The Rise of Unfair Dismissal Claims: What Employers Need to Know

Unfair dismissal claims are on the rise in the UK, a trend that poses significant challenges for employers. According to recent statistics from the Advisory, Conciliation and Arbitration Service (ACAS), there has been a notable increase in the number of employees seeking recourse through Employment Tribunals. This upward trend is attributed to a variety of factors, including economic instability, evolving workplace dynamics, and heightened employee awareness of their rights. In this article, we explore the key drivers behind the rise in unfair dismissal claims, the legal framework that underpins these claims, and actionable steps employers can take to mitigate risks.

What Constitutes Unfair Dismissal?

Under the Employment Rights Act 1996, employees have the right not to be unfairly dismissed where they have 2 or more years service with their employer.

In some circumstances, employees can bring unfair dismissal claims without 2 years service. 

For a dismissal to be deemed fair, employers must demonstrate:

1. A Fair Reason: The dismissal must be based on one of the five potentially fair reasons: conduct, capability, redundancy, statutory illegality, or some other substantial reason.
2. A Fair Process: Where the dismissal relates to misconduct or capability, the procedure must follow the ACAS Code of Practice on disciplinary and grievance procedures. If the dismissal is for another reason, the employer should follow a fair procedure.

Failure to meet these criteria can result in a successful unfair dismissal claim by an employee, leading to potential compensation awards and reputational damage.

Why Are Unfair Dismissal Claims Increasing?

Several factors have contributed to the surge in unfair dismissal claims:

1. Economic Pressures

The ongoing economic uncertainty has led many organisations to restructure or downsize. Redundancy processes, if not managed correctly, can easily lead to allegations of unfair dismissal. Employers under financial strain may inadvertently cut corners, exposing themselves to legal challenges.

2. Hybrid and Remote Work Environments

The shift towards hybrid and remote working has created new complexities in managing employee performance and conduct. Miscommunication and a lack of clear policies can result in disputes that escalate to dismissal claims.

3. Increased Employee Awareness

Employees today are more informed about their rights, thanks to accessible online resources and social media platforms. This awareness has empowered individuals to challenge perceived injustices in the workplace.

4. Rising Workplace Conflicts

The post-pandemic workplace has seen an increase in tensions, with many employees struggling to adapt to new working norms. These conflicts can sometimes result in dismissals that employees deem unfair.

The Legal and Financial Implications for Employers

Unfair dismissal claims can have far-reaching consequences for employers. These include:

1. Financial Costs

Compensation awards for unfair dismissal can be substantial. The basic award is calculated based on the employee’s age, length of service, and weekly pay capped at £700, while the compensatory award is capped at the lower of 52 weeks’ gross salary or £115,115 (if the dismissal was on or after 6 April 2024). Exceptions to this cap exist for cases involving whistleblowing and health and safety-related dismissals and where the individual was selected for redundancy for one of these reasons. 

2. Reputational Damage

A high-profile unfair dismissal case can tarnish an organisation’s reputation, making it harder to attract and retain top talent. Negative publicity can also impact client and stakeholder relationships.

3. Operational Disruption

Employment Tribunal proceedings are time-consuming and can divert management’s focus away from core business activities.

Practical Steps to Mitigate Risks

Employers can take proactive measures to reduce the likelihood of unfair dismissal claims:

1. Review and Update Policies

Ensure that workplace policies are up to date and clearly communicated to all employees. This includes policies on disciplinary procedures, grievance handling, performance management, and redundancy.

2. Provide Manager Training

Managers should receive regular training on employment law and best practices for handling disciplinary and dismissal processes. This can help ensure that decisions are fair, consistent, and legally compliant.

3. Follow the ACAS Code of Practice

Adhering to the ACAS Code of Practice is crucial. Employers should document all steps taken during the dismissal process, including investigations, meetings, and decision-making rationales.

4. Seek Legal Advice Early

Consulting an employment law specialist at the outset of a potential dismissal can help identify and mitigate risks. Legal advice is particularly important in complex cases involving potential discrimination or whistleblowing claims.

5. Foster a Positive Workplace Culture

Promoting open communication, mutual respect, and employee engagement can reduce workplace conflicts that might otherwise lead to dismissals. Consider conducting regular employee surveys to gauge satisfaction and address concerns proactively.

What to Do if Faced with an Unfair Dismissal Claim

If an employer receives notification of an unfair dismissal claim, the following steps are recommended:

1. Review the Claim Thoroughly: Assess the employee’s allegations and gather and preserve any relevant evidence including documentation, such as employment contracts, meeting notes, and correspondence.
2. Engage Legal Representation: An experienced employment lawyer can provide strategic advice and represent the employer’s interests during the Tribunal process.
3. Consider ACAS Conciliation: If a claim has not yet been issued, ACAS offers a free early conciliation service to help employers and employees resolve disputes without going to Tribunal. Settling early can save time, money, and stress. If a claim has already been issued, ACAS can still assist with discussions regarding settlement whilst a Tribunal claim is ongoing. 
4. Prepare for Tribunal: If conciliation is unsuccessful, prepare a robust defence by compiling evidence, identifying witnesses, and ensuring compliance with Tribunal deadlines.

Conclusion

The rise in unfair dismissal claims presents significant challenges for UK employers. By understanding the legal framework and implementing best practices, organisations can minimise risks and foster a fair and compliant workplace. Investing in proactive measures, such as manager training and legal advice, can pay dividends in protecting both employees and the business from the costly repercussions of unfair dismissal claims.

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Article by

Sally Eastwood

Senior Associate

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Disclaimer 

The above provides a general overview of areas in employment law and is not intended nor construed as providing specific legal advice.

This article is for information purposes only and is correct at the time of publication. It does not constitute legal advice.

13.02.25