Unfair Dismissal and Settlement Agreements

Employees have the right under statute not to be unfairly dismissed. This is a fundamental principal in employment law in this country. Many offers of Settlement Agreements come out of a situation which may well give rise to an Unfair Dismissal claim by the employee and, due to the fact that an employee is sacrificing their right to make a claim under the terms of a Settlement Agreement, it is very important to understand the background of any such claim.

So what is a fair dismissal? There are two aspects to this:

 
  • The employer must have a potentially fair reason for the dismissal; and

  • The employer must have acted reasonably in treating that reason as sufficient to justify dismissing the employee.

The employer must have a potentially fair reason for the dismissal.

Broadly speaking, there are a number of potentially fair reasons for dismissal:

 
  • Capability or qualifications;

  • Conduct;

  • Redundancy;

  • A statutory restriction (i.e. the employee is a driver but has lost his licence, or the employee gets a criminal conviction);

  • Some other substantial reason (i.e. a potentially fair reason which does not fall into the above categories).

The employer must have acted reasonably in treating that reason as sufficient to justify dismissing the employee.

Once an employer has demonstrated a potentially fair reason for the dismissal, they must then show that they acted reasonably in dismissing the employee for that reason. Under statute, this will depend on the circumstances (i.e. the size of the business) and merits of the case. The test that is traditionally used by Tribunals to decide this is known as ‘the range of reasonable responses’ test. The Tribunal must objectively decide whether the employer’s decision to dismiss the employee fell within the range of reasonable responses that a reasonable employer in those circumstances and in that business might have adopted. There are several cases which would be relevant to this evaluation process depending on the type of reason in each case (i.e. conduct or redundancy etc).  

Lastly, the dismissal must be procedurally fair. In relation to conduct and performance dismissals, an employer should ensure that they follow the ACAS Code.

Conclusion

The remedies for a successful Unfair Dismissal claim are reinstatement/re-engagement and/or compensation. Compensation is made up of a ‘basic award’ which is a calculation based on age, length of service and a week’s pay, and a ‘compensatory award’. This is such an amount as the Tribunal sees fit based on the facts of the case up to a statutory cap of £74,200 or 52 weeks’ pay (whichever is lower).
Therefore, a successful claim can lead to significant financial gain for an employee who has been unfairly dismissed. That is why it is absolutely crucial to take advice on your situation and the prospects of any claims you may have before agreeing to a Settlement Agreement proposal. If you have found yourself in this situation, please do contact a member of the team for help.

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