Employment Law Terminating employment contracts: why the process matters as much as the reason

An employer may have compelling business reasons for wanting to end an employment relationship. Persistent underperformance, a breakdown in trust or changing operational needs can make retaining an employee increasingly difficult.

Before considering dismissal, employers need to establish whether their concerns justify ending the employment relationship and whether alternatives should be explored. The reason, supporting evidence and process all matter. Giving notice and paying contractual entitlements are only part of the responsibilities associated with terminating employment contracts.

With the Employment Rights Act 2025 reducing the ordinary unfair dismissal qualifying period to six months from January 2027, employers should review how they identify concerns, manage performance and make dismissal decisions.

Does the stated reason stand up to scrutiny?

The five potentially fair reasons for dismissal are conduct, capability or qualifications, redundancy, statutory restriction and some other substantial reason. The circumstances must support the reason relied on, and the dismissal must be reasonable.

Redundancy concerns the employer’s need for employees to perform a specific work function. For example, automation may reduce the number of administrative roles required, or a site closure may remove the need for staff at that location. It should not be used to replace an underperforming employee with someone else doing essentially the same job.

Conduct concerns include behaviour such as falsifying expenses, refusing a reasonable management instruction, or repeatedly breaching safety procedures. The seriousness, circumstances, and the employee’s explanation will influence the appropriate response.

Poor performance usually concerns capability. An employee might repeatedly produce inaccurate reports or fail to meet an established quality standard despite feedback and support. Ask whether they are unable to meet the requirement or are choosing not to follow it; that distinction can affect the approach.

A breakdown in trust warrants closer examination. Dishonesty may render it a conduct issue. A serious, evidence-based relationship breakdown might, in some circumstances, amount to “some other substantial reason”. Simply asserting that a manager has lost confidence in someone is insufficient to justify terminating employment contracts.

Has the process genuinely informed the decision?

The process should establish what happened, why it happened, and whether dismissal is justified.

Consider an employee who repeatedly misses reporting deadlines. Were the deadlines realistic and clearly communicated? Did they have the training, resources and support they needed? Were they given specific improvement targets and a reasonable opportunity to meet them?

Contrast that with an allegation of falsified expenses. A disciplinary investigation should examine the records and the employee’s explanation before deciding whether there is a case to answer. An allegation of dishonesty is not, in itself, proof and cannot be used to trigger the terminating an employment contract.

Health-related capability decisions require particular care in relation to medical evidence, consultation and reasonable adjustments where disability is involved. Redundancy requires meaningful consultation and consideration of alternatives.

The Acas Code of Practice applies to disciplinary and poor-performance cases. Even suspected gross misconduct requires a fair process. Internal emails that suggest the decision to dismiss was already made can undermine an otherwise orderly process. Employers should avoid announcing an outcome before hearing the evidence and should provide an opportunity to appeal the eventual decision.

Short service still requires a risk assessment

As at November 2026, ordinary unfair dismissal protection usually requires two years’ service. That threshold has sometimes led employers to treat dismissals of shorter-service employees as straightforward.

However, length of service does not determine every potential claim. Discrimination claims and many protections against automatically unfair dismissal do not require two years’ employment. Wrongful dismissal claims concern contractual breaches and have no minimum service requirement.

Before proceeding, consider the surrounding circumstances. Has the employee raised a whistleblowing concern, disclosed a disability, announced a pregnancy, or sought to exercise a statutory right?

None of these circumstances automatically prevents dismissal for a separate, legitimate reason. They do make it particularly important to establish what is driving the decision and to retain evidence supporting it.

January’s changes bring earlier decisions into focus

From 1 January 2027, employees will ordinarily qualify for unfair dismissal protection after six months, rather than after two years. The statutory cap on compensatory awards for unfair dismissal will also be removed.

Employees who already have six months’ service when the change takes effect will be covered. The effective date of termination matters, including cases where notice is given before January but employment ends afterwards.

Employers should therefore review existing employees’ service dates alongside their management processes. Recognise concerns early through productive review meetings. Escalate unresolved issues promptly, rather than rushing decisions when an employee approaches six months’ service.

Probation needs substance behind the paperwork

Probation does not create a separate legal status or suspend employment rights. Extending probation will not delay the new six-month qualifying point.

A probation clause is only useful when supported by clear objectives, regular feedback and documented assessments. Concerns raised for the first time at the final review indicate weaknesses in the management process. Check whether review schedules give managers enough time to assess progress, provide support and obtain advice before making a decision.

Terminating employment contracts: fairness and contractual obligations

Giving the correct notice does not make an unfair dismissal fair. Equally, a sound reason does not remove contractual obligations.

Check notice provisions, payment-in-lieu arrangements, outstanding remuneration and accrued holiday. Contractual procedures also need attention. Gross misconduct may justify dismissal without notice, but a fair investigation and disciplinary process remain essential. Outstanding wages and accrued holiday pay generally remain payable.

Take advice while options remain open

Before committing to dismissal, test the reason, evidence, process and contractual position together.

Spotlight HR can help you assess the risks and plan an appropriate approach while there is still scope to resolve concerns, consider alternatives, or proceed with a properly supported dismissal.

If you would like our help, please email us or call 01424 864144.

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