How to terminate an employee contract: a step-by-step guide

By Indeed Editorial Team

Updated 21 November 2022 | Published 16 August 2021

Updated 21 November 2022

Published 16 August 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

At some point in your professional life, you may find yourself in a position where you must dismiss an employee. This requires that you follow any procedures that your organisation mandates, and that you do so professionally and ethically. Doing so ensures that your company treats the employee fairly, that you've done your job properly and that you respect the relevant employment laws. In this article, we explain the importance of terminating an employee's contract properly, share steps for dismissing an employee and answer some frequently asked questions.

When would you need to terminate a contract?

There are various reasons why you might need to dismiss someone from their role. This could be due to their behaviour violating certain codes of conduct, harming the interests of the business, risking the safety of the workplace or breaking certain legal or moral codes. The UK government requires that any dismissal be fair and not violate the terms of the employment contract.

Related: How To Deal with Job Loss

How to dismiss an employee

It's important to be very careful when you decide to terminate an employment contract. This is to ensure that you comply with the ethical or legal rules in the process. Below is a list of steps for how to properly dismiss an employee:

1. Issue a warning

Before you decide to dismiss somebody, it's a good idea to keep track of any problems they may have caused. Provide warnings when issues occur and give the employee a chance to correct their behaviour. Make sure you compile any documentation or proof that shows how they've breached their contract or given you cause to consider dismissing them.

When you issue a warning, do so in writing and keep a copy. You may choose to issue several warnings before finally deciding that the only course of action is dismissal. In this case, keep track of all relevant documentation.

Related: Best Steps To Take After Getting Fired

2. Ensure that you've followed proper procedure

Refer to your company's disciplinary procedures and policy to ensure you follow proper procedures. Companies may have their own warning systems and a certain number of chances an employee has to correct their behaviour or work. Take your time at this stage to ensure accuracy. An employee dismissal is a very serious matter, and it's crucial to follow the correct procedure for your company and area.

3. Make sure that you have a valid reason for dismissal

It's vital that you make sure that the reasons for dismissal are legally valid and substantial. The government sets out specific guidelines related to an employee's rights regarding dismissal. Valid dismissal requires that the employee in question is not doing their job properly or is risking others' safety.

4. Confirm that there's no discrimination

Before proceeding with dismissal, it's also important to ensure that your reasons are unrelated to the employee's identity. If they're being dismissed for reasons that relate to a protected characteristic, such as their sexual orientation, religion, age or gender, then they may be able to take legal action under the Equality Act 2010. Consider reviewing the guidelines to ensure you're following the correct protocol.

Related: How To Talk About Race, Gender and Social Issues at Work

5. Arrange a disciplinary meeting

If you have a valid reason for dismissal, you can invite the employee to a disciplinary meeting. In writing, inform them that their dismissal is a potential result of this meeting and that they have the right to be accompanied by a representative.

During the meeting, present the employee with the evidence you've accumulated and inform them of how they've violated their terms of employment or otherwise given you cause to dismiss them. Allow them to comment on any evidence or allegations against them. Ensure that somebody is present to take notes of this meeting and act as a witness.

Hold the meeting in a private room where others can't overhear what's happening. Ensure that you're dealing with them professionally and politely and that you keep your personal thoughts and emotions to yourself.

Listen to their defence of their actions and consider what they have to say, and then have a break to deliberate. Consider the employee's defence fairly when making your decision. Afterwards, if you still want to dismiss them, explain why you're making the decision.

Related: How To Write Meeting Notes: Essential Steps

6. Reconvene to deliver the decision

When you reconvene the meeting, you can formally deliver the outcome. Take the time to repeat the reasons for dismissal, and you can also present this in writing. If you feel that further investigation is necessary, you can communicate this when you reconvene.

If your company needs to conduct an investigation, revisit the reasons for dismissal, the evidence thereof and consider whether the decision is fair. Once the investigation concludes, gather and present the findings in a new disciplinary meeting and proceed from there.

7. Remind the employee they can appeal the decision

The employee whose contract is being terminated has the right to appeal your decision to dismiss the process. This is an essential part of a fair dismissal procedure. Remind the employee that they have this right, and provide them with a deadline by which they may make such an appeal.

Once you've done this, follow up the meeting with a summary in writing. You can take this opportunity to confirm that the company has decided to terminate the employee's contract and explain why the team made this decision.

This is also where you can inform the employee of their remaining rights, such as their outstanding pay, the need to return any company property and any remaining annual leave. Doing so in writing allows you to prove that you've followed the correct procedure and have treated the employee fairly.

8. Review how it went

Consider reviewing your process to help you learn and improve it for the future. You can learn a lot by revisiting the procedure and how you handled it. Think about how you could've done things better, and try to incorporate this into your approach the next time there is a potential dismissal to consider.

You may also wish to take the time to reassure other employees that their jobs are not at risk and that the dismissed individual had given you cause to terminate their employment. This can help you maintain a positive workplace environment.

Related: How To Prepare for a Performance Appraisal

Dismissing an employee FAQs

Here are some answers to the frequently asked questions about dismissing an employee:

What's the difference between unfair and wrongful dismissal?

Unfair dismissal refers to an employee who's had their employment terminated for a reason not allowed under the Employment Rights Act. An employee can only claim unfair dismissal once they've given two years of continual service. After that, the employer must satisfy two conditions to avoid unfair dismissal claims.

First, the employee must be dismissed for a valid reason, of which there are five under the Employment Rights Act. These are statutory illegality, redundancy, conduct, capability and any other substantial reason. Additionally, the dismissal must be reasonable under the circumstances and completed with the correct process.

Wrongful dismissal refers to employment termination where the employer failed to abide by the terms of the contract. An employee doesn't have to have served for two years to claim wrongful dismissal. An individual can claim wrongful dismissal and bring their case to an employment tribunal or a civil court.

What is summary dismissal?

Summary dismissal is when an employer ends employment immediately, without advanced notice. This can only happen in extreme situations, such as when the employee commits a crime like theft, fraud or some form of violence and the employment contract must include this information. If the contract lacks such stipulations, a company may suspend the employee with full pay while they investigate the circumstances further.

What are some unfair reasons for dismissal?

If you're in a leadership or management position, it's important to know the unfair reasons for dismissal so you can ensure your termination process remains fair. Here are the unfair reasons for dismissal:

  • Pregnancy or maternity-related reasons

  • Paternity or adoption leave

  • Being a trade union representative

  • Being an employee representative

  • Acting as a trustee for an occupational pension scheme

  • Joining or refusing to join a trade union

  • Whistleblowing (reporting wrongdoing)

  • Reaching retirement age

  • Being a fixed-term or part-time employee

  • Taking part in lawful industrial action

  • Discrimination based on political or religious beliefs

What are the penalties for unfair dismissal?

An employment tribunal may find that an employer dismissed an employee unfairly, and they may order reparations to be made. This could include giving the employee their old job back, offering them a different job in the company or paying compensation.

The compensation is usually relative to the employee's age, pay and length of service. Consider reviewing your company's policies, employment contracts and the guidelines in your area to ensure you complete a dismissal fairly.


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