Many people think that termination of employment only refers to dismissal.
Under UK employment law, termination can occur in many ways and either the employee or employer can start the process.
Types of termination of employment contract
There are many reasons for the end of an employment contract, each with their own rules.
It often falls into one of two categories: voluntary and involuntary termination.
This is whether the employee chose to end their time with the company, or you terminated their contract.
The list of types of termination includes:
Resignation is the most common type of termination of an employment contract.
It is when an employee chooses to leave their job, either to take a new role elsewhere or stop working all together.
Dismissal refers to an employer ending their contract with a member of staff.
Dismissal can be due to an employee’s conduct or a business requirement, such as having to make layoffs.
Employers should follow an end of employment checklist to ensure they don’t face unfair dismissal claims and employment tribunals at a later date.
Redundancy is a form of dismissal without cause. It occurs when there is a business need to reduce the workforce.
The employer can provide a redundancy package and let staff opt for voluntary redundancy or complete a selection process to determine whose contracts they will terminate.
The redundancy process can be confusing, and the result of getting it wrong can be costly. Our step-by-step redundancy process guide lays out the steps to help avoid an illegal termination of employment and unfair dismissal claims.
A change to the law in 2011 means that employers can no longer force staff to retire once they reach default retirement age.
Since then, ending an employment contract with a retirement plan is similar to when an employee resigns.
The employee must submit their notice of the termination of employment and continue to work for the duration of the notice period to allow employers to rehire or re-allocate workloads.
An employee can choose to retire in full or take part-retirement. This means that the employee can take a percentage of their pension pot and reduce their working days each week. The employer needs to agree to this, as the business may not have capacity for a part-time employee
Employers can still issue retirement notices to staff in a few specific scenarios, as outlined in our retirement guide.
End of fixed term contract
Employment for staff on fixed term contracts will usually end at a set date already agreed.
You can extend a fixed term contract if there is a work requirement, but there isn’t usually a requirement to consider this.
However, if an employee has two years’ service, the dismissal must be treated as it would for the termination of an employment contract with no end date.
This means the employer needs to show that there’s a fair reason they didn’t renew the contract.
Despite the agreed contract end date, employers will need to know how to end the employment contract correctly. If an employee continues working past the contract end date, there’s an “implied agreement” by the employer.
Discharge vs termination of employment and dismissal
You will hear a lot of different terms when facing the end of employment.
Termination is the end of an employment contract for any reason. Dismissal is termination for one of five reasons:
- Some Other Substantial Reason (SOSR) – such as conflicts of interest or risk to reputation.
- Statutory illegality – where the contract cannot continue legally.
Another term often used is discharge. Discharge is a colloquial term, not used in UK employment law.
The meaning is less defined. Some people say that discharge is just another word for termination. Others see discharge as the end of an employment contract on medical grounds. This comes from the military term “medical discharge”.
It’s important to know which type of termination is being discussed.
Types of illegal termination of employment
UK law protects employees from illegal termination of employment.
There are several different types of illegal termination. They are:
- Unfair dismissal - where an employee’s contract is terminated without a satisfactory reason or for an automatically unfair reason.
- Wrongful dismissal – where terms of the contract are not met when an employee is terminated. Such as not receiving the proper notice period or pay.
- Constructive dismissal – a type of unfair dismissal where the employer’s conduct forces an employee to resign.
Unfair and wrongful dismissals can also apply to employees who are made redundant.
Employee rights when ending an employment contract
Despite agreeing to end the employment contract, staff retain all of their employee rights until they no longer work for the company.
Under UK employment law, termination comes with rights that make sure an employee isn’t suddenly without an income.
Some of these legal rights also help to make sure the business isn’t left without key members of staff overnight.
Notice of termination of employment
The law entitles both the employee and employer to notice of termination of employment when either party ends the contract.
The wording of the contract will determine the length of the period of notice, but there is a statutory minimum notice period.
The statutory minimum notice period is:
- One week – if the employee has been with the employer for one month or more, but less than two years.
- Two weeks – If the employee has been with the employer for two years or more. After that the notice period increases by a week for every year of service, up to a maximum of twelve weeks.
Sometimes, an employee will not need to work their notice period.
If you place the employee on ‘garden leave ’ where you ask them not to come into work but you will still pay them for the duration of their notice period.
Alternatively, an employer can provide pay in lieu of notice (PILON) and the employment contract will be terminated with immediate effect.
In addition to the notice period, employees have the right to holiday pay on termination of employment.
This ensures that staff are paid for any annual leave that has been accrued but not taken. This is usually calculated and added to their final paycheck.
You need to follow strict rules when terminating employment contracts. Businesses that fail to do so face steep fines and unfair dismissal claims.
Our 24-hour HR advice line will provide the guidance to protect your business while you make any staffing changes.