Fair and lawful employment termination


No employer wants to be faced with the stress and complexity of navigating employment termination. It’s never a nice feeling to know you have to let an employee go.

However, sometimes there is a very real need to initiate the termination of a worker’s employment contract.

Whether it’s bad behaviour, continual poor performance, or breach of contract, if you’ve exhausted the disciplinary procedure, and no improvements have been made, it’s time to let your troublesome employee go.

Likewise, having to restructure or downsize, may mean you have to say goodbye to a number of treasured employees. Or, perhaps retirement is calling for one of your most experienced staff members.

Either way, an employer must ensure that they follow the correct, fair and lawful procedure to avoid any unfair dismissal claims, or big payouts at an employment tribunal.

It’s also important that companies have a clear and concise termination procedure policy for employees to follow.

It may all seem pretty confusing right now, but read on, and you’ll learn how to take the right steps when it comes to termination.

The meaning of “termination”

It is vital for an employer to be clued up on all dimensions of an employee’s contract. But, a fundamental of this, is that an employer is educated on the correct terminology relating to this too.

There’s a lot of confusion around the terminology relating to employment termination. For example, it is not uncommon for people to use termination and dismissal interchangeably.

However this is wrong. Dismissal is a type of termination. One example of this could be, making an employee redundant as a result of new systems in the workplace.

Meanwhile, termination more broadly, just relates to the end of an employment contract. This of course can either be voluntary as a result of retirement, or involuntary, due to gross negligence or gross misconduct.

In the case of an employee getting fired from their position, this is often categorised as voluntary termination, as typically the employee’s actions have caused the termination of their contract.

The more you know…

Different types of termination

There are a number of different types of termination that can occur in the workplace. This includes the following:

  • Constructive dismissal: This occurs when an employee is forced to leave their position as a result of an employer creating a hostile work environment
  • Fair dismissal: This kind of termination happens when an employer has a valid reason to dismiss an employee, such as incapability, misconduct or redundancy
  • Resignation: This refers to the end of an employment contract, as initiated by the employee
  • Termination by mutual consent: This termination takes place when both employer and employee have both consented to the end of the contract
  • Expiry of fixed-term contract: This end of contract comes after a specific deadline has passed, or the role for a planned event has been fulfilled

Notice periods

Depending on how long an employee has worked for a company, there will be different rules and notice periods to adhere to. Primarily there are two forms of notice:

  • Statutory is the minimum notice you can give. If an employee has worked at a company for under two years, but more than one month, this is one week. For those who have worked at a company for over two years, the notice period increases to two weeks. The maximum notice period is 12 weeks, as for every year an employee works at a company, another week’s notice is added.
  • Contractual is the notice period as outlined in the employee’s contract. The employee will have agreed to this when signing said contract.

There will always be a notice period before termination, except in the case of termination by gross misconduct, whereby an employee can be dismissed without notice.

An employee may also be placed on gardening leave if they are not required to be at work during the notice period. This means that the employee will still be on the payroll without having to report to work.

The importance of a clear termination policy

Due to the termination process being so tricky and easy to get wrong, it’s essential that an employer has a clear termination policy. This should typically be located in the employee handbook, and tailored specifically to fit the company. It should also explore and explain the following:

  • To whom the policy applies
  • The difference between voluntary and involuntary termination
  • Examples of situations where an employee’s contract may be terminated
  • The disciplinary procedure
  • What happens once an employee’s contract is terminated

What is fair and lawful termination?

If an employer finds themselves in the position of needing to terminate an employee’s contract, of course this decision should be made on both fair, and legal grounds.

Making the decision to terminate a contract based on an employee’s individual characteristics such as race, gender, religion, sexuality, disability or age, is discriminatory. It also breaches the Equality Act 2010, and will land a company in serious trouble.

Equally, if an employer terminates a contract due to an employee whistleblowing, taking time off to care for dependant or taking maternity leave, this is automatically unfair dismissal. This could lead to the company facing hefty fines and paying compensation.

Contrastingly, termination based on the following reasons, are both fair and lawful under S.98(2) of the Employment Rights Act 1996:

  • Ordinary misconduct (insubordination, chronic tardiness or absenteeism)
  • Redundancy
  • Gross misconduct (theft, fraud, violence, drug abuse in the workplace)
  • Incapability/lack of qualifications
  • Some other substantial reason (non-renewal of contract, personality clash)

Employer termination payments

There are three main types of employer termination payments in the UK. These are:

  • Payment in lieu of notice (PILON), whereby an employer terminates an employee’s contract and pays the employee a lump sum, instead giving notice
  • Redundancy payments, which are what employees receive as part of their redundancy package when their contract is terminated as a result of redundancy. To be eligible for this, employees must have worked for a company for at least two years. Redundancy pay is capped, however if it is under £30,000 it is tax-free
  • Ex-gratia payments are payments made by an employer to an employee when their contract has been terminated. However, this is an entirely non-contractual payment. Also referred to as the “golden handshake,” it is derived from Latin, meaning “out of kindness”. These payments are often made when an employee is made redundant or takes early retirement

Final thoughts

So, there you have it. All the knowledge you need to successfully handle the twists and turns that arise from employment termination.

It is vital to remember that empathy and kindness go a long way when dealing with this kind of situation. It is even more essential to follow the rules and regulations as outlined by law, and the contractual obligations of your company.

Whether it’s dealing with a badly behaved employee, or having to let people go due to company downsizing, ensure that employment termination is both fair, and lawful, and you won’t have any issues.

Article Created By Madaline Dunn

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