Employers have to go through the employment contract termination process for several reasons: whether it’s due to a breach, a change in circumstances, or a mutual agreement, the termination of employment must be done in accordance with employment termination law.

If this process is not followed, the employer would be breaking UK employment laws by ignoring the notice periods, contractual and statutory rights, redundancy rules, and unfair dismissal protections that are in place. As such, they may be ordered to pay compensation for wrongful or unfair dismissal, which could also damage their business’s reputation.

Read on to learn how to comply with the employment law on dismissal, and feel free to contact our employment lawyers in Newcastle for more information about our law services for businesses.

What legal obligations must an employer follow during a termination of employment?

Ending an employment contract as an employer can be complex and challenging, especially if you’ve built a friendly working relationship with the employee. Despite this, you must comply with your legal duties as an employer to ensure the termination is fair, transparent, and lawful.

The most effective way to do this is to have a clear, well-structured dismissal procedure that resonates with your business’s size, sector, and workforce. This is something that our team can help you with — we have plenty of experience in drafting fair and legally sound termination policies.

As well as having clear policies, here are a few things you must do to legally terminate an employee:

1. Honour the correct notice period

You must honour the notice period stated in the employee’s contract. If no notice period was ever specified, you will need to follow the statutory minimum notice period stated in the Employment Rights Act of 1996, which says:

• One week’s notice after one month of service
• One week for each year of service (up to a maximum of 12 weeks) after two years of service

Alternatively, you may also be able to Pay in Lieu of Notice (PILON). To ensure this is done legally, you must have a written agreement that shows the employee agrees to the clause.

Your PILON payment to the employee must cover their basic salary for their notice period, with the addition of any pre-agreed benefits (if relevant) and deductions of income tax and National Insurance.

2. Respect their contractual and statutory rights

As an employer, you must uphold the terms of the employment contract and the employee’s workers' rights. These are:

• Statutory rights: Guaranteed rights for all employees by law, ensuring minimum legal protection. These are non-negotiable for employees.

• Contractual rights: Agreements between the employer and employee as stated in their employment contract. Employers can offer extra contractual rights, which could include additional benefits like holiday, sick pay, etc.

To honour these rights, employers must obey the following rules:

Final payments:

1. Pay the employee any outstanding wages or salary up to their termination date.
2. Pay the employee any unused statutory or contractual holiday entitlement.
3. Pay the employee any bonuses or commissions earned up to their termination date.

Pensions and benefits

1. Ensure both employer and employee workplace pension contributions are up to date and paid up to their termination date.
2. Follow the rules of your company’s pension scheme and notify the employee of how to preserve or transfer their pension.
3. Stop deductions for benefits at the right time and notify the employee of any outstanding payments they may be charged for or refunded.

If an employee’s pension rights are not followed, you may be penalised by The Pensions Regulator.

Documentation

1. Provide a P45 form — a summary of the employee’s pay and tax deductions for the tax year. The employee will also need to share this with their new employer.
2. Hand over any certificates or documentation that shows proof of benefit eligibility, e.g. proof of redundancy.
3. Issue written confirmation of any final pay calculations for transparency.

3. Adhere to redundancy rules

If you are terminating an employee’s contract because of redundancy, you must follow the correct procedures to be fair and legally compliant:

• Have a conversation with individual employees (if there are fewer than 20 redundancies) or with employee representatives or trade unions (if 20 or more redundancies are put forward within a 90-day period). The latter will involve following the collective consultation duty under the Trade Union and Labour Relations (Consolidation) Act of 1992.

This conversation should outline the reason for redundancy and how and why they were chosen. If employees are not consulted about redundancy correctly, you may be ordered to pay compensation of up to 90 days’ pay per affected employee.

• Pay employees with at least two years of continuous service their statutory redundancy pay, which is calculated based on age, length of service (up to 20 years), and a weekly gross pay (subject to a statutory cap currently standing at £719).

4. Protect yourself against unfair dismissal

It is unlawful to terminate an employee’s contract for any reason related to their protected characteristics. These are the nine protected characteristics stated under the Equality Act of 2010:

• Age
• Disability
• Gender reassignment
• Marriage or civil partnership
• Pregnancy or maternity
• Race
• Religion or belief
• Sex
• Sexual orientation

It is also illegal to terminate an employee for:

• Whistleblowing
• Raising health and safety concerns
• Partaking in trade union activities

Stay compliant with employment law services from Hay & Kilner

If you need a hand staying updated with the latest changes in employment law, our employment law and HR services could be just what you need to remain compliant.

With HR Key, you can receive legal advice and employment law risk management services for a fixed monthly fee. Our team can also help you navigate complex termination issues with confidence, backed by over 70 years of experience.

For more information, don’t hesitate to contact our team today.