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Doing business in the UK: terminating the employment relationship

Posted: 27/09/2022

Terminating the employment relationship in the UK functions differently to terminations in the US. Except in certain mass dismissals, or as provided for in an employment contract or collective bargaining agreement, then unlike the position in the UK, US law does not impose a formal ‘notice period’ to terminate an individual employment relationship. Most US employees are employed ‘at-will’, and either party can terminate the employment relationship without notice. This article highlights the differences between ending an employment relationship in the UK vs the US.

‘At will’ employment

Under US federal law, there are no minimum requirements for an employment contract. Also, in most states, the terms do not need to be recorded in writing. An employment relationship in the US is presumed to be ‘at-will’, that is, terminable by either party, with or without cause or notice.

Whether the employment relationship is ‘at-will’ or under a written employment contract, the parties are free to negotiate and set the terms and conditions of their relationship. This is so long as none of the provisions breach any federal, state or local law, or rules or regulations governing the employment relationship – for example, the pay practices established in the Fair Labor Standards Act.

In the UK, the employment relationship is governed by a mixture of common law and statute. The common law aspect concerns what the parties have agreed to as a matter of contract, as well as case law that has developed in the area. Statutory rights for employees are extensive, including the right not to be unfairly dismissed (for employees with at least two years' service) and the right not to be discriminated against on prescribed grounds. Many statutory rights are derived from EU law. Consequently, UK employment law relies more heavily on written contracts that set out the conditions under which a UK employee’s contract can be terminated.

A fair dismissal

In the US, no filings need to be made when terminating employment, except that in some collective dismissals in some states, a notification to local authorities may be required.

In the UK, the written statement of the main terms and conditions of employment must contain the notice periods for termination by both the employer and employee. Otherwise, it must refer the employee either to the law, or to the provisions of any collective agreement directly affecting the terms and conditions of the employment which is reasonably accessible to the employee.

Employees with continuous employment of at least one month, but less than two years, are entitled to at least one week's notice from the employer. Employees with two years' continuous employment or more are entitled to one week's notice for each complete year, up to a maximum of 12 weeks' notice. The parties may agree longer notice periods.

When dismissing an employee in the UK, the employer should have regard to both the employee's contractual rights and their statutory rights. In most cases, observing contractual rights means giving the correct notice, or paying the correct notice monies. Ordinarily employers should follow the procedures set out in their (usually non-contractual) policies and/or the recommendations set out in the statutory Acas Code of Practice on Disciplinary and Grievance Procedures, where relevant, in order to ensure that any dismissal is not unfair. It is worth noting that it is a legal requirement for every employer in the UK to have a disciplinary policy in place.

The five statutory fair reasons to dismiss an employee in the UK are:

  • capability;
  • conduct;
  • redundancy;
  • illegality; and
  • some other substantial reason (eg dismissing because of a fundamental breakdown of trust and confidence).

The right not to be unfairly dismissed is the main statutory right to be aware of when dismissing; it only applies to employees who have at least two years' service, unless the dismissal does not require a qualifying period (for example, for whistleblowing). However, workers are also protected against discriminatory dismissals from day one, without the need for qualifying service.

Employees with two years’ service can also claim unfair dismissal if they believe they’ve been forced to resign, with or without notice (known as constructive dismissal). There are many reasons that could lead to this, but some examples would be because they are not being paid, or because they have an unsafe working environment.

Essentially, to bring a successful claim for constructive dismissal, an employee would have to demonstrate that their working life has been made so difficult by their employer, often via the acts or failures of their colleagues, that they have no option but to resign.

Length of service

As stated above, generally employees will need two years of continuous service to bring a claim for unfair dismissal; however, just to keep you on your toes, there are exceptions.

Day 1 rights – automatic unfair dismissal
“But they don’t have two years’ service, so it doesn’t matter.” If a UK employee has not yet accrued two years’ service, it is a common misconception that they will not have accrued protection for unfair dismissal. However, in some circumstances two years’ service is not required and a dismissal may be deemed to be automatically unfair. It is therefore incredibly important to be aware of what constitutes an ‘automatically unfair dismissal’.

While this list is not exhaustive, UK employees could claim automatic unfair dismissal if they are dismissed for any of the following:

  • pregnancy, including all reasons relating to maternity;
  • taking or looking to take leave for family reasons;
  • pay and working hours, including the Working Time Regulations, annual leave and the National Minimum Wage;
  • acting as an employee representative;
  • acting as a trade union representative;
  • acting as an occupational pension scheme trustee;
  • joining or not joining a trade union;
  • taking part in protected industrial action;
  • asserting a statutory right;
  • carrying out jury service;
  • making a protected disclosure (ie blowing the whistle);
  • taking action at work on health and safety grounds.

On top of this, it is even more important to be aware that if an employee is dismissed for any reason relating to a protected characteristic as set out in the UK’s Equality Act 2010 (eg age, disability, race, religion, sex, or sexual orientation), then not only would this be an automatically unfair dismissal but it would also constitute a separate claim of discrimination. Unlike unfair dismissal claims, if a claim for discrimination succeeds, then the compensation sum is not subject to any statutory cap.

Finishing thoughts

It is recommended that the starting point for any UK employer is ensuring that a clear and easy to digest set of core (and legally required) HR policies are put into place. As stated above, this should include a disciplinary policy, which will be a good starting point for any employer needing to terminate an employment relationship fairly.

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Penningtons Manches Cooper LLP