This edition’s FAQ’s examines some of the issues that arise when you dismiss or are contemplating dismissing an employee.
- How do we calculate how much notice to give an employee?
- Are all payments in lieu of notice taxable?
- Do we have to wait until the end of the probationary period before we dismiss an employee?
- Do we have to go through a fair procedure if our employee has less than two years’ service?
- Do we have to follow a strict procedure before sacking an employee for gross misconduct?
- Can we take expired warnings into account when deciding an appropriate penalty?
- What form should the appeal take? Do we have to undertake a rehearing?
1 How do we calculate how much notice to give an employee?
Once an employee has worked for you for one month or more, you must give them the amount of notice set out in their contract of employment to terminate their employment unless this is less than the minimum notice periods set out in law, or the employee has committed an act of gross misconduct and is not entitled to notice.
It is irrelevant whether the employee is paid weekly, monthly, fortnightly etc.
The minimum amount of notice (except in cases of gross misconduct) you must give to your employee is one week for each year of continuous employment, subject to a maximum of twelve weeks’ notice. For example, an employee who began work on 29 March 2006 is entitled to receive at least ten weeks’ notice and an employee who began work on 2 January 1980 is entitled to receive at least twelve weeks’ notice.
Difficulties can arise where the contract does not include an express clause setting out the notice required to terminate the contract. The Court or Tribunal will not simply imply that the period of notice should be the statutory minimum, but will investigate what the parties intended, and will determine what is “reasonable” in the circumstances.
This will depend on the role the employee was undertaking and the typical notice period that applies for that job in that industry, the notice period of any colleagues who have express contractual terms, the employee’s length of service and their salary or seniority. Cases that have been brought in the courts in the past have found that an office manager was entitled to three months’ notice; a company director was entitled to six months’ notice; and a director of international operations, to twelve months’ notice.
Irrespective of how much notice your employee is entitled to receive, you do not count the date on which notice is given as part of your calculation. For example, if you are required to give one week’s notice and do so on Monday 10 February, it will expire on Monday 17 February (which will be the last day of work). Where notice is expressed in months, a rule known as the "corresponding date" rule applies. This provides that a notice period of a month or months will end on the corresponding date in the relevant month. So, two months' notice given on 10 January will make 10 March the last day of employment.
2 Are all payments in lieu of notice taxable?
No, but the rules are complicated.
There are three broad categories to consider:
If the contract contains a payment in lieu of notice clause (known as a “PILON”) and you exercise this, tax and NI deductions should be made as this amount is treated as taxable income.
If the contract does not contain a PILON, but you regularly make PILON’s (such as they are considered to be an automatic response to a termination) this is likely to be treated as being taxable.
The only exception is where there is no PILON included in the contract of employment and the PILON is individually negotiated by the employee as part of their exit. In these cases the payment will be treated as damages for loss of notice and can be made currently without deduction of tax and NI, subject to it (and any other potentially taxable payments) not exceeding £30,000 in total.
If you are not sure whether tax is payable on a PILON you may be able to obtain advance clearance from HMRC (which is binding), or if this is not available, an opinion (which is not binding). This is an area that is the subject of a Government consultation and is likely to change going forward.
3 Do we have to wait until the end of the probationary period before we dismiss an employee?
Not normally unless the contract of employment expressly states that the employee’s employment will not be terminated during their probationary period. It is quite unusual to include such a term in a contract.
Provided no exclusion is included in the contract of employment you must give notice to terminate an employee’s contract. Once an employee has worked for you for one month or more, you must give them the amount of notice set out in their contract of employment, unless this is less than the minimum notice periods set out in law, or the employee has committed an act of gross misconduct and is not entitled to notice.
4 Do we have to go through a fair procedure if our employee has less than two years’ service?
Employees generally need two years’ service to bring a claim for unfair dismissal and providing there is no discrimination or whistleblowing involved (or anything else that does not require two years’ service to bring a claim) or your disciplinary procedures are contractual and thereby you are required to follow them or face a claim for breach of contract, you are free to dismiss an employee without going through a particular procedure if they do not qualify to bring a claim.
However, it is good practice not to act immediately and instead to follow a fair procedure as set out in the ACAS Code of Practice by carrying out an investigation, explaining to the employee in advance what they are accused of and giving them the opportunity to state their case before reaching a decision. It is also good practice to offer the right of appeal. Please note that employees can also add on the statutory minimum period of notice on for the purposes of calculating the effective date of termination if you have no right to pay the individual in lieu of notice so you would need to be careful if close to the two-year window.
5 Do we have to follow a strict procedure before dismissing an employee for gross misconduct?
The conduct of an employee dismissed for gross misconduct must be so serious that it allows their employer to fairly dismiss them without notice and without having issued any prior warnings. Typical examples are fighting at work, theft or fraud.
As indicated above, employees generally need two years’ service to bring a claim for unfair dismissal and providing there is no discrimination or other matters like those mentioned above involved, you are free to dismiss an employee for gross misconduct without going through a particular procedure if they do not qualify to bring a claim.
Employees with two years’ service can however claim unfair dismissal and you will need to follow a reasonable procedure before dismissing, even in circumstances where you believe you have enough evidence to establish guilt (such as if you catch your employee putting money from the till into their pocket) and would like to dismiss the employee ‘on the spot’.
This is because the employee might have a reasonable explanation for their actions. In the above example the employee might be able to show that she used her own money to provide change to a customer and then reimbursed herself when there was more money in the till. In these circumstances, a reasonable employer would be expected to carry out an investigation to find out whether the till did balance. If it did, the employee’s actions may still constitute misconduct but not gross misconduct and an appropriate warning and training could be a reasonable response.
Different employers will take different approaches to whether or not something constitutes misconduct or gross misconduct. For example, in a work place where health and safety is of paramount importance, a breach of a health and safety policy is likely to be regarded in a far more serious light than in other organisations.
It is helpful to include examples of unacceptable conduct that might warrant dismissal without notice in your handbook and disciplinary policy and make sure that these are clearly communicated to your staff. These should reflect the nature of your business and should be reviewed regularly.
However, this is not the end of the story and an Employment Tribunal can still find that dismissal for an action stated in the policy to constitute gross misconduct is, in fact, unfair. This is because the conduct itself has to be capable of amounting to gross misconduct - it is not enough for the policy to simply stipulate that it does.
Even if you do find that one of your employees has committed an act of gross misconduct, you are not required to dismiss them. This is an option available to you but you should still consider alternatives such as imposing a final written warning or demoting the employee (the employee will have to agree to a demotion unless you have a contractual right to do this, but may be willing to do so rather than to lose their job).
Finally, it is worth remembering that even if you don’t follow a ‘perfect’ procedure when dismissing someone, you may not have to write too big a cheque! Employment tribunals can reduce compensation paid to employees who are unfairly dismissed (down to zero if they want to) if they believe that the employee contributed to their dismissal through their conduct, or that following a ‘proper’ procedure would still have resulted in a dismissal.
6 Can we take expired warnings into account when deciding an appropriate penalty?
No. You can only usually take into account a live warning on the employee’s personnel file when deciding on the appropriate penalty. This is judged on the date of the conduct – NOT the date when you make the decision about the sanction. For example, if an employee swore at a customer on, say, June 5 and, at that time, there was a misconduct warning which expired on 30 June, it could be taken into account, even if the decision was not made until July.
There is a limited exception to this, which applies if the employee’s conduct or capability was so serious that you would be able to dismiss them anyway. This is because, even in cases of gross misconduct, you are not required to dismiss. For example, you have three employees who have a fight at work and you believe they are all at fault and bring disciplinary action against them for gross misconduct. One of the employees has a number of old warnings on their file and the other two have clean records. It will potentially be fair to dismiss the employee with expired warnings (particularly if these were conduct related) and issue final written warnings to the other two with clean records if you believe that it is appropriate not to issue further warnings.
7 What form should the appeal take? Do we have to undertake a rehearing?
If the employee wishes to appeal against any disciplinary sanction, they should be asked to set out their grounds of appeal in writing and to follow any other steps set out in your policy.
There are two broad ways in which an appeal can be conducted. One approach is to review the decision and evidence available at the original hearing and the other is to undertake a complete rehearing (including calling witnesses etc).
However, these terms are not always helpful and the starting point for an employer is to make sure that the disciplinary process (both the original hearing and the appeal) has been conducted fairly.
The manager conducting the appeal should not usually have been involved in the earlier hearing or investigations. They should have access to the evidence compiled during the investigation and copies of the notes from the disciplinary meeting. They should not confer with the initial decision-maker prior to the appeal meeting (unless needed to clarify a particular matter) as this may lead to a biased view being taken before the employee has presented their arguments on appeal.
If new evidence emerges you should provide this to the employee ahead of the meeting and give them the opportunity to comment on it. Similarly, if the employee provides new evidence (such as a new witness) you should hear their evidence and may have to adjourn the hearing if further investigations prove necessary.
Most employers do not allow their staff to raise a further appeal, but if your policy provides for this, you must deal with the appeal in accordance with your policy.
Employment Law Update - September 2016