Unfair Dismissal

The extent to which the present law of unfair dismissal recognises the need to be able to dismiss where appropriate and the need of employees to have adequate job security.

Introduction

It is important to distinguish unfair dismissal from the common law remedy for wrongful dismissal. The latter is a civil law remedy essentially based upon breach of the contract of employment. From the point of view of the employee, there are significant deficiencies in this civil law relief as a remedy. Because an employer is generally entitled under the terms of the contract to dismiss upon giving the appropriate period of notice as stipulated by the contract, damages will often be limited to the loss of earnings during that period. The civil law does not provide for a remedy by way of reinstatement. There is no remedy based upon breach of contract for failure to follow appropriate grievance and disciplinary procedures prior to dismissal. However, it will be argued below that the development of the concept of unfair dismissal and the range of remedies available in respect of it has perhaps empowered the employee to too great an extent with the ironic result that he may ultimately be less well served as a result of a consequent reluctance on the part of prospective employers to expose themselves to the consequences of employing an individual who will in due course be in a position to pursue such a powerful array of relief against them.

Unfair dismissal is a wholly distinct concept first introduced by the Industrial Relations Act 1971. Section 94 of the Employment Rights Act 1996 (ERA 1996) now provides:

An employee has the right not to be unfairly dismissed by his employer.

This is the basis of the remedies which may now be pursued in the Employment Tribunal but it is unhelpful as a definition. In W Devis & Sons Ltd v Atkins, Phillips J described unfair dismissal as narrowly and to some extent arbitrarily defineda form of words which could be translated as being equivalent to dismissal ‘contrary to statute’. This underlines the fact that the law of unfair dismissal is entirely a creature of statute and as such is far more highly codified than the civil remedy. Since the remedy of unfair dismissal and the legal machinery by which it is awarded were born in an era of strife in industrial relations, it is perhaps unsurprising that the balance between the rights of the employee not to have his employment terminated without justification and the interests of the employer (often profit-motivated) to be able to select, regulate and remove employees is often highly contentious and political. There is frequent disagreement as to whether employees are sufficiently protected or whether, by contrast, the employer is now so beset by procedural requirements and sanctions for their breach that the recruitment and dismissal of employees has ceased to be able to respond freely to the merits or demerits of the individual employee and the need to control a workforce in the interests of the particular company or undertaking in question.

Types of Dismissal

The three types of dismissal are contained in s.95(1) of ERA 1996:

• Direct dismissal;
• Expiry of a fixed term;
• Constructive dismissal.

The first is seemingly the most straightforward but is not without its own complications. Instructions that may appear unequivocal to the layman will not necessarily be interpreted by the Employment Tribunal or the Employment Appeal Tribunal as constituting a dismissal. Thus, in Futty v D & D Brekkes Ltd a foreman on Hull Docks told an employee that if he did not like his job he should f*** off!. The tribunal held that this instruction should be seen in the context of the manners of expression usual on Hull Docks and that it should not be regarded as a dismissal. By contrast, a dismissal may be found even though the termination of employment is not expressed in that way: in Robertson v Securicor Transport Ltd, the claimant had broken a company rule by signing for a contained which had not been received. He was presented with the alternative of resigning or being dismissed. He chose resignation but this was held in effect to be a dismissal. The second type of dismissal is infrequent by comparison but occurs where the employee is employed under a contract for a limited term, dismissal occurs if that term expires without being renewed under the same contract. In these circumstances, however, the reasonableness of the employer’s action in not renewing the contract must be assessed. If there are genuine circumstances giving rise to a fixed term contract such as the work being of a temporary nature or the employment being for a specific purpose which has come to an end, it may be reasonable not to renew the contract after expiry. (Regard should now be had to the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 which provide protection to those on fixed-term contracts such as teachers in higher education and senior employees in the Health Service.) The third type of dismissal – constructive dismissal – can often be the most difficult to define in practice. S.95(1)(c) ERA 1996 states that a resignation will amount to a dismissal 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. This is a somewhat circular definition but the operation of the doctrine of constructive dismissal can be illustrated by reference to the notorious case of Western Excavating (ECC) v Sharp. An employee had been suspended without pay as part of disciplinary proceedings. As a result, he was short of money and asked his employer for a loan. When this was refused, he resigned in order to avail himself of accrued holiday pay. Surprisingly both 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 significant breach of the contract of employment. This therefore applied a contractual analysis more akin to the civil law wrongful dismissal approach. However, as will be seen below, cases of constructive dismissal are now regulated by the statutory disciplinary and grievance procedures introduced by the Employment Act 2002 (EA 2002). It will be argued that these new requirements have the effect of tipping the scales too far in favour of the employer in many cases.

Fairness

Section 98(4) of ERA 1996 defines this concept:

the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer) –

(a) 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 sufficient reason for dismissing the employee, and

(b) shall be determined in accordance with equity and the substantial merits of the case.

It should be noted, however, that s.34 EA 2002 inserted 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, means that the dismissal is in any event automatically unfair. (The impact of this development will be considered below.) Therefore, fair is equated with 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 (with the exception of the legally qualified Chairman) 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 (UK) Ltd v Swift it was suggested that the question which should be posed is: is it possible that a reasonable employer, faced with these facts, would have dismissed? Similarly, in Haddon v Van den Bergh Foods Ltd, the EAT suggested that the tribunal should consider whether the employer acted reasonably in invoking the ultimate sanction of dismissal. It was not, however, sufficient for the tribunal to simply ask what they would have done without recognising that their personal views might not accord with reasonableness. It s submitted that there are dangers in both approaches. The so-called objective test of the reasonable employer might be regarded by the employee as leaving him vulnerable since it is the reasonable employer rather than 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, it should not be regarded as appropriate to impose the standards of one upon the other. Conversely, an employer may object to a man on the Clapham omnibus-style test or, worse still, the subjective views of members of the tribunal when confronted with the facts on the ground that neither test provides a proper appreciation of the pressures and constraints upon an employer who is confronted by an employee whose conduct or performance are prejudicial to the particular company or undertaking.

Procedure – Dismissal

As has been seen above, the new s.98A ERA 1996 which came into effect on 1^st October 2004 renders breach of certain minimum procedural requirements unfair. Schedule 2 of the 2002 Act and the Dispute Resolution Regulations 2004 (DDR 2004) provide for both a standard and a modified disciplinary procedure. By reg 3(1) DDR 2004, the standard procedure applies where the employer contemplates disciplining or taking relevant disciplinary action against an employee and provides that:

• The employer must set out in writing why he is contemplating dismissing or taking relevant disciplinary action;
• Prior to the disciplinary meeting the employer must inform the employee of the grounds for taking such action and the employee has to have a reasonable opportunity to consider his response to this information;
• There must be a disciplinary meeting;
• The employer must inform the employee of his decision and of a right of appeal;
• After any appeal hearing, the employer must inform the employee of his decision.

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 summarily but must set out in writing his reasons for doing so and inform him of a right to appeal. Thereafter the procedure is the same. For this procedure to apply, the employer must be entitled to dismiss the employee for gross misconduct at the time when the employer became aware of it or immediately thereafter and it has to be reasonable for the employer to dismiss the employee before enquiring into the circumstances in which the conduct took place. These new statutory procedures seem entirely reasonable and probably do little more than reflect the best practice in place in many places of work even prior to the implementation of the regulations. What is significant, however, is the mandatory and arguably Draconian sanctions that have been set in place in the event of non-compliance. Where the statutory disciplinary procedures have not been complied with, the dismissal is rendered automatically unfair. Further, s.31(3) EA 2002 provides that in such circumstances the tribunal must increase the award to the employee by 10% and may if it considers it just and equitable 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%. There is, as yet, little indication of how prevalent the application of such sanctions will become in practice but it is submitted that these procedures and sanctions are capable of inflicting great injustice upon an employer. It will be noted from above that the test of fairness set out in s.98(4) ERA 1996 is qualified (as were the predecessors of this provision) by reference to the size and administrative resources of the employer’s undertaking. It is suggested that this represents a practical and realistic approach to the realities of the workplace: it is not reasonable to judge the human relations performance of a small family engineering company in the Black Country against the standards of ICI! The new procedures, however, do just this. A tribunal is left with no discretion either in judging the fairness of the approach adopted in disciplining or dismissing an employee: an otherwise warranted dismissal will be rendered automatically unfair for procedural irregularities. The same is true to a certain extent with the size of the increase in the award which must be applied. Admittedly, there is some discretion on the basis of what is just and equitable 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 upon small businesses who are probably already able ill to afford the basic and compensatory elements of the standard tribunal award and for which the impact of the mandatory increase will be proportionately greater.

Procedure – Grievance (Constructive Dismissal)

The implications of the new statutory grievance procedures may be considered even more undesirable in their effect than the potential consequences of the disciplinary procedures which are the subject of criticism above. As a matter of basic philosophy, the introduction of these requirements is more difficult to understand than those in respect of dismissals. Subject to the criticisms above in respect of the effect in practice of imposing inescapable requirements and automatic and rigid sanctions in the event of non-compliance, it is possible to justify legislative attempts to improve procedures adopted prior to the imposition of the ultimate sanction of dismissal – it is in the interests of an employee for an employer to follow a fair and comprehensible process prior to the imposition of disciplinary measures or dismissal. The ultimate justification for statutory grievance procedures is more difficult to fathom. Obviously, it is sensible to promote good practice in relation to the resolution of complaints in the workplace but it may be questioned whether it is necessary to give such encouragement the force of law and to visit failure to observe such formalities with the consequences discussed below. A grievance is defined in regs. 2(1) and 6 of DDR 2004 as a complaint by an employee about an action which his employer has taken or is contemplating taking in relation to him and which could form the basis of a complaint by an employee to an employment tribunalor could do so if the action took place. The principles underlying grievance 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.

Once again there is a standard and a modified procedure. Under the standard procedure the employee must set out the grievance in writing and send it to the employer. The employer must then invite the employee to a meeting to discuss the grievance which ust not take place until the employer as been informed of the grievance and had an opportunity to consider his response. Following the meeting, the procedure is the same as in a disciplinary situation with an obligation upon the employer to notify the employee of his decision and the subsequent opportunities for appeal. The procedure is modified where the employee has ceased to be employed and either the employer was unaware of the grievance or, if he was, the standard procedure had not been commenced or not completed before the last day of employment. There must be specific agreement between the parties that it would in the circumstances be pointless to follow the standard procedure including the usual attendance at meetings because there is no ongoing employment relationship and the parties have no interest in following the procedures. In such circumstances, the procedure is reduced to the employee setting out his grievance in writing and sending it to the employer and the employer responding in writing.

Failure to follow such procedures does not give rise to a remedy in itself. Admittedly, the procedure is of benefit to an employee in the sense that should he make a claim on the basis of such matters as unfair dismissal or discrimination, the failure by the employer to follow the correct procedure may lead to the award of extra compensation in addition to the main award. It is difficult to understand how this significantly enhances the protection already afforded to employees when pursuing the main complaint although it once again places an automatic extra burden upon employers even in situations where this may not be warranted. However, s.32 ERA 1996 provides that should the fault in failing to follow the prescribed procedure lie with the employee, he will be prevented from pursuing a claim for, inter alia, unfair dismissal until the procedures have been complied with or are deemed to have been complied with. This may not appear to be of great significance until one considers a situation in which constructive dismissal may arise. An employee is now precluded from pursuing such a claim until the requirements of the grievance procedure have been fulfilled. Admittedly, the modified procedure operates to protect an employee who has already been forced to resign by allowing appropriate methods and extensions of time limits in which retrospectively to comply with the statutory requirements but it is submitted that in many cases this will prove to be a sham and cause unnecessary procedural steps to be taken and paperwork to be generated and may, at worst, lead to the employee being prevented altogether from pursuing such action. The very essence of constructive dismissal is that the conduct of the employer is so extreme that it goes to the root of the contract of employment and he is taken to have repudiated it. Therefore, in the vast majority of such cases, even if the employee remains in employment, it is unlikely that the formal pursuit of a grievance procedure will be capable of remedying the fundamental breakdown of the relationship between employer and employee. In many such cases, the behaviour of the employer becomes so intolerable that the employee is forced peremptorily to resign. It is difficult to ascertain what the requirement of a written complaint and formal response prior to the commencement of proceedings is designed to achieve in such circumstances. Again, this is relatively new legislation and so there are as yet few practical examples of how this might operate in practice although it is understood that a number of employees have already been taken by surprise when attempting to initiate constructive dismissal claims upon being informed that they are precluded from doing so as a result of non-compliance with the procedure.

Wrongful Dismissal – A Preferable Approach?

As was observed in the Introduction above, there are severe disadvantages to the employee in pursuing a civil action for wrongful dismissal as opposed to an application to the tribunal based on unfair dismissal. This is because the principal remedy for wrongful dismissal will be an action for damages based on the loss caused by the breach by the employer of the contract of employment. Thus a dismissal without notice or with inadequate notice will constitute a wrongful dismissal unless the employer was reacting to a serious breach of the contract by the employee. What amounts to proper notice will be determined by the terms of the contract.

However, 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. (It should be noted, however, that this is effectively the ceiling figure and further years of service do not give rise to further periods of entitlement. There is clearly a considerable attraction from an employer’s point of view to basing the entitlement to dismiss upon contractual considerations. Justification for dismissal without notice depends upon the employer having a sound contractual reason for doing so. Examples of such a serious breach justifying summary dismissal have included dishonesty, assault, prolonged absenteeism, gross negligence and drunkenness at work. It is submitted 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 assists the employer who would be forced to understand the gravity of the conduct required before dismissal could occur with impunity.

The frequently cited objection to wrongful dismissal as a remedy is the restriction of the compensation which would consequently 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 perquisites such as commission, a company car, share options, 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. Thus, 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, it was held that even in the face of obvious misconduct, an employer will have to adhere to the terms laid out in the contract if the terms specifically set out what must happen before a dismissal can occur. It is submitted that such an approach may be an effective 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 would be able to 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.

However, it should be noted that the damages in this case were based upon the breach of an implied term of mutual trust and confidence (specifically, not to run a corrupt and dishonest business so as to damage an employee’s future employment prospects) and it has yet to be seen whether the principle might be given wider application so as to operate in situations in which those prospects are damaged by a capricious and unjustified dismissal. Recently, in Barber v Somerset County Council, a teacher who had to work excessive hours during a restructure suffered a mental breakdown and sued his employer for personal injury. The House of Lords held that the employers were in breach of their duty of care. This was held to be a general positive duty and not one that only arose where the employee was known to be particularly vulnerable. Thus, if the damage to the employee’s mental health can be reasonably foreseen, the employer can be held liable in damages. Such a claim would give rise to a far more specific and rationally quantifiable remedy than the general compensatory element which would form part of a tribunal award.

It follows from this that the whole approach to the structuring of awards for unfair dismissal by the tribunal may wreak injustice, particularly upon an employer. As has been noted, 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 year’s of service. This element of the award in itself is capable of imposing an arbitrary effect. It is perhaps significant that this approach is exactly 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. Admittedly, the compensatory element of such an award is, as the term suggests, designed 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 highly speculative exercise in determining how long the claimant might reasonably be expected to remain unemployed. The common law approach to measure of damages described above can hardly be condemned as less satisfactory.

Conclusion

While the argument in the preceding paragraph may possibly be regarded as somewhat tongue in cheek, it serves to highlight the fact that there may well be merit in reassessing the efficacy and balance of the current 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 reforms introduced by the Employment Act 2002, it was justified to suggest 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 incorrect. 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 runs the risk of discouraging employers from allowing job opportunities to candidates of which they are not absolutely certain or even causing them to refrain from making any appointment through fear of the financial consequences of having to terminate an employee’s employment. As has been demonstrated, the introduction in October 2004 of the statutory disciplinary and grievance procedures 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 (as a result of the impact of the statutory grievance procedure upon claims for constructive dismissal) of prejudicing the employee.

Bibliography

Bowers, J., A Practical Approach to Employment Law, (7^th Ed., 2005)

Holland, J. & Burnett, S., Employment Law, LPC Guide 2005

Selwyn, N., Selwyn’s Law of Employment, (13^th Ed., 2004)

Westlaw

www.opsi.gov.uk