Termination of Employment Relationships by Dismissal

Table of Contents

1 Introduction

2 Employment Law in the UK and Germany

3 Termination of Contracts by the Employer in the United Kingdom
3.1 Dismissal by Notice
3.2 Wrongful Dismissal
3.3 Unfair Dismissal
3.4 Constructive Dismissal

4 Termination of Contracts by the Employer in Germany
4.1 Ordinary Dismissal
4.2 Dismissal for Good Cause

5 Conclusion

6 References

1 Introduction

Employees are the most important asset in every business as they are the driving force behind a company’s success. However, there are also certain situations where an employee’s conduct or lack of knowledge severely harms a business. Therefore, employers need ways to unilaterally terminate the employment relationship with an employee (Konnert, 2005). The termination of a contract by an employer is also known as dismissal.

As a dismissal is a one-sided action by the employer, the employee needs to be protected from this action in case the employer takes advantage of his power. This protection is usually granted through the legislation in a country.

This report will therefore critically analyse the possibilities for an employer to unilaterally dismiss an employee in the United Kingdom and Germany. In doing so the different types of dismissal will be presented and a further focus will be on the options employees have to protect themselves from being unfairly dismissed. Prior to this, the report will briefly comment on the employment law in the United Kingdom and Germany.

2 Employment Law in the UK and Germany

The British employment law comprises two main sources of law – “judge-made law in the form of the common law” and statute-based law “either in the form of Acts of Parliament or in the form of statutory instruments” (Welch and Strevens, 2013, p. 29) – according to the legal system in the UK. As the employment contract is primarily regulating the relationship between employer and employee, most of the principles of contract law apply (Welch and Strevens, 2013).

The major statutory Act regarding British employment law is the Employment Rights Act (ERA) 1996 (Welch and Strevens, 2013). Moreover, European Union law is also of importance as most of the British discrimination law is based on EU law (Welch and Strevens, 2013). Today there is a large amount of legislation in the UK that covers employment law due to many changes during the last decades, making it a very complex area (Jones, 2013).

Although German law can be characterised as codified law in contrast to British law, there is not a single act that regulates all matters of employment law. Rather different aspects of employment law are addressed in several acts. The key acts concerning German employment law are the Civil Code (Bürgerliches Gesetzbuch) 1896 that governs the employment relationship and the Protection Against Dismissal Act 1969 that protects employees from unfair dismissal (Blanpain et al., 2007). EU legislation likewise influences German employment law. Moreover, collective agreements and works agreements also play a vital role in Germany, yet they have to be in line with statutory standards. The sources of German employment law can be illustrated in form of a pyramid as can be seen in Figure 1. Although the laws located higher in the pyramid are of greater importance for German employment law, the law that is more beneficial for the employee is in effect as long as it is valid law.

Figure 1: Sources of German Employment Law

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Adapted from Elert and Brooks, 2013, p. 7

3 Termination of Contracts by the Employer in the United Kingdom

Under English law there are several ways to terminate a contract of employment. Besides terminating through the doctrine of frustration, most contracts of employment will be terminated through the actions of one or both parties (Welch and Strevens, 2013). The different forms of lawfully terminating an employment contract can be seen in Figure 2. However, this report will solely focus on the different types of dismissal.

Figure 2: Lawful Termination of Employment Contracts

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Adapted from Welch and Strevens, 2013, p. 133

3.1 Dismissal by Notice

A lawful way of terminating employment contracts for employers is to dismiss employees by giving proper notice. The statutory minimum period of notice that the employer must give to the employee is laid down by s.86 of the ERA 1996 and can be seen in Figure 3.

Figure 3: Minimum Period of Notice Required

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Adapted from Jones, 2013, p. 439

However, employer and employee can also agree on other notice periods in the employment contract that are lawful as long as they do not fall below the statutory minimum period of notice. If the employer dismisses an employee giving proper notice, “there can be no wrongful dismissal claim by the employee because the employer has acted within the terms of the contract” (Phillips and Scott, 2013, p. 62) regardless of the reason for the dismissal.

3.2 Wrongful Dismissal

At common law, a dismissal “without notice or with inadequate notice will constitute a wrongful dismissal” (Holland and Burnett, 2014, p. 213) because the employee was dismissed in breach of contract (Phillips and Scott, 2013).

A summary dismissal without prior notice is only lawful if the employee is guilty of a severe breach of contract by “behaving in a way that constitutes gross misconduct” (Welch and Strevens, 2013, p. 138). This is known as a `repudiatory breach´. As there is no standard test to examine whether misconduct is gross, courts often have to decide whether a dismissal was lawful. The case of Laws v London Chronicle Ltd 1959 2 All ER 285, where a personal assistant was dismissed without notice for wilful disobedience but made a complaint for wrongful dismissal, is a good example for this.

Although any employee who was wrongfully dismissed will have to accept the dismissal, he still can claim damages for wrongful dismissal and take the case either to a court or tribunal (Phillips and Scott, 2013; Jones, 2013). Damages “compensate the employee for the actual loss suffered as a result of the wrongful dismissal” (Welch and Strevens, 2013, p. 148). They usually consist of the salary that would have been earned by the employee if the contract had been terminated by the employer giving proper notice (Welch and Strevens, 2013) which was also confirmed by the case Boyo v Lambeth London Borough Council 1994 ICR 727. All employees can claim damages for wrongful dismissal if there was a breach of contract by the employer.

3.3 Unfair Dismissal

Claims for wrongful and unfair dismissal are quite different because they are based on different legal principles (Welch and Strevens, 2013). While wrongful dismissal is a common law remedy focusing on whether or not an employee was given proper notice regardless of the reason of dismissal, unfair dismissal is a statutory claim with its principles laid down in the ERA 1996. The key differences between the two claims can be seen in Figure 4.

To claim unfair dismissal the claimant needs to be an employee that has been continuously employed for the last two years by the employer and a dismissal must have taken place (Welch and Strevens, 2013). The employee has to claim unfair dismissal within three months after the effective date of termination (EDT). The EDT is “the precise date on which a dismissal took effect” (Welch and Strevens, 2013, p. 165) and the rules for the identification of this date are set out in s. 97(1) ERA 1996. Both the EDT and the exact date the contract commenced are needed to decide whether an employee has the right to claim unfair dismissal and the case of West v Kneels Ltd 1987 ICR 146 is a good example for this as the decision was often used to decide other cases. West commenced to work for the company on 23 July 1984 and was dismissed with a week’s notice on 15 July 1985 after she started her work on that day. The court argued that the 15 July was excluded from the notice period as West had already started to work. Therefore the contract effectively terminated on 22 July 1985 which qualified West for an unfair dismissal claim as she had the year’s continuous employment that was necessary until 2012.

Figure 4: Comparison of Wrongful and Unfair Dismissal

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Adapted from Welch and Strevens, 2013, p. 164

After having established whether an employee is entitled to claim unfair dismissal, an employment tribunal has to determine the actual reason for the dismissal and whether it was potentially fair according to s. 98 ERA 1996. Thereby the burden of proof to establish the reason for the dismissal is on the employer and will be satisfied “if the tribunal accepts that, on the balance of possibilities, the employer is telling the truth” (Welch and Strevens, 2013, p. 175).

According to s. 98 ERA 1996, the potentially fair reasons for dismissal concern the capabilities or qualifications of the employee, the conduct of the employee, redundancy of an employee’s job, statutory illegality or some other substantial reason. Afterwards, the tribunal has to decide if the dismissal was fair or unfair by determining whether the employer has acted reasonably or unreasonably taking all relevant circumstances into account (Welch and Strevens, 2013). As formal procedures are also taken into account, an employer is well advised to implement and communicate a consistent procedure based on the ACAS (Advisory Conciliation and Arbitration Service) Code of Practice on Disciplinary and Grievance Procedures (Welch and Strevens, 2013). Moreover, in the case of dismissal due to an employee’s gross misconduct, an employer should conduct a reasonable investigation “to ascertain whether the employee has committed any misconduct and, if so, what the surrounding circumstances were” (Welch and Strevens, 2013, p. 189). The importance of this was also underlined by the case British Home Stores v Burchell 1980 ICR 303.

Besides potentially fair reasons, there is also an automatically fair reason – dismissals due to an issue involving national security – but there are also automatically unfair reasons. A claim for an automatic unfair dismissal can be made by every employee regardless of the length of his employment as “the right not to be dismissed for an automatically unfair reason applies from day one of the employment contract” (Welch and Strevens, 2013, p. 173). A dismissal is considered automatically unfair if the reason is related to pregnancy or maternity, health and safety issues or the assertion of a statutory right for instance (Jones, 2013).

The range of remedies available for an unfair dismissal claim comprises reinstatement in the former position, re-engagement in a similar job and compensation that consists of a basic and a compensatory award (Holland and Burnett, 2014).

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