Dismissal

An employer or an employee can decide to terminate the employment relationship, either by (i) an employee resigning in accordance with the contract of employment; or (ii) an employer dismissing the employee, as detailed below. (There are other circumstances which do or may terminate the employment relationship, such as frustration, which is where the fundamentals of the contract cannot be performed thereby bringing it to an end, but this note only deals with termination by act of the employer or employee in the more “standard” situations[1].)

Employee resigns

If an employee resigns, they are required to give notice in accordance with their contract of employment. However, in circumstances where the employee alleges the employer has repudiated the contract (committed a fundamental breach) they may resign without notice – see related article here.

Section 106 of the Employment Act 2006 provides that the notice required to be given by an employee who has been continuously employed for more than one month is as follows:

If the contract of employment provides for a longer notice period, then the employee is obliged to give notice as per the contract of employment. Where the contract is “silent”, however, or provides for shorter notice than that required under statute (as noted above) the employer will be entitled to statutory minimum notice – which it can waive if it wishes.

The employee’s resignation must be “clear” and “unequivocal”. It is therefore advisable that any resignation be confirmed in writing. In particular, if the resignation is oral, the employer ought to follow up with the employee in writing to confirm, and accept, the resignation. If the resignation is “in the heat of the moment” or ambiguous, then it is especially advisable to check and clarify the employee’s intentions in case they try and rescind the resignation or deny that they were in fact resigning.

Depending on the circumstances, the employer may not wish for the employee to work their notice period, e.g. if the employee is joining a competitor or has access to confidential/commercially sensitive information in their role. In such cases, the employer may elect to make a “payment in lieu of notice” (“PILON”) or place the employee on “garden leave” (each of which have different implications for when the employment relationship ends – see also our related note on Garden Leave).

Employer dismisses

For Isle of Man purposes, an employee who has been continuously employed for one year gains the statutory right not to be “unfairly” dismissed. The dismissal of an employee for a reason other than one of the five potentially fair reasons (see below) and/or without following a fair procedure may lead to a claim for unfair dismissal. Compensation for a successful claim can be substantial, especially where the employee can show that their dismissal was because they “blew the whistle” (see separate whistleblowing article). However, awards in straightforward unfair dismissal claims are typically quite modest and subject, in most cases, to a cap of £56,000 compensation plus up to £5,000 for injury to feelings (though awards for injury to feelings are relatively rare in practice).

The five “potentially” fair reasons for dismissal

There are five potentially fair reasons for dismissal[2] which are:

• Conduct – this could be a single act of misconduct or a series of acts
• Capability – including poor performance and ill health
• Redundancy – such as office closures or reduced need for the role to be carried out
• Illegality – where the employment contravenes a statutory restriction, i.e. work permit/immigration control
• Some other substantial reasons (also known as “SOSR”) – a “catch all” of potentially fair reasons which do not fall under one of the previous categories

It is for the employer to show that the reason (or principal reason) for termination was one of the potentially fair reasons above, failing which it will be “unfair”. Assuming that the employer can demonstrate a “fair” reason for the dismissal, they must also follow a fair process in deciding to dismiss. Consequently, the employer must not resolve to dismiss the employee until they have concluded the procedure which will involve consideration of the relevant factual background/evidence and, almost always, liaising with the employee concerned and allowing them to make representations with respect to their case.

Ultimately, the question as to whether the dismissal is fair or unfair having regard to the reason shown by the employer will be determined by the tribunal and will depend on whether in the circumstances (which include the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee[3]. The assessment of reasonableness will entail consideration of factors developed in the case law relating to the different grounds – e.g. considerations regarding the fairness of a redundancy process will be somewhat different to those applying in the case of dismissal for conduct. Please see related content in the “Disciplinary and Grievance” section for further analysis.

Once the process has concluded and the employee has been informed of the decision to dismiss (assuming this is the outcome), the employee has the right to be given notice in accordance with the terms of their contract of employment. The employer may use its discretion to make a PILON if there is the contractual ability to do so (or pay a non-contractual PILON as anticipatory damages for breach of contract, albeit there are risks and implications of doing this). Notice, where given, must not be shorter than the statutory minimum notice required to be provided by an employer to an employee, as follows:

An employee who is guilty of gross misconduct or other repudiatory breach of contract will have no right to notice or a PILON. In such cases, the employer can dismiss them without notice (also known as “summary dismissal”).

Written statement of reasons for dismissal

Employees have the right to request a written statement setting out the reasons for their dismissal, irrespective of their length of service. The reasons must be provided within 14 days of the request and may be used in evidence in any subsequent tribunal proceedings.

Employees who are dismissed whilst pregnant or during statutory maternity or adoption leave have the right to be given written reasons for their dismissal without requesting it, regardless of their length of service.

Negotiated “exit”

Employers might want to propose termination of employment on mutually acceptable terms, rather than go through a formal process on the basis that this may be less contentious and ultimately more constructive by, e.g., allowing the parties to bring the relationship to a dignified conclusion where it has run its course. A negotiated exit is also likely to save costs and time involved in litigation and provide certainty of outcome to both sides. Where a settlement is explored, the employer may seek to enter into confidential discussions with the employee with a view to agreeing terms. These are typically recorded in a compromise agreement, both for evidential reasons and so the necessary sign off from Manx Industrial Relations can be obtained (for further information, please see our checklist on “Compromise Agreements”).

The Isle of Man does not have an equivalent to “protected conversations” as in the UK. However, “without prejudice” discussions are used in a broadly similar way, i.e. provided there is a genuine dispute or issue (i.e. capability concerns, potential redundancy situation etc) the employer can ask the employee if they would be willing to enter into without prejudice discussions. This means, essentially, that neither party may later refer to the “without prejudice” discussions in tribunal/court and enables both sides to explore options without the worry that something they say will later be used against them within legal proceedings.

The purpose of “without prejudice” discussions should be to try and resolve the dispute which means, in most cases, not jumping ahead and presenting a compromise agreement as a “done deal”. Otherwise, the employee may resign and claim constructive unfair dismissal on the basis that the actions of the employer have destroyed the relationship of mutual trust and confidence. For these reasons, it is necessary to “tread carefully” when broaching the subject of a mutual parting of ways and worthwhile taking advice/planning the approach in advance.

In setting out the dispute which the “without prejudice” discussions are intended to settle, the employer does not need to go into exhaustive detail. However they need to provide enough information so that the employee understands there is the potential for termination of employment, depending on the outcome of any HR process that would be progressed in the absence of a compromise agreement. (From a tactical perspective, the employer should reserve its formal position whilst negotiations are underway and emphasise that no decisions have – yet – been made within any such formal HR process).

Wrongful dismissal vs unfair dismissal

“Wrongful dismissal” refers to dismissal in breach of contract; fairness is not an issue. The sole question to determine is if the terms of the contract (which can be both express and implied) have been breached. For example, an employer not providing adequate notice of termination to the employee in accordance with the contract of employment commits a breach which is actionable as wrongful dismissal. The right arises as soon as the contract is formed – ie there is no qualifying period for an employee to claim wrongful dismissal.

Unfair dismissal, however, requires an employee to have at least one year’s continuous service (except for dismissals which are “automatically” considered unfair). In certain circumstances, a dismissal is deemed automatically unfair – amongst other situations, this applies where the dismissal is for reasons connected with pregnancy or childbirth, heath and safety activities, whistleblowing, exercising various rights to time off and/or asserting a statutory right. It also includes dismissal for redundancy where the reason for selection is based on one of the “automatically unfair” grounds.

Wrongful dismissal and unfair dismissal are entirely different claims. A dismissal can be wrongful but not unfair. For example, an employee may be made redundant in circumstances where it is clearly a genuine redundancy and a fair process has been followed, but if their employment was terminated without giving the required contractual notice, then they may have claim for wrongful dismissal.

Summary – tips for employers

• Bear in mind the need to demonstrate a fair reason for dismissal from one of the permitted grounds, follow a fair procedure, and act fairly and reasonably in all the circumstances;
• Be mindful of the contractual terms and comply with the provisions relating to notice in the event of termination;
• Ensure that decisions are evidence based, soundly reasoned and non-discriminatory – keep written records in case of challenges or if a decision is appealed;
• If seeking to compromise an employment dispute/potential claims, obtain support from HR business partners and external advisers as necessary – brief stakeholders and seek approval of draft settlement terms;
• Bearing in mind there is always “context” to a dismissal – e.g. underperformance, personality clashes, lack of physical or mental capacity or a change in business requirements/contraction of activities – it is best to address matters sooner rather than later and put the appropriate strategies in place. Being reactive only to such situations means that the chances of achieving good outcomes are less favourable than with longer-term management and support in place.

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References:-

[1] See separate note on Redundancy

[2] Section 113(2) Employment Act 2006

[3] Section 113 (3) Employment Act 2006

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Useful resources:

https://www.mirs.org.im/media/1166/how-eet-calculates-the-award.pdf