Terminating an employee’s contract – essentially firing or letting someone go – should be handled carefully to be both legally compliant and fair to the individual. The employment contract and UK law set out the notice period and process required. Here’s a guide on doing it properly:
- Check the Contractual Notice Period: Start by looking at the employment contract’s notice clause. It will typically say something like “After probation, the employer must give X weeks/months notice to terminate, and the employee must give Y notice to resign.” You must give at least this amount of paid notice (unless terminating for gross misconduct which can be summary – immediate – dismissal). Statutory minimum notice in the UK is: 1 week notice if employed between 1 month and 2 years; then one additional week per full year of service from 2 years up to 12 years; max 12 weeks for 12+ years. The contract can provide more than this but not less. For example, if someone’s been with you 5 years and contract says 1 month notice, statutory is 5 weeks which is slightly more than 1 month – you must give at least 5 weeks in that case. Many contracts simplify by just giving a bit more anyway (like 1 month, 3 months, etc.). Always ensure you meet whichever is greater: contractual or statutory. If you don’t give proper notice (and it’s not gross misconduct), the employee could claim wrongful dismissal (which is basically breach of contract for not honoring notice) and seek damages equal to pay for the notice period you should have given.
- Decide on How Notice Will Be Served: You have a few options:
- The employee works through the notice period as usual. This can help transition their duties. But if they’re disgruntled or a risk (e.g., might mess with clients or data), this isn’t ideal.
- Put them on garden leave during notice (if you have a clause allowing it, or if they consent). They remain employed and paid, but stay away from work (no access to systems or clients). This is common for senior staff or sales roles to protect the business relationships and info.
- Pay In Lieu of Notice (PILON): If you have a PILON clause in the contract, you can terminate immediately and just pay the amount of salary (and sometimes benefits) the employee would have earned in their notice period. This ends the employment right away, and they get the lump sum for notice. If you don’t have a PILON clause, doing this is technically a breach of contract (though often the employee doesn’t sue because you paid them the money anyway, but they could argue if no clause that it should include things like the value of benefits, accrued contractual bonuses for that period, etc.). It’s safer to include a PILON clause in contracts so you have the flexibility.
- Following a Fair Process: If the employee has 2 years or more of service, they gain protection against unfair dismissal. That means you need a fair reason (redundancy, misconduct, capability, etc.) and you must follow a fair procedure (e.g., warnings for poor performance or conduct, consultation for redundancy, etc.). Not doing so could lead to an unfair dismissal claim. Even under 2 years, while they can’t claim ordinary unfair dismissal, they could claim if dismissal was for an automatically unfair reason (like pregnancy, whistleblowing, etc.) or discrimination – so ensure the reason is sound and documented.
So, aside from giving notice, follow your disciplinary or capability procedure if it’s a performance or conduct issue. Usually: invite to a meeting in writing, allow them representation (if required), discuss issues, possibly give warnings and chance to improve (except gross misconduct which can skip to dismissal after investigation). For redundancy, do consultation and consider alternatives, etc. Covering all that here is lengthy, but ACAS provides codes of practice. Adhering to these not only avoids legal issues but is the right thing to do ethically.
- Communication: When you have decided to terminate, you should communicate it in person (or video call if remote) in a meeting. Be clear and respectful: inform them of the decision and reason, the notice period length, whether you expect them to work it or not, and any next steps (like handover). After the meeting, give it in writing– a termination letter stating the end date (after notice), the reason (especially if misconduct or redundancy, state it for the record), the notice arrangements (e.g., “you will not be required to attend the office but will remain available during your notice” or “you are required to work until [date] as normal”). Also, the letter should mention any accrued holiday pay you’ll pay out, or if you want them to use up holiday during notice (with proper notice to take holiday if required). Include any return-of-property instructions (company laptop, ID card etc. to be returned on last day).
- Holiday and Final Pay: If the employee has unused holiday entitlement when they leave, you must pay them for it in the final payslip (this is a legal requirement). Conversely, if they’ve taken more holiday than accrued, you could deduct the excess if the contract allows recovery of overused holidays on termination. Calculate everything: salary up to last day (or PILON), holiday pay, any earned bonus or commission if applicable (check the scheme rules whether they lose it if leaving), any expenses owed, etc. Provide them a payslip showing these and also a P45 for tax.
- Other Post-termination Considerations: Remind them of any post-employment obligations that survive – e.g., confidentiality, return of all confidential documents, and any restrictive covenants (non-solicit etc.). Often the termination letter will gently remind “Please note your obligations under clauses X (confidentiality) and Y (post-termination restrictions) of your contract continue to apply after your employment ends.” This way they can’t later claim they forgot or were unaware.
- Separation Agreement (if needed): In sensitive situations (like a mutual parting with a senior exec, or if you sense risk of claims), you might consider a Settlement Agreement (formerly compromise agreement). This is a legal contract where the employee waives their rights to sue (for unfair dismissal, etc.) in exchange for some compensation beyond their basic entitlement. It needs independent legal advice for the employee and certain formalities. This is not needed for most straightforward terminations, but it’s a tool if, say, you want to avoid any dispute and are willing to pay an extra amount for peace of mind. If you go that route, usually you’d pay notice, holidays, perhaps a bit more, and they sign away claims and often agree to confidentiality about the circumstances.
- Dismissal Without Notice (Gross Misconduct): If an employee commits gross misconduct (theft, violence, serious breach of policy), you can terminate summarily without notice or pay in lieu. However, you must have followed a fair disciplinary process to establish that misconduct. If done right, you owe only pay up to last day worked and accrued holiday, but no notice period pay. Gross misconduct examples should be in your handbook. Use carefully – if you misjudge something as gross misconduct and it wasn’t, a 2yr+ employee could claim unfair dismissal or wrongful dismissal for notice pay.
- Resignation Notice from Employee: The flip side: if an employee resigns, they must give you the notice their contract stipulates (or statutory minimum of 1 week after a month’s service). You can mutually agree to shorten it (for example, sometimes an employee asks to leave earlier and you agree – just confirm in writing the agreed last day). If they leave without giving notice (walkout), technically you could take action for breach or not pay for the period they didn’t work. Often not worth pursuing legally unless it causes provable loss. But you could mark that they didn’t work notice and handle internally. If they go to a competitor early and they had covenants, that’s another issue – possibly enforce post-termination restrictions as needed.
Notice in different contexts: For redundancy, you give notice as well after selecting and consulting with them. For long-term sick where you terminate, notice still applies (unless contract has some clause for instant termination after, say, 6 months sick – even then, usually still give notice). For fixed-term contracts, if it naturally expires at the end of the term and you don’t renew, that’s technically a dismissal too (by non-renewal), and notice is either not required if the contract had a fixed end date known, or you might still give notice if the contract allows early termination. Always double-check what the contract says about ending fixed-terms early.
In all cases, adhere to any contractual process promised. If your contract or handbook says “we will follow disciplinary procedure” or “three warnings before dismissal for performance”, – then follow that, as it’s part of the implied trust and confidence not to arbitrarily break your own rules.
In summary: To properly terminate, give the correct notice (or pay in lieu), follow a fair process, especially if they have 2+ years of service, document the reason, handle final pay and logistics, and remind them of ongoing obligations. By doing it by the book, you reduce the risk of legal claims and also treat the person with respect, which can help maintain your business’s reputation (especially important in local industries – word gets around). If you are unsure, consult British Contracts. We can review your termination documentation and provide advice on it for a competitive fixed fee under our Bronze or Silver packages. Additionally, we can draft bespoke contractual documents, such as termination letters and settlement agreements, under our Gold and Platinum packages.