Legal update: 6 ways SMEs can navigate unfair dismissal claims

12 min read  |   21 May, 2024   By Tessa Robinson - Senior Associate Lawyer at Outset & Breathe's employment law expert

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How would you handle an unfair dismissal claim? These claims can be costly, stressful and time-consuming for everyone involved – especially if they end up at an Employment Tribunal.

Understanding this area of employment law is vital for SMEs to help protect their small businesses.

In this blog, we’ll cover what small businesses need to know about unfair dismissal, case law (with tribunal decisions and key learnings) along with how businesses can protect against unfair dismissal claims.


Skip to:

  1. Heat of the moment resignation
  2. Redundancy consultations before scoring & selection
  3. Employee who used a racial term


What is unfair dismissal?

Defined under the Employment Rights Act 1996, unfair dismissal occurs when an employer terminates an employment contract without a valid reason, or fails to follow a fair procedure in the dismissal process.


What are potentially fair reasons for dismissal?

 Once an employee has been employed for 2 years, they gain protection against unfair dismissal. This means that an employer must have a fair reason for dismissal & must follow a fair process.

The Employment Rights Act 1996 sets out 5 potentially fair reasons for dismissal:

  1. Conduct: Employee behaviour or misconduct that breaches company policies or professional standards.

  2. Capability or qualifications: Lack of skill, competence, or qualifications required for the job.

  3. Redundancy: Situations where the role is no longer necessary, often due to business closures or restructuring.

  4. Illegality: If continuing employment would break the law.

  5. Some other substantial reason: Often referred to as ‘SOSR’, this is a tricky reason to apply, but commonly arises where employers want to change terms and conditions of employment and the employee doesn’t agree.


Surprising unfair dismissal claims


1. A reminder: Be careful with heat of the moment resignations

In the case of Omar v Epping Forest District Citizen Advice, the Employment Appeal Tribunal (EAT) challenged a tribunal's decision to uphold a Claimant's 'heat of the moment' resignation, preventing him from pursuing an unfair dismissal claim.


Case overview:

The Claimant had resigned during a heated exchange with his manager and later attempted to retract it. He argued that his resignation was in the 'heat of the moment.'

However, the employer refused to accept the retraction, leading to the termination of Mr Omar’s employment. Mr Omar then filed an unfair dismissal claim, and the employment tribunal initially rejected the claim (confirming the validity of his resignation).


Tribunal decision:

Disagreeing with the tribunal's rationale, the EAT ordered a fresh tribunal hearing and seized the opportunity to provide comprehensive guidance on 'heat of the moment' resignations, applicable also to dismissals.


Employment Appeal Tribunal guidance on resignations:

  • A notice of resignation, once effectively given, can’t be unilaterally retracted.

  • Words of resignation must be objectively examined in the context of all circumstances.

  • Consideration should be given to factors influencing how a reasonable bystander would interpret the language used.

  • While the subjective understanding of the recipient is relevant, it’s not the sole determining factor.

  • A mere expression of an intention to resign in the future is insufficient; the reasonable bystander must understand that the speaker is actually resigning at that point in time (whether with notice or not).

  • The resignation must be perceived by the reasonable bystander as 'seriously meant,' 'really intended,' or 'conscious and rational.'

  • Evaluation should focus on whether the words reasonably appear to have been 'really intended' at the time they were spoken.

  • Post-event evidence is relevant, but the longer the time that elapses, the more likely it’s indicative of a subsequent change of mind (rather than the intention at the time).

  • Determining which side of the line a case falls on is a factual inquiry left to the discretion of the tribunal in each instance.

Learnings from this case:

This EAT ruling highlights the importance of objectively assessing the circumstances surrounding a resignation made in the heat of the moment. While a unilateral retraction may not always be possible, in some circumstances it is.

If employers make the wrong call, you could end up inadvertently facing an unfair dismissal claim.



2. Redundancy – employers must consult before scoring & selection

In Joseph de Bank Haycocks v ADP RPO UK Limited, the Employment Appeal Tribunal (EAT) ruled that the failure to consult with the workforce at a crucial stage regarding redundancy proposals resulted in an unfair dismissal.


Case overview:

The Claimant, along with the broader workforce, wasn’t consulted on redundancy proposals before the pooling and scoring process took place. In particular, the criteria for selection and the Claimant's own scores weren’t disclosed prior to his dismissal.

Interestingly, this information was provided during the appeal process. Often mistakes earlier in the process can be corrected at appeal stage, but unfortunately for the employer, that wasn’t the case here.


Tribunal decision:

The EAT emphasised that the absence of consultation at the formative stage rendered the dismissal unfair. It was underscored that, although an appeal could address certain deficiencies in the individual consultation process, it couldn’t get over the fundamental lack of consultation at the formative stage.

Drawing from previous legal precedents, the EAT outlined some key principles.


Key EAT (Employment Appeal Tribunal) principles to ensure fair redundancy consultation:

  • Employers typically need to warn and consult with affected employees or their representatives.
  • Fair consultation should occur at an early stage when plans are still being formed, providing employees with sufficient information and time to respond, while also considering those responses conscientiously.
  • The purpose of consultation is to either prevent dismissal or minimise the impact of redundancies.
  • The redundancy process should be considered as a whole, and an appeal may rectify earlier shortcomings (although, unhelpfully - not necessarily).
  • The adequacy of consultation depends on the specific circumstances, and the lack of consultation in a particular aspect doesn’t automatically make it unfair.
  • Specific elements of consultation, such as providing scoring information, aren’t inherently essential to a fair process.
  • The use of a scoring system alone doesn’t guarantee a fair process.
  • Whether it’s reasonable to reveal an employee's scores in comparison to others in a pool is a case-specific determination.

Learnings from this case:

This case reinforces the importance of timely and comprehensive consultation in redundancy processes. It highlights that trying to fix early problems later on in the appeal stage may not fully make up for the lack of consultation at the initial formative stage.

In other words, employers really do need to try to get things right in the first place.


3. Employee who used racial term was unfairly dismissed

We often encounter cases that challenge our understanding of fairness and discrimination in the workplace, and Borg-Neal v Lloyds Banking Group PLC is no exception.

This 2023 employment tribunal decision sheds light on the intricacies of managing language and addressing misconduct.


Case overview:

Meet Mr. Borg-Neal, a manager at Lloyds Banking Group plc. During a race education training session conducted by an external provider, he posed a question that triggered a significant debate. Mr. Borg-Neal asked how a line manager should handle a situation in which they hear someone from an ethnic minority use a potentially offensive term. He specifically cited the example of the 'n-word' in the black community, using the word in full.

Following an internal investigation, Mr. Borg-Neal found himself facing disciplinary action for his use of offensive language and was subsequently dismissed for gross misconduct. He brought multiple claims against the Bank, including unfair dismissal, discrimination arising from disability, and direct race discrimination.


Tribunal decision:

The employment tribunal carefully considered the case, highlighting the importance of context. While acknowledging that an employer could view Mr. Borg-Neal's language as misconduct, the tribunal emphasised the broader circumstances. Mr. Borg-Neal had used the word once and had immediately apologised. His question, though sensitive, was well-intentioned, seeking guidance on addressing unacceptable language. The tribunal found that the Bank's belief that his actions constituted gross misconduct was unreasonable, and the investigation was deemed inadequate.

The tribunal noted that the dismissing manager had conflated two crucial questions: whether the word should have been used and whether Mr. Borg-Neal deserved dismissal for using it. Mr. Borg-Neal's swift and sincere apologies, coupled with his evident willingness to learn from the incident, led the tribunal to conclude that his dismissal was unjust.

Learnings from this case:

This case underscores the significance of considering context when addressing language-related issues in the workplace. While offensive language can’t be condoned, understanding the intent behind it and the employee's willingness to learn from their actions is equally important.

Inclusive and effective workplace policies should encompass reasonable and proportionate responses to such incidents, taking into account the full spectrum of circumstances. Additionally, recognising and accommodating employees' disabilities is crucial in promoting an inclusive work environment.



6 ways SMEs can avoid potential unfair dismissal claims

You’ve identified a potentially fair reason for dismissal – you now need to ensure you follow a fair process before you can protect your business from a claim.


1. Fair process:

  • Clearly communicate expectations: Set clear expectations regarding performance, conduct, and any potential consequences.

  • Investigate thoroughly: Before taking disciplinary action, conduct a fair and impartial investigation to gather all relevant facts.

  • Provide a right to be heard: Allow the employee an opportunity to present their side of the story before making a decision.

  • Follow procedures: Adhere to company disciplinary procedures and, where applicable, the ACAS Code of Practice on disciplinary and grievance procedures. This Code also applies to capability dismissals, but not redundancy, illegality or some other substantial reason.

2. Consistent application:

Consistency is key: Apply procedures consistently across all employees to avoid claims of unfair treatment and even potentially discrimination.


3. Document everything:

Document all stages of your process, including meetings, warnings and decisions.


4. Redundancy procedures:

In redundancy situations, engage in meaningful consultation with affected employees, exploring alternatives and providing necessary support. Where 20 or more employees are affected, additional, collective obligations kick in.


5. Seek legal advice:

Seek legal advice when navigating complex dismissal scenarios, especially when dealing with unique or contentious cases.


6. Continuous training:

Ensure managers are well-versed in employment law and the company's policies, promoting fair and consistent application.


Protecting your small business against unfair dismissal

The application of a fair process and adherence to legal guidelines not only protects employers legally, but also contributes to a healthy, productive work environment.

By embracing a proactive and fair approach to employment decisions, employers can lessen the risk of unfair dismissal claims, and create a positive workplace culture built on transparency, fairness and mutual respect.

Unfair dismissal cases show the importance of careful considerations in resignation scenarios & redundancy consultations, along with the fundamental need to follow a fair procedure in every type of dismissal scenario.

Tessa Robinson is a Senior Associate Lawyer at Outset & Breathe’s guest employment law expert.


Author: Tessa Robinson - Senior Associate Lawyer at Outset & Breathe's employment law expert

Tessa joined the Outset Group in 2022 and has quickly become a trusted and key member of the team. With her down-to-earth, friendly approach, Tessa delivers exceptional expertise in employment law and business immigration matters, with a particular interest in data protection. Tessa has assisted a number of clients on large project-based work, including defending employment tribunal claims, running collective consultation projects, conducting whistleblowing investigations and dealing with data protection matters. Tessa is able to quickly identify the root of a problem and come up with creative, practical and commercial solutions, all delivered in an approachable way. Outside of work, Tessa is usually found at the stables with her two horses, or snuggling with her cats at home, and occasionally she finds time for something else - like a skiing holiday.

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