This country-specific Q&A provides an overview to employment and labour law in United Kingdom.
It will cover termination of employment, procedures, protection for workers, compensation as well as insight and opinion on the most common difficulties employers face and any upcoming legal changes planned..
This Q&A is part of the global guide to Employment & Labour. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/employment-labour-law/
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, describe what reasons are lawful?
An employer can lawfully terminate the employment relationship with or without a reason. But, depending on the reason, the employer may be liable to pay compensation to the worker.
Employees (but not the broader category of “workers”) who meet the minimum qualifying period of employment of two years or more are protected from unfair dismissal. To avoid liability for unfair dismissal, an employer can only dismiss a protected employee for one of five fair reasons set out in the Employment Rights Act 1996. The five fair reasons are: (1) the capability or qualifications of the employee; (2) the employee’s conduct; (3) redundancy; (4) illegality; and (5) “some other substantial reason”. A dismissal for one of these reasons is potentially fair but, to avoid liability for unfair dismissal, the employer must also ensure that they are acting reasonably in treating the reason as sufficient for dismissal of that employee and that they follow a fair dismissal process.
Employees are protected from day one of their employment from automatically unfair dismissal. Dismissals which are classified as automatically unfair include dismissing an employee for asserting certain legal rights, where the employee has made a protected disclosure (i.e. they are a whistleblower) and where the employee is dismissed for reasons connected to pregnancy and/or childbirth.
An employer who dismisses an employee for a reason which is directly or indirectly discriminatory, based on the characteristics protected from discrimination under the Equality Act 2010, will be liable for discrimination.
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
There are additional obligations set out in the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”) if an employer proposes to dismiss 20 or more employees within a 90 day period or less.
The employer will be required to inform and consult with ‘appropriate representatives’ of the affected employees on a collective basis. The term, affected employees, is not limited to those being dismissed but applies to any employee who may be affected by the dismissals.
The definition of ‘redundancy’ which TULRCA applies is wider than that applying to individual redundancies under the Employment Rights Act 1996. A proposal to dismiss employees for any reason, not related to the individuals themselves, will fall within the scope of redundancy under TULRCA. This includes, for example, a proposal to dismiss employees for failing to agree to new terms and conditions of employment.
If the employer is proposing to dismiss 100 employees or more within a 90 day period, consultation with the affected employees must begin at least 45 days before the first of the dismissals takes effect. If the proposal is to dismiss less than 100 employees, consultation must begin at least 30 days before the first of the dismissals takes effect.
An employer that fails to comply with its obligations to inform and consult with employee representatives is liable to pay a protective award to employees. The amount is decided by an Employment Tribunal, having regard to what is just and equitable in the circumstances, and can be up to a maximum award of 90 days’ actual pay per employee.
The purpose of the award is to penalise the employer, rather than compensate employees for losses suffered. If there were special circumstances that made it not reasonably practicable to comply with these requirements, then the employer will have a defence to the claim for a protective award.
An employer must notify the Secretary of State where it proposes 100 or more redundancies within a 90 day period.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
The Transfer of Undertakings (Protection of Employment) Regulations 2006, which implement the European Acquired Rights Directive in the UK, protect the rights of employees on a business sale.
The dismissal of an employee by the transferor before the transfer or by the transferee after the transfer of their employment, where the transfer is the reason for the dismissal, will give rise to a claim for unfair dismissal, provided the employee has been employed for at least two years. Where an ‘economic, technical or organisational reason entailing changes in the workforce’ applies to the dismissal then it will not be automatically unfair.
An employee dismissed in the context of a business transfer may also bring a claim if his employer has failed to inform and consult with him through employee representatives about the transfer. The obligation to inform and consult representatives of affected employees applies to both transferors and transferees.
Employers are required to provide a prescribed list of information, including what measures the employer envisages taking in relation to the employees in connection with the transfer. The transferor must also provide employees with information about measures that the transferee proposes to take in relation to the employees. If measures are proposed the employer must consult with the representatives of the affected employees about these, with a view to seeking their agreement.
The employer can be liable to pay a protected award of up to 13 weeks’ actual pay for each employee in respect of a failure to inform and consult affected employees.
What, if any, is the minimum notice period to terminate employment?
Employees who have been continuously employed for one month or more are entitled to a prescribed minimum period of notice of one week.
Where the period of continuous employment is more than two years but less than 12 years, it is a minimum of two weeks’ notice, increasing by one week for each additional year of employment, up to a maximum of twelve weeks’ notice. Employees are not required to give any minimum period of notice to their employers, other than as prescribed in their contract of employment.
The required notice will usually be stated in the contract of employment. If the contract of employment does not specify a notice period, there is an implied term that reasonable notice will be given. Contractual notice periods are often longer, commonly one month for junior employees, rising to six months for senior managers and directors.
Where the reason for termination of employment is the employee’s misconduct, the employer is entitled to terminate the employment immediately without notice. If an employer fundamentally breaches the contract of employment, the employee is entitled to terminate the employment without giving notice and to claim that he has effectively been dismissed by the employer, known as constructive dismissal. A fundamental breach of the contractual obligation to maintain the relationship of trust and confidence between employer and employee which is implied into every contract of employment is often cited as the relevant breach.
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
Yes, provided the employer has included a right to make such a payment in the contract of employment. This is known as a “payment in lieu of notice” or “PILON”. If a PILON provision is not included in the contract of employment, the termination of employment will still be valid, but the employer will be in breach of contract. In such circumstances, the notice monies are treated as compensation for the contractual breach. Currently, there are some tax advantages to this approach, but these will no longer apply from April 2018.
Many employers prefer to rely on an express right to make a payment in lieu of notice because if the contract is terminated in breach, the employer may not be able to enforce other provisions in the employment contract that would otherwise have survived its termination. Such provisions may include post-termination covenants restricting an individual’s involvement with certain clients, suppliers and employees of the company, and obligations to keep information confidential.
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to say at home and not participate in any work?
This is possible if the employer has the right to require the employee to take garden leave under the contract of employment. It is common practice to include such a provision, particularly for senior employees or those in customer/client facing roles. While this is usually expressed as an express provision in the contract of employment, it may also be implied in to the contract.
It will not be possible to imply the right to place an employee on garden leave if refusing to provide work would be considered a repudiatory breach of contract. This may include, for example, where the employee has a skill which will decline if not used.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, describe the requirements of that procedure or procedures.
Termination of the employment relationship will be valid whether or not the employer follows any prescribed procedures.
A Code of Practice applies to grievances and dismissals, other than dismissals on the grounds of redundancy. Employers have no legal obligation to follow the Code, therefore an employee cannot bring a claim against the employer on the grounds that they have not followed it. However, where the employer has failed to comply with the Code, it can be taken into account by an Employment Tribunal judge in relation to another complaint and as a result, the employer can be required to pay an increased sum of compensation.
Employers may also be obliged to follow any contractual dismissal procedures included in the contract of employment.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
If the Code of Practice applying to grievances and dismissals is not followed by the employer, then a dismissal is more likely to be found to be unfair. Fairness is required in all the circumstances, including in relation to procedures followed (see question 1 above). This also applies to claims arising out of grievances, for example, discrimination claims.
An employee who is affected by their employer’s failure to follow any prescribed procedures cannot bring a stand-alone complaint in relation to such a failure, however this failure can be taken into account in relation to another complaint, for example, unfair dismissal (see question 7 above). If such a complaint is successful, the Employment Tribunal can award an uplift in compensation of up to 25%.
How, if at all, are collective agreements relevant to the termination of employment?
Collective agreements will be relevant to the termination of employment if they contain terms which relate to procedures for the termination of employment, including in relation to redundancy selection and/or sums payable on the termination of employment. Outside of the public sector and certain traditional industries, collective bargaining is relatively uncommon in the UK.
Does the employer have to obtain the permission of or inform a third party (eg local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
There are no circumstances in which a failure to notify a third party will void the termination of employment.
An employer who proposes to dismiss (as redundant) 20 or more employees within a 90 day period must notify the Secretary of State of such planned redundancies using a prescribed form. Where 100 or more redundancies are proposed, notification must be made at least 45 days before any notice to terminate employment is given. If 20 or more redundancies are proposed, at least 30 days’ notice must be given. Failure to make the required notification is a criminal offence and a fine may be payable.
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
Workers are protected from discrimination on the termination of employment (as well as during employment and the recruitment process) on the grounds of protected characteristics prescribed by the Equality Act 2010. These are: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation. Discrimination can be direct, if the employer treats a worker less favourably than other workers on the grounds of a protected characteristic. It can also be indirect, where an employer applies a provision, criterion or practice equally to workers with and without protected characteristics, but the provision criterion or practice puts workers with a protected characteristic at a particular disadvantage compared to other workers. For example, a requirement that all workers are required to work full-time hours, is likely to put women who are most likely to be the main carer of children, at a disadvantage and may be discriminatory.
With the exception of age, direct discrimination cannot be justified by an employer. It is possible to justify indirect discrimination if it is a proportionate means of achieving a legitimate aim.
An employer will also be liable for discrimination if the employer fails to comply with its obligation to make reasonable adjustments for a worker with a disability.
Workers are protected from harassment of a sexual nature that is related to sex or gender reassignment. Harassment can also take the form of other unwanted conduct in relation to a protected characteristic which either violates the victim’s dignity or has the effect of creating an intimidating, hostile, degrading, humiliating or offensive environment for the victim.
A worker who brings a claim under the Equality Act, or does anything in connection with the Act (for example, providing information or giving evidence), or who an employer believes may do such things, is protected from suffering a detriment (including the termination of employment) as a result of such act.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
An employer is vicariously liable for the acts of individuals committed in the course of employment. Whether or not the employer knew or approved of the discriminatory act is irrelevant, but it is a defence for the employer to show that it took all reasonable steps to prevent the individual from doing the discriminatory act or acts of that type.
If an employer is liable for discrimination, the Employment Tribunal can order the employer to pay unlimited compensation. The amount of compensation awarded in each case will depend on the extent of the financial losses suffered by the individual. Employers can also be ordered to pay a lump sum for injury to feelings. This is compensation for non-financial loss and can range from £800 up to £42,000. In the most serious cases, an additional sum of aggravated damages may also be awarded. A further category of punitive or exemplary damages may be awarded in exceptional and rare circumstances.
An Employment Tribunal can make a declaration of the employer’s and employee’s rights arising from the case. This is usually in addition to, but can be instead of, awarding compensation. It can also make a recommendation to reduce the adverse effect on the claimant for the matters to which the Employment Tribunal proceedings relate. The scope of such recommendations is, however, narrow.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
The Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002 apply to employees engaged on contracts of employment for a specific time period or contracts which ends when a specified event happens. These regulations derive from a European directive. Employees working under such contracts are entitled to be treated in the same way as permanent employees who are employed at the same place and to do similar work. Different treatment is, however, capable of objective justification.
Part-time workers are entitled to similar protection under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000, which are also derived from a European directive. Part-time workers are entitled to be treated in the same way as comparable full-time workers and are protected from being subject to less favourable contractual terms or any other detriment, on the grounds that the worker is part-time. This concept is subject to the ‘pro-rata’ principle, that it is not less favourable to pay part-time workers proportionately less pay and benefits than full-time workers.
If the principal reason for dismissal of a worker is that they have asserted their rights as part-time workers or fixed-term employees, the dismissal will be automatically unfair.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
Yes. The Employment Rights Act 1996 protects workers and employees who have made a protected disclosure from suffering a detriment, including where their employment is terminated because the worker made such a disclosure. The worker must believe that they are making the disclosure in the public interest and it must fall within one of six prescribed categories. The disclosure must also be made in one of six prescribed ways. In practice, in order to qualify for protection, the worker must usually make the disclosure to their employer, although there are circumstances where this is not necessary.
If an employer dismisses a worker because the worker has made a protected disclosure, this will constitute an automatically unfair dismissal and the two year qualifying period that must usually be met to make an unfair dismissal claim does not apply. The cap on compensation also does not apply.
There is no need for the disclosure to be made in good faith, but an award of compensation may be reduced by up to 25% if it was not made in good faith and the Employment Tribunal considers it just and equitable to make such a reduction.
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
Employers are legally obliged to give workers the minimum notice required under their contract of employment, or the minimum statutory notice if this is greater. If the worker’s engagement continues during the notice period, they will be paid as normal. If it is intended that the worker’s contract will terminate immediately, the worker may be entitled to receive a lump sum payment equivalent to the sums specified in the contract as pay in lieu of notice. In such circumstances, the contract may specify that the worker is under an obligation to mitigate his losses by looking for alternative employment and that such sums will paid subject to him making reasonable efforts to do so.
If there is no right to pay in lieu of notice in the employee’s contract and it is terminated by the employer without giving the required notice, the employee will be entitled to compensation, subject to the employee’s obligation to mitigate his losses as noted above.
Where the reason for dismissal is redundancy, an employee who has two or more years of service will be entitled to a statutory redundancy payment. The employee’s age and length of service are used to calculate the relevant multiplier for a week’s pay, subject to a maximum cap. Many employers offer enhanced payments, either on a case by case basis or as a contractual entitlement, if the termination of employment is by reason of redundancy.
Employers must pay employees for any accrued but outstanding holiday entitlement on the termination of employment.
Unless the employer has a contractual obligation to make any other payment to a worker on the termination of employment, it will not be obliged to do so. However, where a dispute exists between the employer and the employee, it is common for some compensation to be paid relative to the sums the worker claims he would be entitled to in the Employment Tribunal or Court.
If a dismissal is found to be unfair by an Employment Tribunal, it can award compensation. This is calculated in accordance with the losses suffered by the worker, arising from the dismissal, including projected future losses, up to a maximum of one year’s pay or the statutory cap (currently £80,541, rising to £83,682 from 6 April 2018), whichever is lower.
Where the employee is a company director, shareholder approval for the payment of compensation may be required.
Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.
A worker can validly waive his right to bring claims under employment legislation by entering into a settlement agreement, provided certain conditions are met. Firstly, the agreement must be in writing and it must relate to specified proceedings or complaints. The worker must also have received advice from a named independent adviser, who is covered by a contract of insurance, on the terms of the agreement and its effect on the worker’s ability to bring a legal claim against the employer. The agreement must also state within it that the conditions regulating settlement agreements have been satisfied.
The prescribed conditions do not apply to the waiver of contractual claims which are commonly included in the same agreement as statutory claims.
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
The starting position for employers is that such an obligation is void as being in restraint of trade. However, employers can impose obligations (commonly referred to as “restrictive covenants”) that restrict where an employee can work after the termination of employment, provided that the purpose of such an obligation is to protect a legitimate interest of the employer and the obligation is no more restrictive than is necessary to protect this interest. Protection from competition itself is not a legitimate interest but the protection of confidential information, customer and supplier connections, goodwill and the stability of the workforce are all legitimate interests that can be protected. Restrictive covenants are commonly found in contracts of employment for directors and senior management employees, as well as those who have access to the employer’s confidential information, and/or to customers and suppliers and information about the employer’s dealings with them.
The validity of a restrictive covenant is assessed based on the time the employer and employee entered into them, and the employer should therefore regularly review them.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
The law requires workers to keep an employer’s trade secrets confidential after the termination of employment. Employers can only require workers to maintain the confidentiality of other types of confidential information, after the termination of employment, by express contractual agreement. Most contracts of employment contain an express obligation to protect identified categories of confidential information after employment as only limited types of confidential information fall into the category of trade secrets and it can be difficult to identify these.
Are employers obliged to provide references to new employers if these are requested?
Generally, employers are not obliged to seek references or to provide references when requested to do so by former workers or prospective employers. If a reference is requested the employer must comply with its duty towards the individual who is the subject of the reference, which is to take reasonable care to ensure that it gives an accurate description and is not misleading.
Separate obligations apply in the financial services sector. Certain regulated employers are required to give a reference for individuals in regulated roles when requested to do so by a prospective employer. Depending on the type of employer, it may be necessary to give this information in a prescribed format. The employer has a continuing obligation to update such a reference in certain circumstances, with any new information that becomes available.
Certain regulated employers are also required to seek references for employees in regulated roles.
What, in your opinion, are the most common difficulties faced by employers when terminating employment and how do you consider employers can mitigate these?
Terminating employment is most contentious when either before or during the termination process employees raise issues or act in a way which, if linked to the termination, can significantly increase the employer’s liability. For example, a worker who raises a grievance about their treatment by a colleague, discloses an incident of apparent wrongdoing in the organisation or is absent due to sickness once a process that may end in the termination of employment has been initiated or in anticipation of it being initiated. This commonly arises where the potential termination is on the grounds of the worker’s poor performance, but can happen whatever the circumstances of termination, including redundancy.
Assessment of an employee’s performance before the employee achieves the two years’ qualifying service that is required to bring most claims of unfair dismissal can be helpful. If necessary, steps can then be taken to terminate the employment before such a right is accrued.
Prolonged sickness absence can be difficult to manage, particularly where the underlying reason is a mental rather than physical condition. If the worker has a disability under the Equality Act 2010, the employer will need to avoid discrimination on the grounds of disability as well as complying with its positive duty to make reasonable adjustments for the disabled employee. For a dismissal to be fair, a fair process must be followed which will usually involve consultation with the employee and in the context of sickness absence, medical reports or evidence. If the employee is too unwell to engage in such consultation or will not cooperate, the employer is faced with the choice of continuing to attempt to engage the employee with the consultation process or taking a decision to dismiss which could be found to be unfair and/or discriminatory.
Employers can prepare for these situations by seeking medical information at an early stage, working with the employee to identify any reasonable adjustments that could be made to enable the employee to continue working, and limiting an employee’s contractual entitlement to sick pay, which could still be offered on a discretionary basis.
Are any legal changes planned that are likely to impact on the way employers approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?
On 7 February 2018, the UK government released its response, the “Good Work plan”, to last year’s Taylor Review of Modern Working Practices. The Taylor Review was initiated partly in response to a sharp rise in the numbers of individuals working in the so-called “gig economy”. Many of these individuals are engaged as self-employed contractors to perform key services provided by their employer. As self-employed contractors, they are not entitled to the benefits and rights enjoyed by workers and employees. However, it is often hard to distinguish the employer/contractor relationship from that of employer and worker/employee and many contractors may in practice be workers or employees.
Highlights of the government’s “Good Work” plan include: a recommendation for consultations to clarify the definitions linked to employment status (however, there is no immediate recommendation to introduce a new category); defining ‘working time’ for flexible workers who find jobs through online apps; and new enforcement for the failure to pay holiday or sick pay.
To prepare for changes relating to this issue, employers can audit the employment relationships within their engagement model to assess potential exposure and costs. This will help with the necessary analysis of the risks and practicalities of alternative engagement models.
In the short term, employers can look to reduce risk when terminating contractor engagements by activating such terminations, where possible, before an individual has met the minimum service requirement of the two years usually required to bring an unfair dismissal claim.