Constructive & Unfair Dismissal claims

The Employment Rights Act 1996 (ERA) provides that employees must not be unfairly dismissed. Generally, an employee must have two years' service to be eligible to make a claim for unfair dismissal. However, there is no qualifying period for unfair dismissal in certain cases, including pregnancy-related dismissals, discrimination and whistle blowing. An unfair dismissal claim must be brought within three months of the effective date of termination.

There are five potentially fair reasons for dismissal. These are conduct, capability, redundancy, illegality or some other substantial reason. There are also various automatically unfair reasons for dismissal including: pregnancy, maternity leave, disability, union membership and jury service. The employer will not be able to defeat a claim if the tribunal finds that the dismissal was for one of these automatically unfair reasons.

In addition to showing that the reason for dismissal was fair the employer must act reasonably and follow a fair procedure. It is possible to summarily dismiss an employee who commits an act of gross misconduct (for example theft or fighting at work). However, the employer should have in place a procedure (including investigations, warnings and disciplinary hearings) to deal with such acts as well as less serious issues. It is recommended that employers implement policies and practices in line with the Advisory, Conciliation and Arbitration Service (ACAS) statutory Code of Practice. Failure to comply with the ACAS code can lead to a 25 per cent uplift in the compensation awarded to a successful claimant.

One of the fundamental differences between UK and Chinese employment law is that a UK employee can claim they have been unfairly dismissed even if the employer has not taken steps to dismiss them. If the employee can show he or she was entitled to resign due to the conduct of the employer, (e.g. a change in their role, bullying or discrimination in the workplace or anticipation of some other major breach of contract by the employer), he or she can resign and claim unfair 'constructive' dismissal under the ERA. This concept of constructive dismissal is often used by claimants in the Employment Tribunal but the claimant must show that he or she was constructively dismissed and also that the dismissal was unfair. Also, the same rules on qualifying service apply as for ordinary unfair dismissal.

Compensation for successful unfair dismissal claims

The Employment Tribunal can order the employer to reinstate the employee, but this is very rare in practice. Most successful cases result only in an award of compensation.

There are two awards of compensation: the basic award and the compensatory award. The basic award is calculated by multiplying the employee's weekly pay (currently up to a maximum of £450) by the number of years they have served (maximum 20 years' service). Note that the calculation also takes into account age, so employees over the age of 41 will get one and a half weeks' pay for each year of employment, whereas those under the age of 22 will only get half a week's pay for each year. This means the maximum basic award is currently £13,500.

The compensatory award is made at the discretion of the Employment Tribunal and will be calculated as a "just and equitable" sum based on the loss caused to the claimant as a result of the unfair dismissal. These losses can include earnings, bonuses, commission, benefits, pension rights, travel costs and statutory rights. The compensatory award is capped. The maximum award is reviewed by the government each year and is currently set at £74,200. The average award is around £9,000.

The successful claimant is under a duty to mitigate their loss, in other words show that they have taken reasonable steps to find new employment. The Tribunal will reduce the compensatory award if the employer shows that the claimant has taken insufficient steps to mitigate their loss. The compensatory award can also be reduced taking into account any payments made by the employer when the claimant was dismissed, any earnings the claimant has made from fresh employment and any contributory fault on the part of the employee.

Discrimination

The law on discrimination is very well established in the UK is now consolidated in the Equality Act 2010. Employees are protected against discrimination on the grounds of sex, marital status, civil partnership, race, religion/belief, disability, sexual orientation, pregnancy, gender reassignment and age. Employers are bound by these discrimination laws not just during the employment relationship, but also during the recruitment process and even after the employment relationship ends. Unlike the law on unfair dismissal there is no qualifying period of employment in order to make a discrimination claim.

Compensation in discrimination cases is uncapped. However, damages are calculated according to the loss suffered by the claimant. Diversity training for staff and implementing a diversity/equal opportunities policy to avoid discrimination in the workplace are essential for all companies employing staff in the UK who wish to be able to defend discrimination claims successfully.

Redundancy

Employees made redundant after at least two years of service are entitled to a statutory redundancy payment.

A redundancy must be 'wholly or mainly attributable' to the employer ceasing the business in which the employee is employed, ceasing business at the place where the employee is employed or reducing the workforce. The employee will be entitled to a statutory redundancy payment calculated on the basis of their age, pay and length of employment. The employee may lose their right to a statutory redundancy payment if they unreasonably refuse an offer of suitable alternative employment.

Employers must comply with several conditions when making redundancies, including consulting with affected employees and applying objective selection criteria. The employer must also look for alternative employment for the employee within their business. The employer is always under a duty to consult employees individually when a redundancy is proposed. If an employer proposes to make 20 or more employees redundant in a period of 90 days or less, it must also inform and consult with a recognised trade union or, if there is no union, with elected employee representatives, with a view to avoiding redundancies. Failure to comply with these obligations may lead to the employment tribunal ordering the employer to pay a penalty of up to 90 days' pay per affected employee. While such collective consultation is mandatory, crucially, no consultative body has the right to veto the employer's actions and union recognition is largely voluntary meaning industrial action to oppose changes is relatively rare. However, employers are advised to seek legal advice before implementing a redundancy procedure.

Employment Tribunal claims and settlement

Employees can make claims in the Employment Tribunal (a court established specially to deal with workplace disputes) in person or with legal representation. The Tribunal system is designed to be low cost and accessible for employees. There is currently no charge for bringing a claim, although charges will be introduced later this year.

The majority of Employment Tribunal claims are resolved before the formal hearing stage. Many employers use the option of a compromise (or settlement) agreement with a departing member of staff to avoid claims being brought in the first place. Such agreements provide that the employee will not bring any claims against the employer in exchange for a payment from the employer. The parties are free to include other terms, usually including a confidentiality clause and a reference for the departing employee. Once a compromise agreement is signed, the employer is fully protected from all claims listed in the agreement (which will typically include unfair dismissal, redundancy and all forms of discrimination).

If an employer wishes to resolve a claim that has already been lodged with the Employment Tribunal, then a COT3 settlement concluded through ACAS can be used to settle the claim. COT3 settlement agreements are generally shorter than compromise agreements, and once agreed have the same effect of ending the claims covered by the agreement.

Transfers of business

Transfer of Undertakings (Protection of Employment) Regulations (TUPE) apply to many mergers and acquisitions in the UK and provide that responsibility for the employees working in a purchased business will transfer on the same terms and conditions (excluding some pensions provisions) to the new owner.

Employers are required to inform and consult with employee representatives about the transfer. Employees have the right to opt out of the transfer, which will be treated like a resignation. Transfer related dismissals are automatically unfair unless they are for an economic, technical or organisational (ETO) reason entailing change in the workforce. Changes to affected employees' terms and conditions made in connection with the transfer, even if agreed with the employee, will only be valid if the changes are for an ETO reason. This means that any attempt to "harmonise" terms and conditions for transferring employees with existing employees is likely to be unlawful.

Conclusion

The UK presents exciting opportunities to Chinese investors, but companies looking to employ workers in the UK need to understand and comply with the extensive employment rights outlined above to avoid disputes with employees. Therefore seeking legal advice before employing workers in the UK is essential.