Ways to End an Employment Contract in England and Wales

When employing staff in your business, you will have employment contracts with them. Where business is going well, and your employees are working effectively, you are unlikely to have a reason for ending your employee’s employment contracts. However, unfortunately, there will be times when you must end your employee’s employment contract, such as for a disciplinary issue or due to redundancy. There will also be times when your employee decides to end their employment contract with you. Therefore, you must be clear about when and how an employment contract can end and the rules surrounding this. If you do not terminate an employee’s employment contract according to the rules, you could find yourself in an employment tribunal.

This article will explain ways to end an employment contract in England and Wales. It will explain what an employment contract is and the two main methods for ending employment contracts. It will also outline the basic rules when terminating an employment contract.

What is an Employment Contract?

An employment contract is a legal agreement between you and your worker. It sets out the relationship between the two of you regarding your obligations towards your worker and their rights and responsibilities. 

An employment contract can come to an end in two ways:

1. your employee is resigning; or 
2. you are dismissing your employee.

Ending an Employment Contract Through Resignation

Resignation is often referred to as resigning, quitting a job or handing in your leave notice. This is when your employee decides to end their employment contract with you by stating they no longer wish to work for you. Resignation is also called voluntary termination. It is the most common form of ending an employment contract.

As an employer, you may have a set process in place for when an employee wants to resign. Likewise, you might state this in their employment contract. Where you do have a set process, your employee should follow it. For example, you might identify who your employee should notify concerning their resignation.

Additionally, your employee should give you notice of their resignation. Their employment contract should state the notice requirement. Where it does not, if your employee has worked for you for one month or more, they are required to give you a minimum of one week’s notice before the date they wish to leave.

Further, when your employee resigns, there is no legal requirement to respond to their resignation. However, it is good practice to do so in writing. This allows you to:

• acknowledge the resignation;
• clarify the last day of employment;
• set out their final pay, which could include holiday pay or any deductions; and
• make any requests of them before they leave their work with you.

Ending an Employment Contract Through Dismissal

Dismissal is also known as sacking a worker, firing them or involuntary termination. It is when you end the employment contract rather than your employee.

If you dismiss an employee, you must make sure that you:

• have a lawful reason for carrying out a dismissal; 
• use a reasonable and fair procedure following the Acas Code of Practice on disciplinary and grievance procedures; and
• ensure that your decision to dismiss is fair, balanced and as consistent as it can be.

You must also ensure that you give your employee the notice specified in their employment contract. Where there is no notice, you must provide one week notice where you have employed your employee for a minimum of one month but not two years or more. Where you have employed them for two years or more, you must give two weeks notice. Every year they have been employed with you from the period of two years of employment, a further week’s notice is required. Therefore, for an employee who has been employed for three years, you must give three weeks’ notice. The increase in the notice period can be for a maximum of 12 weeks in total.

Lawful Reasons for Dismissal

To ensure that you dismiss employees fairly, there must be one of the following five reasons present:

• bad employee conduct;
• lack of capability of your employee to perform which could include not having the correct qualifications;
• redundancy as you no longer need the job which they are doing;
• a legal reason which prevents your employee from carrying out the job such as a banned driving licence where the job requires them to drive; or
• ‘some other substantial reason’ which can cover a variety of reasons.

For example, a substantial reason could be refusing to agree to a change in terms and conditions of their employment. It could also be due to your employee’s contract coming to a natural end as it is fixed-term. This is where the end date is within the employment contract. Importantly, there is no legal requirement to consider extending a fixed-term contract where there may be further work for the employee. However, if the employee has been working for you for at least two years, you must treat their dismissal as you would if their employment contract had not been fixed-term. This means that you must demonstrate that you had a fair reason not to review the employment contract.

Unlawful Dismissal

Whilst dismissal is generally where you end the employment contract, there is an instance of dismissal where your employee terminates the employment contract. This is known as constructive dismissal and can happen when your employee feels forced to end their employment contract. Constructive dismissal is a form of illegal employment contract termination. 

There are also two other forms of illegal ways to end an employment contract. One is unfair dismissal which is where you end your employee’s employment contract without an acceptable reason. The other is wrongful dismissal. This is where you terminate your employee’s employment contract, but when you do so, you do not meet the terms of their employment contract, such as giving the correct notice period or pay.

Key Takeaways

As an employer, you must know how your staff may end their employment contract with you and how you may terminate their employment contract. For example, your employees may want to resign from their employment with you, or you may need to dismiss your employee for various reasons, such as their poor conduct. Importantly, you must follow a correct, legal process when terminating an employment contract. For example, if you dismiss your employee, you must have one of five legal reasons for doing so. Not following the rules about termination of employment contracts could result in an employment tribunal.

If you need help on ways to end an employment contract, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.

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