Exiting out employees effectively

Written by
Changeboard Team

09 Aug 2010

09 Aug 2010 • by Changeboard Team

What constitutes unfair dismissal?

It's sometimes important for the efficient functioning of the business and for team morale for these employees to leave the business. However, employment law provides serious limitations on the circumstances in which employees can be dismissed. 

The main risk for employers is a claim for unfair dismissal which has a maximum value of £65,300 as compensation for loss of earnings, in addition to a basic award equivalent to statutory redundancy pay. Employees can only bring unfair dismissal claims if they have been employed continuously for one year, although it's permissible for the employee to add their week’s statutory notice to their period of continuous employment. If the employee has worked for substantially less than one year, they cannot generally claim unfair dismissal, however employers should also always watch out for potential discrimination claims that do not require any period of continuous employment. 

Faced with the risk of an unfair dismissal claim, there are three broad strategies that employers can adopt for managing the exit of an unsatisfactory employee: disciplinary process, redundancy or negotiating exit packages.

Performance management & disciplinary

It's open to employers to set challenging performance standards for employees and then measure employees against these standards. The standards should be applied in a broadly consistent way and must be achievable, but if an employee fails to meet a reasonable standard of performance, then it's open to an employer to follow a disciplinary process. 

Aside from cases of gross misconduct where it may be permissible to dismiss an employee for one serious breach of discipline, in most cases, an employer is expected to follow a process of warnings before dismissal. 

The disciplinary process

As a minimum standard, employers are normally expected to give a first written warning and then a final written warning. The employee should be given a reasonable period of time to improve following each warning and should be subject to a fair process of monitoring. It's important that disciplinary warnings and final dismissal decisions are only given after a properly convened disciplinary hearing with the opportunity to appeal. 

The problem with the disciplinary process is that it's a lengthy process and often has a negative impact on employees who might already be difficult individuals. In practice, it's common for employees facing disciplinary procedures to take time off work suffering from stress or to raise formal grievances. In these circumstances, lawyers are often hesitant to recommend that employers start a formal disciplinary policy and it's often better to consider whether there might be a potential redundancy situation.

Exiting out employees through redundancy

One of the positive features of employment law, from the point of view of employers, is that they are generally entitled to reorganise their business however they see fit. It's open to an employer to create a new business structure and the merits of any business reorganisation are not generally open to Challenge at the Employment Tribunal. In these circumstances, it's sometimes possible for an employer to reorganise their business and part company with unsatisfactory employees who are no longer required in the new business structure. 

In general terms, there are two practical alternatives to selection for redundancy. The first alternative is that the unsatisfactory employee is occupying a unique position which is no longer required. It may be that the responsibilities in that unique position are diverted to a number of different employees, but there is still a genuine redundancy situation. In these circumstances, there will be no difficulty justifying redundancy selection. 

The second alternative is where the unsatisfactory employee is one of a number of employees undertaking similar work and the overall number of those employees is to diminish. In these circumstances, the employer will need to adopt reasonable selection criteria and apply these criteria fairly between employees. It 's important to get legal advice, but it is a relatively straightforward matter. Whatever the basis for selection, it's important to follow a fair consultation process which generally involves two or three meetings over a two-week period during which the employee is on gardening leave. 

Negotiating exit packages

In some cases, the only option open to an employer is to approach the employee and offer them a sum of money to leave the business. In typical cases, this could be three or four months pay, subject to a settlement agreement (known as a compromise agreement) under which the payment is accepted as full and final settlement of any claims against the company. The settlement payment can generally be tax free, provided that it's not notice pay. 

The difficulty with this approach is that the offer of settlement to the employee will generally be ‘on the record’, even if the conversation is stated to be without prejudice and off the record. This means that if the employee is not prepared to be sensible about negotiations, then the fact that an offer was made can be presented to future Employment Tribunal as evidence of unfairness in any subsequent redundancy or disciplinary process. 

In these circumstances, the employer should generally have a reserve strategy available before approaching employees with a potential exit package. It's common for employers to start by notifying an employee that they are considering a redundancy process or a disciplinary process and then offer the employee an exit package as an alternative to going through that process. The offer of settlement is often attractive to employees because it will sometimes involve a reference as well as a significant tax free sum. 

Seek advice before taking action

It's important to appreciate that the law in this area is complex and it's essential for employers to take advice before going down a disciplinary route, redundancy process or negotiation process. 

This article gives a general overview only and the legal position at the time of writing this article. It cannot be relied upon in any particular case. Specific legal advice must always be considered to include consideration as to whether the legal position contained in this article has changed since going to print.