Forms of termination

All contracts of employment will at some point come to an end for all employees and surprisingly there are actually a lot of ways in which this can happen.

• Sometimes termination is planned and is under the control of the employer. This might happen where perhaps an employee has been suspended from work during a disciplinary investigation that concludes that the employee must be dismissed.

• Sometimes termination is unplanned and is not really under the control of the employer or the employee. This sort of situation can occur where the employer goes into liquidation or the employee dies unexpectedly, or perhaps in a situation where tempers are frayed at work one day and the employee storms off saying that they are never coming back.

The law has evolved to deal with these sorts of eventualities and also recognes of the fact that employment law is, to a large extent, a subset of contract law operating in an environment in which the parties to the contract are not necessarily in an equal bargaining position - but will probably work very closely with one another on a daily basis. Contract law has therefore contributed a significant amount to the legal position on termination of employment.

However, given that many employee rights are created by statute, it is to the statute or statutes in question that employment practitioners must also have due regard when considering the implications of the termination of a contract.

These are considerable and range from the right not to be unfairly dismissed in the Employment Rights Act 1996 to the right not to be dismissed in breach of the provisions contained in the Equality Act 2010, which prohibits, inter alia, discrimination because of a protected characteristic, ie age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex or sexual orientation.

Termination of employment is not therefore a subject that can be categorised into a neatly packaged area of law. The termination of a contract of employment may have many ramifications ranging from an employee bringing a claim for breach of contract or perhaps a claim for disability discrimination, to an employer considering whether or not it should provide an employee with a reference or whether or not it can enforce the restrictive covenants in that employee's contract of employment post termination.

The starting point is usually the contract of employment itself. However, it is sometimes the case that the terms of the contract are not certain. The employee may never have been provided with a contract or written statement or, if they have, it is likely to have changed in some respect over its lifetime and disputes can often arise in relation to contractual terms.

Dismissal

The word "dismissal" is central to employment law. It will cover situations that are not commonly described as "dismissals" in popular or colloquial language.

For instance, employees who have been made redundant often believe that they have not been dismissed, although in law they have been dismissed for reason of redundancy. Dismissal covers a range of situations including:

• the "traditional" dismissal or "being given the sack";

• resignation that is deemed to be a dismissal (i.e., constructive dismissal)

• expiry of a fixed-term contract that is not renewed

  
  

A "traditional" dismissal is communicated by the actions of, or words or writing from, the employer to the employee and will be either summary (without notice) or with notice.

When a dismissal is intended and is communicated by way of a written notice of termination there is usually little difficulty in establishing that the employee has been dismissed.

If the dismissal notice is sent in the post the notice will be communicated when the employee reads or could reasonably have been expected to read the letter.

However, where a dismissal arises out of equivocal words or actions of the employer, particularly where these take place in the heat of the moment, it may not be clear whether or not a dismissal has taken place.

The general rule is that, if a reasonable person would in the particular circumstances perceive the words or actions as amounting to a dismissal, they will constitute a dismissal. If the employee wrongly interprets them as a dismissal then they will be taken to have resigned. (It is also possible that the words or actions, although not a dismissal as such, were such as to destroy the mutual trust and confidence in the employment relationship and this could therefore convert the "resignation" into a constructive dismissal.)

Resignation

Once a lawful resignation has been given it cannot be withdrawn other than with the employer's express permission or where the resignation came in the heat of the moment.

An employee may resign at any time by giving proper notice under the contract.

Assuming that the employee has given proper notice and does not seek to argue that the resignation is in fact a constructive dismissal, there should be no further problems; the employee cannot claim wrongful or unfair dismissal or a redundancy payment.

There can be difficulties in knowing whether the words or actions of the employee do or do not amount to a resignation. This can cause considerable difficulty for the employer. As a general rule courts will seek to deal with any ambiguity by judging how a reasonable employer, in the particular circumstances, would interpret the actions or words in question.

If an employee purports to resign during a heated outburst using unambiguous words the employer is entitled to take these at their face value, as a resignation. However, the employee is entitled to some leeway and may be allowed to retract within a reasonable time if the words were spoken in anger. (A letter of notice may not always amount to a resignation if the wording is unclear and ambiguous.)

Constructive dismissal/repudiation of contract

A resignation by an employee in response to a serious breach or repudiation of the contract by the employer will entitle the employee to argue that they have been dismissed for the purposes of bringing a claim for breach of contract and for unfair dismissal.

(If the resignation is in response to alleged discrimination the employee may also seek to bring a claim under the relevant statutory provisions.)

Section 95(1)(c) of the Employment Rights Act 1996 provides that an employee is dismissed by their employer if the employee terminates the contract in circumstances in which they are entitled to terminate it without notice by reason of the employer's conduct.

The following are examples of conduct by the employer that have been considered sufficiently serious to constitute a repudiation entitling the employee to resign and claim unfair dismissal:

• failure to pay wages;

• harassment (including harassment by other employees);

• unilateral alteration of the employee's job content or status;

• humiliating employees in front of others;

• unwarranted demotion or disciplinary sanctions;

• falsely accusing an employee of misconduct or incapability;

• unilateral variation in contract terms, for example a change in hours or pay;

• requiring a substantial change in location;

• suspension without pay where the contract does not allow for this, and even with pay if for a prolonged period;

• failure to notify an employee on maternity leave of a vacancy for which they would have applied had they been aware of it;

• unfair refusal of a woman's request to work flexibly to meet childcare commitments; and

• failure to comply with the duty to make reasonable adjustments in relation to a disabled employee.

  
  

To succeed in bringing a claim for constructive unfair dismissal arising out of a repudiatory breach by the employer, it will not be enough for the employee to show that the employer has behaved unreasonably. They must show

• that the employer has committed a fundamental breach of contract or shows an intention no longer to be bound by it;

• that this was the reason they left;

• that they did not act too hastily;

• and that they did not delay too long.

An employer cannot rely on an industry norm, such as the "autocratic style of management" in the world of football, to justify what would otherwise amount to a breach of the implied term of trust and confidence.

An employee can claim constructive dismissal in response to action taken by the employer that is the "final straw" in a series of acts, even if the final act is not unreasonable when viewed in isolation. In these circumstances the final straw may be relatively insignificant but must not be utterly trivial and to succeed the employee must show that their employer's conduct was calculated or likely to destroy or seriously damage the relationship of trust and confidence between the employer and employee bringing the claim.

Mutual consent termination

As with any other contracts, the employment contract can be terminated by mutual consent between the parties. If terminated in this way the employee has no entitlement to claim unfair dismissal.

Courts and tribunals will, however, scrutinise the background to a "mutual termination" very carefully with a view to considering whether or not the form and the substance of the termination are consistent with one another.

If the facts surrounding the termination indicate that pressure was brought to bear by the employer on the employee to resign, it is likely to be determined that the employee was in fact dismissed.

This should, however, be contrasted with a situation in which the employee agrees to the termination of their employment because they find the terms of termination on offer from the employer to be acceptable.

In such cases there can be a very fine dividing line between termination by mutual consent and a dismissal by the employer.

To some extent this issue will be determined by reference to the bargaining position of the respective parties. The court or tribunal will be interested to know whether there was an equality of bargaining position between the parties or whether in reality the offer was presented on a take it or leave it basis and used as a method of forcing the employee to "resign".

Expiry of a fixed term contract

If a contract has been entered into for a fixed period it will terminate automatically at the end of that term.

At common law there will be no dismissal and no cause of action can ensue for breach of contract. However, for the purposes of a claim for redundancy or for unfair dismissal the expiry of the term will constitute a dismissal.

Section 95(1)(b) and s.136(1)(b) of the Employment Rights Act 1996 provide that, for the purposes of unfair dismissal and redundancy rights, an employee will be taken to be dismissed by the employer "where under that contract he is employed for a fixed term, and that term expires without being renewed under the same contract".

The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 took effect on 1 October 2002. They provide that where an employee has been continuously employed on successive fixed-term contracts for more than four years, any renewal of the employment at the end of the most recent fixed-term contract will be deemed to create permanent employment status, unless the employer can justify the continued use of a fixed-term contract.

A contract that is expressed to be for a fixed period but can be terminated earlier by notice is still a fixed-term contract for the purposes of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 because in the normal course of events it will continue until the fixed date.

Termination by performance

If a contract of employment is entered into for the completion of a specific task or until the happening of a specific future event, the contract will terminate automatically on completion of the task or the happening of the specific event.

Prior to the coming into force of the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 (SI 2002/2034), unlike with the expiry of a fixed-term contract there was no dismissal.

The Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002 came into effect on 1 October 2002. They amended the law to provide that, for the purposes of bringing a claim for unfair dismissal or redundancy, the automatic termination of a contract on the happening of an event (eg the cessation of funding on a project) will amount to a dismissal.

Frustration

A contract will be "frustrated" on the happening of an unforeseen event that renders performance of the contract impossible or substantially different from that which had been intended by the parties.

The burden of proof will rest on whichever party wishes to argue that the contract has been frustrated. Frustration arguments are rarely successfully argued in court or tribunal.

If the frustration occurs in a contract for a fixed term the employee will have no right to claim for the balance of the fixed term and in any event the employee will be deprived of his or her right to notice.

If an employee has been absent from work due to illness for an extended period there may be a point at which the contract will become frustrated. It may also be relevant to consider whether or not the termination was in fact a dismissal due to a disability, as tribunals will be alert to this possibility. This might have implications for a claim under the Equality Act 2010.