Employment Termination Letter (UK)

An Employment Termination Letter in the United Kingdom records an employer decision affecting an employee's engagement and the reasons and procedure followed, and takes its legal force from the Employment Rights Act 1996.

The primary statute governing dismissal in England and Wales is the Employment Rights Act 1996. Section 86 sets the statutory minimum notice periods — one week per year of continuous employment up to a maximum of twelve weeks — and section 87 requires the employer to pay wages during the statutory notice period unless the employee is in breach of contract. Where the employer pays in lieu of notice (PILON) rather than requiring the employee to work out the notice period, the post-termination notice pay rules introduced by the Finance (No. 2) Act 2017 require that PILON be subject to income tax and National Insurance contributions in all cases, removing the previous exemption for unanticipated PILON payments. The Income Tax (Earnings and Pensions) Act 2003 governs the tax treatment of all termination payments.

Section 94 of the Employment Rights Act 1996 provides the right not to be unfairly dismissed, which arises after two years of continuous employment. An employee who receives a termination letter and considers the dismissal unfair may bring a claim in the Employment Tribunal under Part X of the Employment Rights Act 1996. The Advisory, Conciliation and Arbitration Service (ACAS) provides mandatory early conciliation under section 18A of the Employment Tribunals Act 1996 before an employee can present a Tribunal claim — the employment termination letter starts the clock for the three-month time limit within which the employee must contact ACAS. The Equality Act 2010 also provides that dismissal connected to a protected characteristic is automatically unfair and may give rise to an uncapped compensation award.

The Employment Rights Act 1996 also provides specific protections for dismissals connected to particular circumstances. Under section 99, dismissal for a reason connected to pregnancy or maternity leave is automatically unfair. Under section 103A, dismissal for making a protected disclosure (whistleblowing) under the Public Interest Disclosure Act 1998 is automatically unfair, with compensation uncapped. Under section 100, dismissal for raising health and safety concerns is automatically unfair. The termination letter must not state or imply any of these protected reasons as the ground for dismissal. Where an employee is dismissed for redundancy, section 138 of the Employment Rights Act 1996 requires the employer to notify the Redundancy Payments Service (RPS) using form HR1 if twenty or more employees are being made redundant at one establishment within ninety days, and the termination letter must be coordinated with that notification. The Employment Tribunal enforces all of these statutory rights, and compensation for automatic unfair dismissal is not subject to the ordinary cap under section 124 of the Employment Rights Act 1996. Forms-legal.com provides this template as a starting point for United Kingdom-compliant documentation.

An Employment Termination Letter in the United Kingdom is needed whenever an employer brings an employee's employment to an end, regardless of the reason. The four potentially fair reasons for dismissal under section 98 of the Employment Rights Act 1996 are: capability or qualifications; conduct; redundancy; and some other substantial reason (SOSR). Each requires a different process, and the termination letter must accurately state the reason to avoid a successful unfair dismissal claim before the Employment Tribunal.

Dismissal for conduct — following a disciplinary process compliant with the ACAS Code of Practice on Disciplinary and Grievance Procedures — requires the letter to state the nature of the misconduct, confirm that the investigation and disciplinary hearing took place, specify the outcome of the process, and offer the right of appeal. Failure to offer an appeal where the employee has qualifying service is a procedural deficiency that may lead to an uplift in any compensation awarded by the Employment Tribunal of up to 25% under section 207A of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA 1992).

Dismissal for redundancy requires the employer to have followed a fair selection and consultation process. The termination letter should confirm the redundancy payment entitlement — calculated by reference to age, length of service, and weekly pay under section 162 of the Employment Rights Act 1996 — and any enhanced redundancy pay offered. Where twenty or more employees are being made redundant within ninety days at one establishment, collective consultation obligations under section 188 of TULRCA 1992 apply and the employer must notify the Redundancy Payments Service (RPS) on form HR1. A written termination letter supports the employee's claim for statutory redundancy pay and provides evidence for HMRC of the tax treatment of any termination payment.

Dismissal for capability — whether due to poor performance or long-term ill health — requires a different approach. For performance dismissals, the employer should have issued written warnings following formal performance review meetings and given the employee a reasonable opportunity to improve. For ill-health dismissals, the employer should have obtained medical evidence, considered reasonable adjustments under the Equality Act 2010 where the employee has a disability, and consulted the employee about a possible return to work before dismissing. The termination letter for a capability dismissal should be carefully worded to avoid admissions that could support a disability discrimination claim before the Employment Tribunal. The Equality and Human Rights Commission (EHRC) Employment Statutory Code of Practice provides detailed guidance on managing capability cases where disability is a factor.

An Employment Termination Letter in the United Kingdom must address the following key elements to satisfy the Employment Rights Act 1996, the ACAS Code of Practice on Disciplinary and Grievance Procedures, and HMRC requirements for the tax treatment of termination payments.

Employee identification and effective date: The letter must clearly identify the employee by name and job title, and state the effective date of termination (EDT). The EDT is defined in section 97 of the Employment Rights Act 1996 and is the date from which the three-month time limit for presenting an unfair dismissal claim to the Employment Tribunal — via ACAS early conciliation under section 18A of the Employment Tribunals Act 1996 — begins to run.

Reason for termination: The letter must state the reason for dismissal — conduct, capability, redundancy, or SOSR under section 98 of the Employment Rights Act 1996. Stating an inaccurate reason may expose the employer to a wrongful dismissal claim at common law or an automatic unfair dismissal finding if the real reason is a protected one.

Notice period or payment in lieu: The letter should state whether the employee is required to work their notice period or will receive a payment in lieu of notice (PILON). All PILON payments are subject to income tax and National Insurance under the post-employment notice pay rules introduced by Finance (No. 2) Act 2017 and should be calculated using the Post-Employment Notice Pay formula in section 402D of the Income Tax (Earnings and Pensions) Act 2003.

Final pay: The letter should set out the components of the employee's final pay — salary to the date of termination, accrued but untaken holiday pay (required by the Working Time Regulations 1998), any outstanding expenses, and — where applicable — a statutory redundancy payment calculated under section 162 of the Employment Rights Act 1996. Termination payments above £30,000 that are not otherwise exempt may be taxable under section 403 of the Income Tax (Earnings and Pensions) Act 2003, and the employer must operate PAYE on any taxable element. The Employee's P45 must be issued at the time of final payment.

Return of company property and post-termination obligations: The letter should list company property to be returned — including laptops, mobile phones, access cards, and confidential documents — and remind the employee of any continuing contractual obligations including confidentiality provisions and post-termination restrictive covenants. The letter should state the date by which property must be returned and the consequences of failing to do so, including the employer's right to make a reasonable deduction from final pay with the employee's prior written consent under section 13 of the Employment Rights Act 1996.

Right of appeal: Where dismissal follows a disciplinary process, the letter must offer the right of appeal under the ACAS Code of Practice on Disciplinary and Grievance Procedures. The appeal must be heard by a more senior manager than the person who made the original decision, and the employee has the right to be accompanied at the appeal hearing by a trade union representative or work colleague under section 10 of the Employment Relations Act 1999.

Reference: The letter may confirm whether a reference will be provided and by whom. Under the Data Protection Act 2018 and UK GDPR, the employer must not disclose inaccurate personal data about the employee in a reference, and a reference that causes financial loss to the employee through negligent misstatement may give rise to a claim under Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. Forms-legal.com provides this template as a starting point for United Kingdom-compliant documentation.