No Fault Dismissals - Commercial Strategy

A ‘No Fault Dismissal’ is a method of dismissing an employee on the giving of reasonable notice but without following any procedures. The method of which Sir Alan Sugar would be familiar with in the Apprentice when he simply states “you’re fired”.

As most employers are aware, the two main legal remedies open to an employee who is dismissed is 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 down side 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 based on the employee’s financial loss.

A “No Fault Dismissal” is simply where an employer tells an employee that he/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 ensure that no communication to the contrary is given to the employee from any management of the employer, 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 i.e. a “No Fault Dismissal”, once reasonable notice is given. It should be noted that ‘reasonable notice’ 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 and 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.

It must be remembered that an employer who dismissing 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. However, an award under the Unfair Dismissal Acts is based on the employee’s financial loss. Therefore an employer may be in the position to make a commercial decision to buy off the Unfair Dismissal claim, particularly if the financial loss is likely to be minimal, and by using a “No Fault Dismissal” the employer should avoid an injunction being granted and the employee will be no longer employed.

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