Guide to Employee Termination in the United Kingdom
Your up-to-date guide for employee termination in the United Kingdom in a fair, legal and practical manner for international HR leaders and business owners.
Common reasons for termination include conduct, capability or performance issues, redundancy, statutory restrictions (for example, loss of a work permit), or another substantial reason that justifies dismissal. However, even if a valid reason exists, the dismissal can still be deemed unfair if the employer fails to act reasonably, for instance, by skipping warnings, failing to investigate, or not allowing the employee to respond.
For international employers, UK dismissal rules can appear deceptively straightforward but are highly procedural in practice. Whether you are managing underperformance, redundancy, or a mutual separation, every step, from written notice to consultation, must comply with statutory and case law requirements.
This guide explains the main legal grounds for dismissal, the procedures employers must follow, and the rights employees hold under UK law as of 2025. It also covers notice periods, redundancy obligations, severance payments, and the potential risks of non-compliance.
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Grounds for Dismissal in the United Kingdom
In the UK, an employer cannot dismiss an employee without a fair and lawful reason. The grounds for dismissal are defined under the Employment Rights Act 1996, and employers must be able to show both:
- A valid reason for termination, and
- That a fair process was followed before deciding to dismiss.
If either element is missing, the dismissal may be challenged as unfair at an employment tribunal.
Statutory Fair Reasons for Dismissal
1. Conduct or Misconduct
Covers disciplinary issues such as dishonesty, harassment, or repeated breaches of company policy. Employers must investigate allegations, hold a disciplinary hearing, and give the employee an opportunity to respond before deciding on dismissal.
In some cases, however, the misconduct may be so serious as to justify summary dismissal. This is known as gross misconduct. Gross misconduct can be legally defined as behaviour so serious that it breaks the trust between employer and employee, making continued employment impossible.
Examples include theft, fraud, violence, serious insubordination, or major health and safety breaches.
If a proper disciplinary process confirms such conduct, the employer may carry out a summary dismissal, ending employment immediately without notice or pay in lieu.
However, even in these cases, employers must ensure the procedure is fair and evidence-based, as employees with over two years’ service can still challenge the dismissal as unfair.
2. Capability or Performance
Applies when an employee consistently fails to meet reasonable performance standards or lacks the necessary skills for their role. Employers are expected to provide support, feedback, and reasonable time to improve. This is often done through a formal performance improvement plan (PIP).
Another aspect here is long-term illness. An employee may be fairly dismissed for long-term illness if their health prevents them from performing their job effectively.
However, dismissal should always be a last resort. Employers are expected to explore reasonable adjustments first, such as modified duties, reduced hours, or workplace adaptations based on an occupational health assessment.
If no practical adjustments can be made and the employee remains unable to work, termination may be considered fair.
That said, dismissing someone because of a disability could amount to unlawful discrimination unless the employer can prove that all reasonable steps to support them were taken.
3. Redundancy
A redundancy arises when a role is no longer needed. For example, due to restructuring, business closure, or technological change. Redundancy has its own statutory process, including consultation and notice, discussed later in this guide.
4. Statutory Restriction
An employer may dismiss an employee if keeping them in the role would breach the law. For example, where the person has lost their right to work in the UK.
Before proceeding, the employer must verify the facts, not rely on assumptions, and give the employee an opportunity to explain their situation.
If the right to work is lost, dismissal without notice may be justified if the contract allows it; otherwise, payment in lieu of notice (PILON) can be offered.
To ensure fairness, employers should document the reason, follow due process, and confirm the employee’s right to appeal.
Failure to manage such cases properly can expose the business to significant penalties, especially in cases of having illegal workers in employment with fines of up to £20,000 per illegal worker.
5. Some Other Substantial Reason (SOSR)
For an SOSR dismissal to be considered fair, the employer must show that the reason was genuine, substantial, and not minor, and that they acted reasonably in all the circumstances. This includes following a fair process, consulting the employee, giving proper notice, and allowing an opportunity to appeal.
Typical examples of SOSR dismissals include business reorganisations that do not meet the strict definition of redundancy, conflicts of interest that make impartiality impossible, irretrievable breakdowns in trust and confidence, or cases where a client insists on the removal of an employee. It may also apply in so-called “fire and rehire” situations, where an employee refuses to accept new contractual terms.
Unfair Dismissals
A dismissal is considered unfair if the employer ends employment without a fair reason or without following proper procedure.
In many cases, disputes arise because employers fail to give the correct notice period or notice pay, breaching the terms of the employment contract.
Employees generally need two years of service to make an unfair dismissal claim. under the Employment Rights Act 1996. Under the proposed Employment Rights Bill 2025, protection from unfair dismissal is expected to become a right from the first day of employment starting in 2027.
A dismissal may be deemed unfair if:
- The employer fails to show a fair statutory reason (conduct, capability, redundancy, etc.),
- The decision to dismiss was unreasonable in the circumstances, or
- The employer failed to follow the ACAS Code or company disciplinary procedures.
If the tribunal finds the dismissal unfair, the employee may be entitled to:
- Reinstatement (returning to the same job),
- Re-engagement (offered a comparable position), or
- Compensation, which can include:
- A basic award (calculated like statutory redundancy pay), and
- A compensatory award, covering lost earnings and benefits, capped at £118,223 or 52 weeks’ pay (whichever is lower, as of 6 April 2025).
Protected Employees & Special Cases
In these cases, no qualifying service period (usually two years for other cases) is required. In such instances, employees can make a tribunal claim immediately.Employers cannot defend the dismissal based on reasonableness, it is automatically unlawful.
a) Pregnancy, Parental Leave, and Family Rights
It is automatically unfair to dismiss an employee for reasons related to:
- Pregnancy, maternity, or paternity leave,
- Adoption or shared parental leave, or
- Time off for dependants.
b) Whistleblowing and Health & Safety Reporting
An employee cannot be dismissed or treated unfavourably for reporting wrongdoing (whistleblowing) or raising health and safety concerns.
Dismissals for such reasons are automatically unfair, with no minimum service requirement.
Protected disclosures can relate to illegal conduct, regulatory breaches, or public health risks (ACAS).
c) Trade Union Membership and Representation
Employees are also protected from dismissal linked to:
- Trade union membership or participation in union activities, and
- Serving as a union representative or employee representative during collective consultations.
d) Fixed-Term and Part-Time Employees
Fixed-term and part-time employees have the same protection against unfair dismissal as permanent, full-time staff.
Ending a fixed-term contract early, or not renewing it, can amount to dismissal and must be supported by a fair reason (e.g., project completion, funding expiry) and a fair process.
Employers must also avoid treating these workers less favourably in terms of redundancy selection or compensation.
e) Employees on Sick Leave or with Disabilities
Dismissing an employee on long-term sickness absence or with a disability requires a careful balance between operational needs and equality obligations.
Employers must:
- Explore reasonable adjustments to help the employee return to work,
- Obtain up-to-date medical evidence, and
- Consider redeployment or reduced duties before deciding on dismissal.
f) Constructive Dismissal
Constructive dismissal occurs when an employee resigns because the employer has fundamentally breached the contract, making continued employment impossible.
If proven, the employee can claim unfair dismissal as though they had been formally terminated.
Common examples include:
- Unreasonable demotion or pay reduction
- Bullying or harassment ignored by management
- Unsafe working conditions
- Significant change in job duties without consent
To succeed in a claim, the employee must prove that the breach was serious enough to justify resignation and that they did not delay too long before leaving
Tribunal Claims and Time Limits
However, under the proposed Employment Rights Bill 2025, the government plans to extend this time limit to six months for most employment-related claims, aiming to improve access to justice for workers.
Tribunals can order compensation, reinstatement, or re-engagement depending on the circumstances.
Following the ACAS Code of Practice is essential, if an employer unreasonably fails to comply, tribunal awards can increase by up to 25%.
Mutual Agreement and Settlement
Employment can also end by mutual consent, often through a settlement agreement (which used to be called a compromise agreement).
This is a legally binding contract in which the employee agrees not to pursue any claims, usually in exchange for a negotiated payment. To be valid, the employee must receive independent legal advice, and the agreement must clearly state which claims are waived.
Termination Procedures in the United Kingdom
Even when an employer has a valid reason to dismiss an employee, they must also follow a fair and reasonable process. Failing to do so can render a dismissal procedurally unfair, regardless of the underlying reason.
The UK’s standards for fair procedure are set out primarily in the Employment Rights Act 1996 and the ACAS Code of Practice on Disciplinary and Grievance Procedures.
The general rule is simple: the more serious the reason for dismissal, the more carefully the employer must follow due process.
Conduct and Misconduct Cases
When dismissal is due to misconduct, employers are expected to:
Investigate the issue – gather evidence and interview relevant parties.
Inform the employee in writing – explaining the allegation and possible consequences.
Hold a disciplinary hearing – allowing the employee to respond, bring evidence, or be accompanied by a colleague or trade union representative.
Decide on an outcome – based on the evidence and proportionality (e.g. warning, suspension, or dismissal).
Allow an appeal – the employee must have an opportunity to appeal the decision.
Summary dismissal (instant termination) is only permitted in cases of gross misconduct, such as theft, violence, or serious breaches of safety or trust. Even then, employers must act promptly, explain their decision in writing, and document the reason.
Capability or Performance Dismissals
When termination relates to poor performance or incapability, the process must focus on support and improvement. Employers should:
Set clear performance expectations.
Provide regular feedback and written warnings.
Offer reasonable time and assistance to improve (such as training or a performance improvement plan).
Only if performance does not improve after these steps should dismissal be considered. Skipping these stages often results in a finding of unfair dismissal.
Redundancy Procedures
For redundancy dismissals, a separate legal process applies. Employers must:
- Identify genuine redundancy reasons (such as restructuring or closure).
- Consult affected employees and, where applicable, elected representatives.
- Use fair selection criteria (e.g. skills, performance, attendance, not age or gender).
- Provide written notice and redundancy pay where required.
If 20 or more employees are affected within a 90-day period, collective consultation rules apply (covered in the next section).
Settlement Agreements
A settlement agreement offers an alternative route where both parties wish to end employment amicably.
Employers often use this method to avoid protracted procedures or potential tribunal claims.
The agreement must:
Be in writing.
Specify the termination terms, including any payments.
State that the employee has received independent legal advice.
Identify the adviser and confirm insurance cover for the advice given.
Only when these conditions are met does the agreement become legally binding.
Notice and Documentation
Even after permission or agreement to dismiss, employers must issue:
- Written notice of termination, stating the end date and reason.
- A written statement of reasons if requested (and mandatory for employees with two years of service, or in cases of pregnancy or parental leave).
Documentation, including investigation notes, warnings, and correspondence, is essential to defend against tribunal claims.
Redundancy & Collective Dismissals
A redundancy occurs when an employee’s job no longer exists, for instance, due to business closure, reorganisation, or reduced need for certain work.
It is one of the fair reasons for dismissal under the Employment Rights Act 1996, but employers must follow a fair and transparent procedure to avoid claims of unfair dismissal.
What Counts as a Genuine Redundancy
A redundancy situation arises when:
The business or part of it is closing;
Work of a particular kind has reduced or ceased; or
The employer no longer requires employees to carry out work in a specific location.
Restructuring, outsourcing, automation, or relocation can all trigger redundancy situations, but employers must ensure the reason is genuine and evidence-based.
Fair Selection and Consultation
Before any redundancy decision is made, the employer must:
- Consult affected employees individually and, if applicable, collectively.
- Use objective selection criteria, such as performance, skills, and attendance (not personal characteristics like age, gender, or union membership).
- Consider alternatives, such as redeployment, retraining, or voluntary redundancy.
Failure to follow a fair selection process is one of the most common reasons redundancy dismissals are later ruled unfair.
Collective Redundancies
When an employer proposes to dismiss 20 or more employees at one establishment within a 90-day period, collective consultation rules apply under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
Employers must:
- Consult with employee representatives or trade unions before final decisions are made.
- Notify the Redundancy Payments Service (RPS) at least:
- 30 days before the first dismissal (if 20–99 employees are affected), or
- 45 days before (if 100 or more employees are affected).
- Provide written information on the reasons, numbers, selection criteria, and consultation period.
Failure to follow collective consultation rules can lead to a protective award of up to 90 days’ pay per affected employee.
Redundancy Payments
Employees with at least two years of continuous service are entitled to statutory redundancy pay, calculated based on:
- Age,
- Length of service (up to 20 years), and
- Weekly pay (capped at £719 from 6 April 2025).
The formula is:
- 1.5 weeks’ pay for each full year aged 41 or over,
- 1 week’s pay for each full year aged 22 to 40,
- 0.5 week’s pay for each full year under 22.
Many employers offer enhanced redundancy pay through contracts or collective agreements.
Redeployment and Alternative Work
Employers must explore reasonable steps to avoid redundancy, such as offering suitable alternative employment.
If the alternative is reasonable and the employee unreasonably refuses it, they may lose their entitlement to redundancy pay.
Notice and Documentation
Employees must receive written notice of redundancy, including:
- The reason for dismissal,
- Their notice period, and
- Details of redundancy pay and appeal rights.
Employers must also provide a written statement of employment particulars if requested.
Notice Periods, Final Pay, and Severance
When an employment contract ends, employers in the UK must follow statutory and contractual obligations concerning notice, final payments, and any severance entitlements.
Failing to do so can lead to wrongful dismissal claims, even where the dismissal reason itself was fair.
Statutory Notice Periods
Under UK law, both employer and employee must give a minimum statutory notice period before ending employment, unless dismissal is for gross misconduct.
For employers, the statutory minimum notice periods are:
- 1 week’s notice for employees with 1 month to 2 years of service
- 1 additional week per full year of service (up to a maximum of 12 weeks) for those with 2–12 years’ service
Employees are also required to give at least 1 week’s notice after one month of continuous service, unless the contract specifies a longer period.
Employers can choose to pay in lieu of notice (PILON), providing salary and benefits for the notice period instead of requiring the employee to work it.
Garden Leave
Some contracts include a garden leave clause, allowing employers to require the employee to stay away from work during the notice period while still receiving full pay and benefits.
This helps protect business interests, such as confidential information or client relationships, during the transition period.
Final Pay
At termination, employers must ensure that all outstanding payments are made, including:
- Salary or wages up to the final day of employment
- Accrued but untaken holiday pay
- Overtime or commission (if contractually due)
- Any agreed bonus or expenses owed
Failure to do so can give rise to unlawful deduction of wages claims.
Redundancy Pay
Employees with at least two years of continuous service are entitled to statutory redundancy pay, unless dismissed for misconduct.
Formula:
- 0.5 week’s pay for each full year under 22
- 1 week’s pay for each full year aged 22–40
- 1.5 weeks’ pay for each full year aged 41 or over
Employers may also offer enhanced redundancy packages under contractual or collective agreements. Redundancy payments under the statutory limit are tax-free up to £30,000.
Severance and Settlement Agreements
In cases where termination occurs by mutual consent, employees may receive severance pay under a settlement agreement.
Such agreements must:
- Be in writing
- Clearly state the payments and conditions
- Confirm that the employee has received independent legal advice
These payments often exceed statutory redundancy entitlements, compensating the employee for waiving their right to bring future legal claims.
Tax Treatment of Termination Payments
Under UK tax law, the treatment of termination payments depends on their nature:
- Statutory redundancy and ex-gratia payments are tax-free up to £30,000.
- Payments in lieu of notice (PILON) and holiday pay are taxable as normal earnings.
- Any compensation above £30,000 is subject to income tax, though not National Insurance contributions (HMRC).
How Beyond Borders HR Can Help
Employment termination in the United Kingdom demands more than just following procedure, it requires balancing business needs with compliance, fairness, and communication.
Even well-intentioned employers can face legal exposure if documentation, timelines, or redundancy calculations are mishandled.
At Beyond Borders HR, we support businesses through every step of the termination process. From planning and compliance reviews to employee offboarding and documentation.
Our expertise covers:
Reviewing termination grounds and risk factors
Drafting compliant notice letters and settlement agreements
Advising on redundancy, collective consultation, and redeployment
Ensuring alignment with ACAS and Employment Rights Act requirements
Coordinating final payments, tax treatment, and reporting obligations
For international companies, we also help align UK employment practices with broader global HR policies, ensuring consistency across jurisdictions without breaching local law.
Whether your business is handling a single dismissal or a large-scale restructuring, Beyond Borders HR ensures that every step is handled with clarity, compliance, and care, protecting both your organisation and your employees.
Need help handling UK dismissals with confidence? Chat to Beyond Borders HR for expert guidance.
