arbitrate fairly between the employer and the employee, imposing standards of one upon the other must not be regarded as appropriate. Conversely, the subjective views of members of the tribunal when faced with the facts on the ground that neither test provides a correct appreciation of the pressures and constraints upon an employer who is faced with employee whose conduct is prejudicial to the particular company or undertaking.

As previously mentioned s.98A ERA 1996 which came into effect in October 2004 renders breach of certain minimum procedural requirements unfair. Schedule 2 of the 2002 Act and the Dispute Resolution Regulations 2004 [16] provides for both a standard and a modified disciplinary procedure. By reg 3(1) DDR 2004, the standard procedure applies where the employer considers disciplining or taking relevant disciplinary action against an employee and declares that:

The employer must have in writing the reason for considering dismissing or taking relevant disciplinary action;

Prior to the disciplinary meeting the employer must notify the employee of the basis for taking action and the employee has to have a reasonable opportunity to consider his response to this information;

A disciplinary meeting must take place;

The employer must notify the employee of his decision and of a right of appeal;

After any appeal hearing, the employer must inform the employee of his decision. [17]

The modified procedure (reg.3(2)) applies where the employer believes that the employee has committed an act of gross misconduct. In these circumstances, the employer can dismiss the employee immediately but must set out in writing his reasons for doing so and notify him of a right to appeal. The employer must dismiss the employee for gross misconduct at the time when s/he became aware of. It has to be reasonable for the employer to dismiss the employee before looking into the circumstances in which the conduct took place. These new statutory procedures seem reasonable. However whilst these measures enhance employees’ job security they make it more complex for employers to dismiss their employees. What stands out is the mandatory and arguably harsh sanctions that have been set in place in the event of non-compliance. Where the statutory disciplinary procedures have not been abided, the dismissal is made automatically unfair. Also, s.31(3) EA 2002 provides that in those situations the tribunal must increase the award to the employee by 10% and may if it considers it fair in all the circumstances to do so increase it by a further amount but not such as to make the total increase more than 50%. These measures seem unfair on employers. As previously mentioned, the test of fairness set out in s.98(4) ERA 1996 is qualified by reference to the size and administrative resources of the employer’s undertaking. It is proposed that this signifies a practical and realistic approach to the realities of the workplace. The new procedures, however, do just this. A tribunal is left with no discretion in judging the fairness of the adopted approach or disciplining and dismissing an employee. A genuine dismissal will be rendered unfair for procedural irregularities. There is some discretion on the basis of what is fair as to whether the increase is 10% or 50% or some point in between but an increase there must be. Again, this will have a disproportionately punitive effect on small businesses who are possibly unable to afford the basic and compensatory elements of the standard tribunal award and for which the impact of the compulsory increase will be proportionately greater.

The repercussions of the new complaint procedure are rather disagreeable once put in practice. Many inescapable requirements have been imposed that carry out severe sanctions if not complied with. The new legislative attempts can be justified as they aim to improve procedures prior to dismissal. Thus it is in the interests of an employee for an employer to follow a fair and comprehensible process before imposing disciplinary measures or dismissing the employee. It is obvious that it is wise to promote good practice in resolution of complaints in the workplace, but the question is whether it is necessary to give such encouragement the force of law and to visit failure to observe such formalities.

The principles underlying grievance [18] procedures will appear familiar by reference to the disciplinary procedures but there are some differences in that they impose admissibility requirements which, in addition to the imposition of penalties, will prevent a tribunal hearing certain complaints until the formalities have been complied with. There is a standard procedure and a modified procedure. Failure to pursue that exact procedure does not result in a remedy itself. However, the procedure benefits the employee in the sense that should he make a claim on the basis of discrimination or unfair dismissal, employer’s failure to follow the accurate procedure can lead to extra compensation in addition to the main award.

It is not clear how this significantly improves the protection already given to employees when pursuing the main complaint, though it puts extra burden upon employers even in situations where this may not be warranted. However, s.32 ERA 1996 states: if it is the fault of the employee that the prescribed procedure was not followed then he could not pursue a claim for inter alia, unfair dismissal until the procedures have been complied with. This does not seem significant until one considers a situation in which constructive dismissal may arise. An employee is now prohibited from pursuing such a claim until the requirements of the grievance procedure have been fulfilled. Whilst, the modified procedure operates to protect an employee who has been forced to resign by allowing appropriate methods and extensions of time limits in which retrospectively to comply with the statutory requirements, in many cases this will cause unnecessary procedural steps to be taken and could lead to the employee being prevented from pursuing such action. The very core of constructive dismissal is that the conduct of the employer is so excessive that it goes to the root of the contract of employment and he is taken to have repudiated it. Thus, in the majority of such cases, even if the employee remains in employment, it is doubtful that the formal pursuit of a grievance procedure will be able to remedy fundamental breakdown of the relationship between employee and employer. In many such cases, the behaviour of the employer becomes so unbearable that the employee is forced to resign.

There are rigorous disadvantages to the employee who is pursuing a civil action for wrongful dismissal as opposed to application to the tribunal based on unfair dismissal. The reason being is that the main remedy for wrongful dismissal is an action for damages based on the loss caused by the breach by the employer of the contract of employment. Therefore, unless the employer was reacting to a serious breach of the contract by the employee a dismissal without notice or with inadequate notice will constitute a wrongful dismissal. What results in proper notice is decided by the terms of the contract.

Though, this is subject to statutory minimum periods prescribed by s.86 ERA 1996 which stipulate periods ranging from an entitlement to 1 week which accrues after one month of service to 12 weeks after 12 years of service [19] . There is obviously a great attraction from an employer’s point of view to basing the entitlement to dismiss upon contractual considerations. Justification for dismissal without notice depends on the employer having a good contractual reason for doing so, e.g. prolonged absenteeism, gross negligence etc. It is accepted that a restriction of the justifiable ability to dismiss to such clear categories of misconduct serves not only to protect the employee who could not then legitimately be dismissed for more fanciful reasons but also supports the employer who would be forced to understand the gravity of the conduct required before dismissal could occur with impunity.

One of wrongful dismissal’s downfalls as a remedy is the restriction of the compensation which would subsequently be recoverable to the statutory notice period. However, to the basic figure of wages that would have been earned during the notice period will have to be added the value of other remuneration and privileges such as commission, pension loss and back pay including any accrued holiday entitlement. In addition, interest would be awarded on the damages from the date of dismissal to the date of hearing. Further, regard will be had to other relevant contractual terms. Therefore, the contract is capable of providing procedures which would have to be followed in the event that dismissal was contemplated. In Dietmann v Brent London Borough Council [20] , it was held that, even despite an apparent misconduct, an employer will have to adhere to the terms of contract if the terms specifically set out what must happen before a dismissal can occur. Such approach could be an efficient answer to the criticism that the common law cannot assist an employee in terms of procedural protection in the same way as the statutory procedures do. Whereas the latter are criticised above on the basis that they apply with equal and undiscriminating force to all sizes of undertaking, such contractual protection could be appropriately tailored to individual workplace circumstances. In the event that such procedures were not complied with, the court could award damages beyond the notice period taking into account the length of time that would have been added to the employee’s service had the proper contractual disciplinary procedures been adhered to. In Malik and Mahmud v Bank of Credit and Commerce International (in compulsory liquidation) the House of Lords recognised damages based upon loss of reputation.

It seems that the process of awarding unfair dismissal is rather unfair particularly upon an employer. As previously mentioned, such an award consists of a basic and a compensatory element. The basic award is arrived at by the application of an arithmetical formula consisting of the claimant’s net weekly wage, a multiplier related to his age and his years of service. This element of the award in itself is capable of imposing an arbitrary effect. It is conceivably significant that this approach is the same as that employed in calculating compensation for redundancy. While this might be appropriate in the latter instance where a period of employment is coming to an end through no fault of either employer of employee, there is no logical reason why it should be applied in assessing the measure of recompense to be afforded to an employee as compensation for unfair dismissal. Whilst, the compensatory element of such an award is, created to put the claimant into the position that he would have occupied had the termination of employment not occurred but the usual principal component of the compensatory element (loss of future earnings) is frequently a vastly speculative exercise in deciding how long the claimant might reasonably be expected to remain unemployed. The common law approach to measure of damages can hardly be condemned as less satisfactory.

There are advantages in reassessing the efficiency and balance of the present approach of the law in cases of unfair dismissal. It is, of course, unrealistic to suppose that the whole panoply of employment protection put in place since 1971 would ever be dismantled, there is force in the suggestion that the protection regime of employee against employer has now been extended too far.

Even prior to the Employment Act 2002 reforms, it was fair to advocate that the balance of the need of an employer to be able to dismiss when appropriate against the need of an employee to enjoy appropriate job security was inaccurate. The acknowledgement that the previous common law approach of awarding damages in cases of wrongful dismissal based on a strict application of contract principles was insufficient to protect the employer against the perceived might of the employer was undoubtedly correct and worthy but the scales were as a result tilted too far in favour of the employer.

This discourages employers to allow job opportunities to candidates of which they are not certain or even cause them to desist from making any appointment through fear of the financial consequences of having to terminate an employee’s employment. As has been expressed, the introduction of the statutory disciplinary and grievance procedures in October 2004 represents too great an interference by the legislature in matters which could be left to voluntarily good practice or, where that proves insufficient, appropriate contractual protection. While the major argument advanced above is that the employer has been placed under undue constraint -most recently by the punitive consequences of failing to comply with the statutory disciplinary procedure – it should not be forgotten that the most recent round of legislation to regulate behaviour in the workplace is also capable [21] of prejudicing the employee.