No Fault Dismissal

Employers need to be aware of the pros and cons of no – fault dismissals.

A ‘no-fault dismissal’ is a method of dismissing an employee by giving of reasonable notice but without following any procedures. It’s a method that Sir Alan Sugar would be familiar with in The Apprentice when he simply states, “You’re fired”. The two main legal remedies open to an employee who is dismissed are to either bring a claim to the Employment Appeals Tribunal under the Unfair Dismissal Acts, or to seek a High Court injunction preventing the dismissal from taking effect until the hearing of the breach of contract claim.

The benefit of a no-fault dismissal is that an employee, based on recent decisions of the High Court, will not be granted a High Court injunction preventing the dismissal from taking effect. The downside is that the employee will more than likely have a very good claim under the Unfair Dismissal Acts due to lack of procedures, and may be awarded up to two years’ remuneration, dependent on their financial loss.

Reasonable Notice

A no-fault dismissal is simply where an employer tells an employee that he or she is being dismissed and given reasonable notice or, if the contract so provides, paid in lieu of his/her notice. The employer should confirm that the dismissal is not based on the employee’s conduct or performance and this should be reflected in the dismissal letter.

The employer should also ensure that no communication to the contrary is given to the employee from any manager in the company,to avoid the employee presenting evidence that the dismissal was for a reason, and that reason required fair procedures to be followed.

The High Court has generally been of the view that an employee can be dismissed on reasonable notice for good reason, bad reason or no reason at all. However, separate to the requirements under the Unfair Dismissal Acts, case law has developed the common law requirement of fair procedures in line with natural and constitutional justice to be followed where an employee is dismissed for misconduct and for certain performance issues.

Therefore, an injunction may be granted if no procedures were followed for a dismissal based on misconduct. Nevertheless, recent High Court decisions have shown that no procedure is required where an employee is dismissed for no reason, provided that reasonable notice is given. This may be more than the notice that is provided in the employee’s contract. Furthermore, the employer must be able to defend an allegation that the basis for dismissal required fair procedures. One method applied by the employer in a recent case was to offer the employee a reference confirming that the employee’s dismissal had nothing to do with his conduct or performance.

An employer who dismisses an employee for ‘no fault’ may avoid an injunction but is likely to fall foul of the requirements of the Unfair Dismissal Acts. These requirements include justifying that dismissal was the appropriate sanction in the circumstances and that fair procedures were followed.

Financial Loss

However, an award under the Unfair Dismissal Acts is based on the employee’s financial loss. An award from the EAT for an unfair dismissal case is limited to the claimant’s financial loss regardless of what the employer did. Therefore, if the claimant secures another job within a short period of dismissal, the claimant will possibly have only a few weeks’ loss. For example, if the financial loss amounts to five weeks’ remuneration, then that is the maximum that the EAT can award. If the claimant has no financial loss, then the maximum award is four weeks’ remuneration.

For a free initial conversation call