Unfair dismissal and employers’ liability

Unfair dismissal claims are increasing rapidly, particularly as a result of the increase in the compensatory award limit last Autumn. It is therefore very important that employers understand how to avoid liability and know with some certainty whether a decision to dismiss an employee is likely to be regarded as fair or unfair by a tribunal.

The starting point for this is section 98(4) of the Employment Rights Act 1996, which states that one must consider whether, in all the circumstances (including the employer’s size and resources), the employer acted reasonably in dismissing the employee, the question being determined in accordance with equity and the substantial merits of the case.

However, case law has gone further to set out practical tests. Cases such as Iceland Frozen Foods and Burchell have long laid down certainty in this area. In essence, the Iceland case concerned a “band of reasonable responses” test. Effectively this states that provided the employer’s actions were one of a number of reasonable responses to the given situation, the dismissal would be considered fair.

The Burchell test made it clear that tribunals should consider whether employers hold a reasonable suspicion of misconduct, that these suspicions were based on reasonable grounds, and a reasonable investigation was carried out. The onus is on the employer to establish these points.


Revolution?


Thus for many years, the orthodox position has been that the tribunal had to establish whether the actions of the employer fell within this band of reasonable responses. Recently, there have been some challenges to this.

The first decision was that of Mr Justice Morison in the Haddon case. This case suggested that a tribunal should stand back, assessing what was known to the employer at the time, and with hindsight, decide whether or not the dismissal was reasonable in all the circumstances. This view was supported by the EAT in the Wilson and Madden cases.

According to many commentators, this threw the fundamental test for fairness into “turmoil”. The decisions also made it much harder for employers to decide whether they were potentially incurring any liability. After all, how could an employer possibly know what an employment tribunal would consider reasonable up to nine months after the dismissal?

Restoration of orthodoxy

Thankfully for employers, the Court of Appeal overturned these revolutionary cases at the end of July, making it clear that tribunals must not second-guess employers on the causes and reactions, and in particular that they must not say that what the employer did was not what they would have done. The only proper test is whether the employer’s actions were within the range of reasonableness. Many human resource departments, I suspect, will breathe a huge sigh of relief, although of course, they will still need to ensure that any dismissals are carried out in a procedurally fair way.

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