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Termination & Dismissal explained
UK Employment Termination and Dismissal: Employer Guide
Letting someone go in the UK is not as simple as saying "you're fired." British employment law is protective of workers, and the consequences of getting a dismissal wrong can be costly. Unfair dismissal claims at Employment Tribunals can result in compensatory awards of up to the lower of 52 weeks' pay or £123,543 (for dismissals from 6 April 2026), plus a basic award calculated on length of service. The cap is due to be removed for dismissals from 1 January 2027. For international employers unfamiliar with UK rules, the process can feel like a legal minefield.
This guide explains everything you need to know: fair reasons for dismissal, notice periods, redundancy pay, the Employment Rights Act 2025 changes to qualifying periods, gross misconduct procedures, and how an Employer of Record manages termination compliance on your behalf.
Agility EOR handles all termination procedures as part of our UK Employer of Record service. For the complete UK employment law picture, visit our UK employment law hub.
What Are the Fair Reasons for Dismissal in the UK?
Under the Employment Rights Act 1996 (section 98), an employer must have a fair reason to dismiss an employee. The statute sets out five potentially fair reasons:
The employee is unable to do the job to the required standard, either through lack of skill, aptitude, or health. Poor performance and persistent illness both fall under this category. For capability dismissals, you typically need to follow a process: set clear expectations, provide support and training, give warnings, and allow reasonable time to improve.
The employee has committed misconduct. For minor misconduct, this usually follows a disciplinary process with verbal and written warnings before dismissal. For gross misconduct (discussed in detail below), summary dismissal without notice may be appropriate.
The employee's role is no longer needed because of a business closure, workplace closure, or reduced need for employees to do work of a particular kind. Redundancy has its own detailed requirements, including fair selection, consultation, and statutory redundancy pay.
Continued employment would break the law. The most common example is an employee whose right to work in the UK has expired. Another is a driver who has lost their licence.
This is a catch-all for situations that do not fit neatly into the other categories. Examples include a business reorganisation that requires different skills, a breakdown in working relationships, or pressure from a third party such as a client. SOSR dismissals must still be handled fairly in terms of procedure and reasonableness.
For every dismissal, the employer must show that:
1. The reason for dismissal falls into one of these five categories
2. In the circumstances, dismissal was a reasonable response
3. A fair procedure was followed
The test of reasonableness is that of a "band of reasonable responses." A tribunal will not substitute its own decision for the employer's. It will ask whether a reasonable employer could have reached the same decision. This is a deliberately broad test, but it still catches dismissals that are procedurally unfair or substantively unreasonable.
Understanding fair dismissal is essential before taking action. See our guide on IR35 for how contractor-to-employee conversions affect dismissal rights, and UK employment contracts for contract terms that govern the process.
What Happens If You Dismiss Someone Unfairly?
An unfair dismissal claim is one of the most common types of claim at an Employment Tribunal. If the tribunal finds the dismissal was unfair, the employer faces significant financial liability.
Basic award. This is calculated using the same formula as statutory redundancy pay: a set number of weeks' pay for each complete year of employment, subject to a cap on weekly pay (£751 from 6 April 2026) and a maximum of 20 years. The maximum basic award is therefore £22,530 (20 × £751 × 1.5). Employees aged 22 to 40 receive one week's pay per year; those aged 41 and over receive 1.5 weeks per year; those under 22 receive half a week per year.
Compensatory award. This is intended to compensate the employee for actual financial loss suffered as a result of the unfair dismissal. It covers loss of earnings, loss of benefits, and loss of statutory rights. The maximum compensatory award is £123,543 (for dismissals from 6 April 2026), or 52 weeks' gross pay, whichever is lower. The cap is due to be removed for dismissals from 1 January 2027.
Additional award. If the tribunal orders reinstatement or re-engagement and the employer fails to comply, an additional award of 26 to 52 weeks' pay may be made.
For automatically unfair dismissals, the financial exposure is even higher. Automatically unfair reasons are those where no qualifying period of service is required and where no cap applies to the compensatory award (though there is still a cap on the basic award):
- Dismissal for pregnancy, maternity, or parental leave
- Dismissal for asserting a statutory right (such as claiming minimum wage or holiday pay)
- Dismissal for filing a health and safety complaint
- Dismissal for whistleblowing (making a protected disclosure under the
- Public Interest Disclosure Act 1998)
- Dismissal for trade union membership or activity
A tribunal can also uplift the award by up to 25% if the employer failed to follow the ACAS Code of Practice on Disciplinary and Grievance Procedures.
The Qualifying Period: Current and Future
Currently, an employee needs 2 years of continuous service to bring an ordinary unfair dismissal claim. This was set when the qualifying period was increased from 1 year to 2 years in 2012. From 1 January 2027 it falls to six months under the Employment Rights Act 2025.
The Employment Rights Act 2025 is set to reduce this to 6 months, with the change expected to take effect from January 2027. This means that from that date, employees with at least 6 months' continuous service will be able to bring unfair dismissal claims at tribunal.
This change will have a significant impact on employers' approach to probation and early-stage dismissals. Currently, many employers take a relaxed approach to dismissals in the first two years, knowing the employee cannot bring an ordinary unfair dismissal claim. From January 2027, this window shrinks to just six months.
For international employers, the message is clear: you need proper processes from day one, not just after a probationary period ends.
For more on the Employment Rights Bill and its impact on UK employment, our EOR vs entity guide covers the compliance implications of different employment models.
What Notice Periods Must You Give?
Notice periods in the UK are governed by the Employment Rights Act 1996 (sections 86 to 91) and the terms of the individual employment contract.
Statutory minimum notice periods:
- Less than 1 month's service: no notice required (though contract terms may apply)
- 1 month to 2 years' service: 1 week's notice
- 2 to 12 years' service: 1 week's notice per complete year of employment
- 12 or more years' service: 12 weeks' notice (the statutory maximum)
So an employee with 5 years' service is entitled to 5 weeks' notice. An employee with 15 years' service is entitled to 12 weeks' notice.
These are minimums. The contract of employment can (and usually does) set longer notice periods. If the contractual notice is more generous than statutory notice, the contractual notice applies. If the contract says nothing about notice, the statutory minimum applies.
Notice from the employee. The statutory minimum notice an employee must give is 1 week, provided they have been employed for at least one month. Again, the contract can require longer notice. If the contract says the employee must give 3 months' notice but they leave after 2 weeks, the employer can technically sue for breach of contract, though in practice this is rare and the financial loss is difficult to prove.
Payment in lieu of notice (PILON). Many contracts include a PILON clause, allowing the employer to end employment immediately and pay the notice period as a lump sum instead. A contractual PILON is taxable as earnings. If the employer makes a PILON where there is no contractual clause to do so, the payment may be treated as damages for breach of contract and be taxed differently.
Garden leave. During the notice period, the employer can place the employee on garden leave, meaning they remain employed (and continue to be paid) but are not required to attend work or have access to company systems. Garden leave is useful for protecting confidential information and client relationships, particularly in commercial and sales roles.
What Is the Redundancy Pay Formula?
If an employee is dismissed by reason of redundancy and has at least 2 years of continuous service, they are entitled to statutory redundancy pay under the Employment Rights Act 1996 (Part XI, sections 135 to 181).
The formula is:
- 0.5 week's pay for each complete year of service while the employee was under 22
- 1 week's pay for each complete year of service while the employee was aged 22 to 40
- 1.5 weeks' pay for each complete year of service while the employee was aged 41 or over
The weekly pay figure is capped at £751 (for dismissals from 6 April 2026) and the maximum number of years that can be counted is 20. This means the maximum statutory redundancy pay is:
- Under 22: £7,510 (0.5 x £751 x 20)
- Age 22 to 40: £15,020 (1 x £751 x 20)
- Age 41+: £22,530 (1.5 x £751 x 20)
If the employee's actual weekly pay is below the cap, their actual pay is used in the calculation.
Example. An employee aged 45 with 10 years' service earns £800 per week. Their redundancy pay is: 10 years x 1.5 weeks x £751 = £11,265. The pay is capped at £751, not their actual £800.
If the employee is under 22 for some of those years and aged 41 or over for others, the calculation is done in segments. For example, an employee who worked from age 25 to age 43 (18 years) would receive:
- 6 years at age 25 to 30 (aged 22 to 40): 6 x 1 x £751 = £4,506
- 12 years at age 30 to 43 but divided at age 40: 10 years at 22 to 40 +
- 3 years at 41+: (10 x 1 x £751) + (3 x 1.5 x £751) = £7,510 + £3,379.50 = £10,889.50
Many employers choose to pay enhanced redundancy pay above the statutory minimum. Enhanced schemes are common, but if you have a contractual enhanced scheme, you must apply it consistently. Paying a different enhanced amount to different employees in similar circumstances can give rise to discrimination claims under the Equality Act 2010.
The Redundancy Process
A fair redundancy process involves several steps:
This is the group from which selections will be made. The pool must be defined fairly and reasonably.
Common criteria include skills, qualifications, performance, attendance record, and length of service. Avoid criteria that indirectly discriminate (for example, last-in-first-out can discriminate against younger workers).
For individual redundancies, this involves at least one formal meeting. For 20 or more redundancies, there are collective consultation requirements (discussed below).
If a suitable role exists, the employer must offer it to the redundant employee. If the employee unreasonably refuses a suitable alternative, they may lose their redundancy pay.
The notice period and redundancy pay follow the statutory rules above.
For collective redundancies (20 or more employees within 90 days at one establishment), the employer must consult with employee representatives for at least 30 days (for 20 to 99 redundancies) or 45 days (for 100 or more redundancies) before the first dismissal takes effect. Failure to consult collectively can lead to a protective award of up to 180 days' gross pay per affected employee (doubled from 90 days from April 2026).
What Counts as Gross Misconduct?
Gross misconduct is conduct so serious that it justifies summary dismissal: dismissal without notice or payment in lieu of notice. The employer must still follow a fair procedure, but the outcome can be immediate termination.
What constitutes gross misconduct should be defined in the employment contract or staff handbook. Common examples include:
- Theft or fraud
- Physical violence or serious threats of violence
- Gross negligence that puts the business, colleagues, or clients at serious risk
- Serious breach of health and safety rules
- Serious breach of confidentiality or data protection (GDPR and the Data Protection Act 2018)
- Being under the influence of drugs or alcohol at work
- Serious insubordination or refusal to follow a lawful instruction
- Harassment or serious discriminatory conduct
- Bringing the employer into serious disrepute
- Serious misuse of company property or systems
Even in gross misconduct cases, you must follow a fair procedure.
This means:
- Investigate. Carry out a reasonable investigation to establish the facts before deciding on disciplinary action.
- Notify the employee. Write to the employee explaining the allegations and inviting them to a disciplinary hearing.
- Hold the hearing. Allow the employee to state their case and be accompanied by a colleague or trade union representative.
- Make the decision. Decide whether misconduct occurred and what sanction is appropriate. The decision must be within the band of reasonable responses.
- Right of appeal. Offer the employee the right to appeal against the decision.
The ACAS Code of Practice on Disciplinary and Grievance Procedures sets out the minimum standard. Failure to follow it can result in a 25% uplift on any tribunal award.
Employers sometimes jump straight to dismissal for obvious misconduct. Resist that instinct. A tribunal will always ask whether a reasonable investigation was carried out, even when the conduct seems clear-cut. No investigation usually means no fair procedure, regardless of how serious the misconduct was.
For international employers managing UK teams, handling gross misconduct from a distance is particularly risky. A poorly managed dismissal can result in claims of unfair dismissal or discrimination, even when the underlying conduct was genuinely serious.
How Does an Employer of Record Handle Terminations?
An Employer of Record like Agility EOR manages the entire termination process for your UK employees, ensuring every step complies with UK employment law.
When you decide that a termination is necessary, the EOR handles the following:
Capability dismissals. The EOR manages the performance management process: setting objectives, documenting meetings, issuing warnings in accordance with the ACAS Code of Practice, and, if necessary, making the dismissal decision with a full paper trail.
Conduct dismissals. The EOR carries out or supervises the investigation, chairs or advises on the disciplinary hearing, and ensures the employee's right to be accompanied and right of appeal are respected.
Redundancy. The EOR manages the entire redundancy process: defining the selection pool, applying selection criteria, conducting consultation meetings, issuing statutory notices, and calculating and paying statutory redundancy pay. If collective consultation is required, the EOR manages that too.
Notice and final pay. The EOR calculates the correct notice period (statutory or contractual, whichever is greater), processes any payment in lieu of notice in accordance with the contract, and ensures all final pay (including accrued holiday, outstanding wages, and any bonus) is paid correctly and on time.
Settlement agreements. Where appropriate, the EOR can facilitate settlement agreements (formerly compromise agreements) to terminate employment on agreed terms. These agreements are legally binding and require the employee to take independent legal advice, which the employer typically pays for.
For international employers, using an EOR for termination compliance removes the most legally risky part of UK employment. Mismanagement of a single dismissal can cost tens of thousands of pounds in tribunal awards.
Using an EOR means the process is handled by specialists who understand the Employment Rights Act 1996, the ACAS Code of Practice, and the case law that shapes how tribunals assess fairness.
For more on the costs and processes of building a UK team, see our EOR vs entity guide.
Agility EOR is far more than just a service provider. We’re flexible, innovative and focused on outstanding client service. Supporting you every step of the way – and valuing your people as the cornerstone of success.
Frequently Asked Questions
Currently (pre-January 2027), an employee needs 2 years of continuous service to bring an ordinary unfair dismissal claim. However, even in the first 2 years, you cannot dismiss for an automatically unfair reason (such as pregnancy, whistleblowing, or asserting a statutory right). From January 2027, the qualifying period reduces to 6 months.
The statutory minimum is 5 weeks (one week per complete year of service). However, the employment contract may require longer notice (for example, 3 months). Always check the contract first.
12 years x 1.5 weeks x £751 (the weekly cap from 6 April 2026) = £13,518. If their actual weekly pay is less than £751, use the lower figure.
You can dismiss without notice, but you must still conduct a fair investigation and disciplinary process first. Jumping straight to dismissal without investigation is almost always unfair, regardless of the severity of the misconduct.
If the contract contains a payment in lieu of notice (PILON) clause, you can terminate employment immediately and pay the notice as a lump sum. If there is no PILON clause and the employee simply refuses to work their notice, you can sue for breach of contract, though in practice most employers write it off.
An EOR like Agility EOR handles the full process: performance management, disciplinary hearings, redundancy consultations, notice calculations, final pay, and settlement agreements. Every step is managed in compliance with UK employment law, protecting you from tribunal claims and financial penalties.
Speak to an expert
Agility EOR ensures every UK termination is handled lawfully and with minimal risk to your business. We manage the entire process from performance management through to final pay, so you can focus on your team. Learn more about our UK EOR service.