6. Termination of the contract of employment

A contract of employment can be terminated by either party either with or without notice, depending on the circumstances.

The principal ways by which termination can take effect are:

• dismissal;

• resignation;

• agreement; and

• operation of law.

Termination by dismissal

Establishing that there has been a dismissal is essential before an employee can bring a claim for unfair dismissal, and this is usually the context in which the question of whether or not there has been a dismissal arises. Constructive dismissal is dealt with in Chapter 8.

In most cases it is obvious that an employee has been dismissed because it will be clearly expressed and confirmed in writing. But there are circumstances in which there can be ambiguity, particularly where words are exchanged in the heat of the moment. An employee may consider himself or herself to be dismissed if they are told to “get out” after a heated argument and go and get themselves another job — but it may be that the employer was expecting them to return the following day. They will not be able to bring a claim of unfair dismissal if a tribunal finds that they were not dismissed but simply walked out of their job.

Where there is ambiguity over whether or not there was a dismissal, a tribunal will look at all the circumstances surrounding the event and consider how a reasonable employee or employer would have interpreted it.

In the case of Norrie v Munro’s Transport (Aberdeen) Ltd EAT/437/88, an assistant transport manager was put onto driving duties while new work was found for him after a reorganisation. He refused to do the driving and asked whether he was being dismissed. He was told a number of times that he was not. At the end of his last discussion the director, who had confirmed that he was not being dismissed, said to him, “You might as well put your jacket on.” Norrie brought a claim for unfair dismissal. The EAT said that the words were ambiguous and held that Norrie had not been dismissed because of the assurances he had received from the director.

An employer is entitled to dismiss an employee summarily (without notice) in cases of gross misconduct. In other cases, dismissal must be with notice. The employment will end at the expiry of the notice period unless the employer has made a payment in lieu of notice, in which case the employment will usually end on that date.

Non-renewal of a fixed-term contract that is set to expire on a set date is still a dismissal unless it is by mutual consent.

Termination by resignation

Resignation by the employee does not have to take a particular form and does not have to be in writing, but it must be communicated to the employer.

If an employee tells their employer that they intend to resign at some point in the future, this does not amount to a resignation.

Notice can only be withdrawn by mutual consent, whether it is given by the employer or the employee.

Termination by agreement

The parties to a contract of employment are entitled to end the contract by agreement. However, courts and tribunals will not readily decide that a contract of employment has ended by mutual agreement unless there is strong evidence to support it.

In the following case there was sufficient evidence that the contract had ended by mutual consent:

Termination by operation of law

A contract of employment will automatically come to an end in the event of supervening events such as dissolution of a partnership or a winding-up order, or if the contract is frustrated.

A frustration of contract occurs when it becomes impossible for an employee to perform his or her duties under the contract.

This can happen if the employee becomes incapacitated through illness, is imprisoned, or is excluded from the place of work by a third party.

In deciding whether a contract has become frustrated through illness, the factors that will be considered include:

• the duration of the illness;

• the nature of the employment;

• the terms of the contract;

• the employer’s need for the work to be done and the need for a replacement;

• whether the employee is still being paid; and

• how long a reasonable employer could be expected to wait for the employee’s return.

Dismissal on grounds of incapacity through ill health is also potentially fair under the Employment Rights Act 1996.

The following is an example of a case where the order of a third party that the employee be excluded from the workplace resulted in a frustration of contract: