Summary: Unfair dismissal, also known as wrongful termination, means dismissing or firing an employee without having the legal grounds to do so.

Unfair dismissal occurs when an employee is terminated without a valid reason or due process. This article explains legal grounds, types of dismissal, employee protections, and the steps to challenge unfair dismissal.

Unfair Dismissal

Unfair dismissal is the unreasonable termination of an employee’s contract. It is a violation of employment laws and employee rights. This is the term generally used in the United Kingdom and various other countries for what is called wrongful termination in the United States.

To understand what is deemed unjustifiable, it is first important to distinguish reasonable grounds for termination. While grounds differ depending on country, generally according to employment law, an employee can be dismissed on the following grounds:

They lack the capability to perform the job
They have engaged in gross misconduct
or they have been made redundant due to a lack of resources or finances.

Unfair dismissal claims are usually not available to employees still on their probation period.

In the UK, employers must inform employees of their right to appeal their dismissal and must acknowledge the arguments made for this appeal. Additionally, employers must ensure that they do not cause employees who have engaged in whistleblowing activity a detriment. Any detriment relating to reduced hours, overlooked job promotions, or discrimination is a breach of the employment contract.

In the UK, legislation exists to protect employees from discrimination and unfair dismissal. Even if an employee is not familiar with the terms and conditions of their contract and their protections, employment law ensures minimum entitlements for all employees.

Types of Unfair Dismissal

The type of dismissal differs depending on the reason given for terminating the employee’s contract and the laws breached by the employer. Three types of unfair dismissal are constructive dismissal, wrongful termination, and automatically unfair dismissal.

1. Constructive Dismissal

Constructive dismissal is where an employee has been deemed forced to resign due to unacceptable or hostile work circumstances. This form of dismissal involves the employer creating a work environment and work conditions that are designed to deter the employee and force their resignation. Any changes forced upon the employee without their consent, such as workplace changes and working hour changes breach employment laws.

2. Standard Unfair Dismissal

Standard, unfair, or wrongful dismissal or wrongful termination refers to the dismissal of an employee without giving them the notice period or severance pay that they are entitled to. If an employee is successful in their claim for wrongful dismissal, then the employer will be liable to pay damages. These damages include any benefits and expected bonuses that would have been received during the notice period. Different businesses and industries will have different rules regarding notice periods and severance pay.

In some cases, employees may even be required to be reinstated.

3. Automatically Unfair Dismissal

If an employee is fired predominantly for a reason deemed unfair, this is known as automatically unfair dismissal. Employees can not be fired for requesting a more flexible work arrangement, asking for maternity leave or for taking industrial action such as striking. Other ‘unfair’ reasons include: ‘doing jury service, asking for a legal wage and raising concerns over workplace health and safety. All of these actions are justifiable and regulated by law. As a result, companies can not terminate employee contracts based on these terms.

Legal Protection Against Unfair Dismissal

In the case of wrongful dismissal, employees are protected by federal statutes which stipulate minimum notice periods. In most countries, the minimum notice period for an employer who has worked for less than two years is one to two weeks. Employers who fail to give the required notice must pay the employee the benefits they would have received if they had worked during this time. This pay can cover the remaining contracted time or a limited amount of weeks/months, depending on the circumstances. Some contracts may stipulate longer notice periods.

Workers are legally protected from discrimination and exploitation. American legislation such as The Civil Rights Act 1964 and EU directives protect employees from unfair or unequal treatment based on their race, gender, age, sex, religion and political affiliation. All company practices including the dismissal of employees must be compliant with country-specific legislation. Failure to adhere to legislative requirements can significantly damage a company’s reputation and make them liable for heavy penalties.

Steps to Challenge Unfair Dismissal

When challenging an unfair dismissal, employees can choose to file a lawsuit or take their employer to a tribunal depending on the country in which they are employed. Employees who seek a more amicable approach, may try to settle their dispute without court interference.

1. Legal Action

Employees have a right to appeal their dismissal. Suppose an employee has attempted to settle their dispute and has notified Acas (the Advisory, Conciliation, and Arbitration Service) or their nation’s equivalent but has still been unable to resolve the issue. In that case, they can take their employer to a tribunal. The tribunal will assess the grounds for the dismissal and evaluate whether the employer’s actions were reasonable under the law. The employee will then be tasked with providing evidence to support their claim that they have been unfairly dismissed. In the UK, employees must notify Acas of their decision to take their claim to a tribunal within three months and three weeks.

Employees operating in the USA are advised to consult the US Department of Labor for more information regarding challenging unfair dismissal. Employees working in the US are allowed to file a lawsuit against their employers, provided they have submitted a formal complaint to the relevant authorities. In most countries, the time allowed to file a wrongful termination or unfair dismissal lawsuit will be limited. As a result, employees are advised to seek the help of an impartial legal professional as soon as possible.

2. Settling Disputes

As tribunals can be stressful, time-consuming, and costly, employees may try to resolve the matter voluntarily through what is known as early conciliation. Here, employers can enlist the help of impartial and independent representatives who can offer legal advice and encourage discussions between the employer and employee. The main purpose of the tribunal is to help employers and their employees reach a fair and mutually beneficial agreement. For less severe unfair dismissals, early conciliation is advisable.

Mediations can additionally be used to resolve disputes between employers and their workers. The mediator works very similarly to an Acas conciliator, providing a neutral and confidential voice to help both parties reach a resolution.

3. Compromise Agreements

Settlement agreements, also known as compromise agreements, refer to the compensation awarded to an employee in exchange for withdrawing their claim or terminating their legal actions. Settlement agreements are often favorable for employers who wish to avoid publicity. These agreements can only be validated after receiving advice from an independent legal adviser. Companies must ensure that the compensation awarded from the settlement agreement is not used as a form of bribery or hush money. If found guilty of abusing the compromise agreement, companies could face severe legal charges.

Consequences of Unfair Dismissal for Employers

If an employee successfully claims unfair dismissal, employers must award the employee compensatory pay. An employee can claim losses relating to their wages, their future wages, their statutory rights and their pension. Compensation with regard to wages includes any employment benefits such as medical insurance, a company car, or a company laptop. In the UK, as of 2024, the maximum amount that can be awarded as compensation is £115,115 or 52 weeks of an employee’s gross salary. An additional basic award ordered by the tribunal will apply and can amount to £21,000.

In the US, most wrongful termination settlement amounts fall in the range of $5000 to $80,000. However in some cases where an employee has experienced discrimination or has been caused a detriment, settlement amounts could total millions of dollars.

In addition to financial damages, unfair dismissal claims can significantly impact an employer’s reputation. Companies who have a history of unfair employment standards and non-compliance issues will struggle to attract talented employees. A weak employee value proposition, may deter employees and customers alike from interacting with the business, damaging the company’s market position and potential for success. Moreover, companies may be limited in their ability to network with bigger corporations.

How to Prevent Unfair Dismissal

Companies can take preventative measures to avoid unfair dismissal claims. Through clear employment documentation, companies can set standards and regulations regarding notice periods, employee expectations, codes of conduct, and employee rights. These regulations should be aligned with both federal and industry-level statutes. Companies may also benefit from HR and equality training. A proactive approach to diversity and HR training will help companies foster an environment of inclusivity and respect. These initiatives are crucial for preventing discrimination and unfair treatment within companies.

All employees and employers should understand reasonable justifications for dismissal in addition to reasons for unfair dismissal and act only according to these. If an employee shares a grievance pertaining to their health, working conditions or working hours, these should be acknowledged by the employer and amended or renegotiated to ensure that they do not compromise the safety or rights of the employee.

Employers should seek expert advice in contentious dismissals, such as those pertaining to prolonged sick leave. A third-party legal adviser can inform them about the legal action they can reasonably take.

Avoid Liability for Unfair Dismissal

Unfair dismissal laws provide a legal framework for employees who have been unjustifiably let go or fired from their workplace. Employees can claim compensation for the losses or mistreatment that they endured as a result of their unfair dismissal. Many claims can be settled through mediated resolutions and legally binding compromises. However, employees who have been severely discriminated against and mistreated must take their grievances to court. Importantly, legal action must be taken quickly as most employees are limited in the time they can take to file an official appeal. As unfair dismissal claims can prove both financially and reputationally damaging, all employment terminations must be made in accordance with federal and industry standards.

To avoid unfair dismissal claims when hiring internationally, you may benefit from engaging a global Employer of Record (EOR) company. EORs compliantly hire your employees in countries like the UK, or Australia and ensure all disciplinary and termination actions are legally compliant. To find our more, get in touch with our EOR broker service.

Drew Donnelly

Director, Regulatory Affairs

Andrew (Drew) joined the Remote People team in 2020 and is currently Director, Regulatory Affairs. For the past 13 years, he has been a trusted advisor to C-Suite executives and government ministers on international compliance and regulatory issues. Drew holds a law degree from the University of Otago, a PhD from the University of Sydney, and is an enrolled Barrister and Solicitor of the High Court of New Zealand.