Issues arising on termination

A contract of employment can end in various ways, including dismissal, resignation and frustration. Unless the contract of employment specifically states otherwise, termination need not be in effected in writing, and can, for example, be done orally.

If an employer wishes to dismiss an employee lawfully, the dismissal must not be unfair nor breach the employee's contract of employment. Having taken the decision to dismiss, there are further decisions for the employer, eg whether or not to:

• give notice

• pay the employee in lieu of notice, and/or

• put the employee on garden leave

Distinguishing dismissal from other forms of termination

Not all terminations amount to a dismissal. Termination can also occur:

• by resignation (although sometimes resignations will occur in such circumstances that there is a constructive dismissal)

• by mutual consent, or

• by operation of law

Tribunals are reluctant to find that there has been termination by mutual consent. Termination by operation of law is rare; its most common form is frustration of the contract. The expiry of a fixed-term contract without it being renewed is not a dismissal at common law, but is deemed a dismissal for statutory purposes.

Written statement of reasons for dismissal

Employees who have been continuously employed for one year or more are entitled to request a written statement of reasons for dismissal, subject to certain conditions and exceptions. Dismissal can be on notice or summarily, but there is no right to written reasons in the case of a constructive dismissal.

Where a request has been made, the employer has 14 days to respond with the reasons for the dismissal. The employer may choose to refer the employee to another document, but this should be included with the response. The statement may be referred to in a claim for unfair dismissal.

Employees who are dismissed while pregnant, or absent from work for one of a number of family-related reasons, are entitled to a written statement without having to ask for it, and regardless of their length of service.

A claim may be brought if :

• the employer did not comply with the request for written reasons, or

• it did purportedly comply, but the particulars given were inadequate or untrue

If the employee is successful, the employment tribunal may make a declaration as to the reasons for the dismissal, and must award two weeks' pay, which sum is not limited by the statutory cap.

Contractual notice

Most contracts of employment stipulate a specific period of notice for the employer or employee to terminate. Where the contract is silent on this point, notice must be reasonable. A failure to give proper notice may result in a claim for wrongful dismissal.

Whether or not an employer can dismiss whilst an employee is on long-term sick leave may be complicated if the contract of employment entitles the employee to permanent health insurance. In these circumstances there may be an implied term not to dismiss if that would cause the employee to cease receiving that benefit.

In the event of repudiatory action:

• by the employee, the employer is entitled to dismiss without notice

• by the employer, the employee is entitled to resign without notice and claim constructive dismissal

Repudiatory action by an employee usually amounts to gross misconduct. Repudiatory action by the employer is an act or omission, or series of acts or omissions, which amounts to a serious breach of contract.

Both parties can also agree to a shorter notice period. However notice, once given, cannot be unilaterally withdrawn.

Statutory minimum notice

The Employment Rights Act 1996 provides that employers and employees are entitled to receive a statutory minimum period of notice. If this differs from the contractual notice, the employer or employee is entitled to whichever is the greater.

A breach of the right to statutory minimum notice may also amount to a breach of contract, thereby giving rise to a claim for wrongful dismissal.

Payment in lieu of notice

The right to notice is to remain in employment throughout the notice period. However, some employment contracts allow an employer to pay the employee in lieu of notice, without this amounting to a breach of contract. Whether or not the employee receives salary plus benefits, and/or any bonuses or commission, depends on the drafting of the clause.

Where no provision for pay in lieu of notice exists, an employer who nonetheless pays the employee in lieu of notice will be in breach of contract, but the pay provided usually amounts to the damages which would otherwise be owed.

Where the employer dismisses on no notice, or short notice, and does not provide adequate pay in lieu, the employee must seek to mitigate any damages suffered.

Waiver of notice

Either party can waive their right to the whole or part of their due notice, but this cannot be unilateral, and consent to waiver must be freely given.

An employer can give notice, and then later provide for the remainder to be paid in lieu, provided the contract of employment allows it to do so. Where the contract does not allow for this, such action may amount to a wrongful dismissal.

A waiver of all or part of the notice does not affect whether or not an employee has been dismissed, or whether there is a rights to claim unfair dismissal. It does, however, affect the effective date of termination.

Garden leave and the right to work

If an employee is sent home on full pay instead of being required to work during the notice period, this is referred to as garden leave. Employees are primarily put on garden leave, once it is known that they intend to leave, to prevent them from poaching customers or colleagues from their employer.

Employees do not generally have an inherent right to be provided with work. However, some individuals may have such a right; whether or they do will depend factors such as:

• seniority

• the nature of the role

• express terms of the contract

Consequently, in order to ensure it is lawful to place an employee on garden leave, an express provision allowing the practice should be included in the employment contract. Failing that, the employer and employee may be able to come to an agreement.

The time spent on garden leave will usually have an impact on the length of time over which it is reasonable to impose any restrictive covenants to which the employee may be subject.

References

There is no inherent duty on an employer to provide a reference, although in some contexts there may be a regulatory one. If an employer does provide a reference, it should be fair, truthful and accurate. Refusing to provide a reference may sometimes amount to discrimination.

There is no problem with an employer providing a brief reference, which simply state the facts, as long as this type of reference is given to all employees.

The providers of references owe a duty of care not only to the recipient of the reference, but also to the employee about whom it is written. A breach of this duty can give rise to claims for negligent misstatement, malicious falsehood or defamation. In addition, the subject of a reference may be able to claim a breach of the implied term of trust and confidence.

Gross misconduct

Gross misconduct is behaviour by an employee which is so bad that the employer cannot be expected to employ him any longer, which amounts to a fundamental breach of contract. The misconduct must be gross, culpable and incompatible with the employee's duties of fidelity, trust and confidence.

An employer may dismiss an employee summarily (ie without notice) for gross misconduct without being liable for wrongful dismissal. Whether this will amount to unfair dismissal depends on all the surrounding circumstances.

Often employers will have an explicit list of types of misconduct which will be considered to be gross misconduct.

Constructive dismissal

Constructive dismissal occurs when an employee resigns in response to a repudiatory breach of the employment contract by the employer. As with gross misconduct, the act or omission by the employer must be sufficiently serious to justify the resignation. It can also be a series of acts or omissions, which together amount to a repudiatory breach, with the last act or omission by the employer triggering the resignation ('the last straw').

A constructive dismissal amounts to a dismissal under unfair dismissal legislation, so an employee (with requisite service) may bring a claim for constructive unfair dismissal despite having resigned. The employee may also have a claim for wrongful dismissal.

An employee does not necessarily have to resign immediately following the breach by the employer, and can resign on notice. An employee may also continue to work until a new job is found, provided he has made it clear that the breach is not accepted. If an employee delays too long, however, he risks being found to have waived the breach.

Dismissal and partnerships

Partners are usually self-employed and not employees.

Those who are employed by a partnership are employed by each partner acting together. Many contracts of employment expressly state that employment is with the partnership as constituted from time to time. The Employment Rights Act 1996 expressly preserves continuity of employment where there is a technical dissolution of a partnership. Employment contracts can, however, terminate automatically on the complete dissolution of a partnership.

Where there is a substantial change to the partnership, or a complete dissolution, the termination of the employment contract is likely to amount to a dismissal, which may or may not be unfair and/or wrongful.

The Transfer of Undertakings (Protection of Employment) Regulations 2006 may apply where a partnership is dissolved and then continues trading immediately with new partners.

Dismissal and directorships

Directors are office holders, who can also be (but are not always) employees.

To remove a director from office, a simple majority of votes at a shareholder's meeting is needed, unless the company's articles provide otherwise. If the director is also an employee, removing him from office will not automatically terminate his employment, but may be grounds for constructive dismissal, particularly where the word director appears in the employee's job title.

A director who is also an employee has all the same rights and protections as any other employee.