UK Dismissal, Tribunals and Settlement Agreements

Before you can start an Employment Tribunal claim (for unfair dismissal, redundancy pay, discrimination, or most other employment rights), you must first notify ACAS and go through early conciliation. This is a legal requirement under the Enterprise and Regulatory Reform Act 2013 — the Tribunal will reject your claim form (ET1) if you have not done this first.

Early conciliation is free and voluntary in the sense that you cannot be forced to settle. ACAS will contact your employer and try to help both parties reach an agreement without going to tribunal. The process typically takes up to 6 weeks, though it can be shorter if both parties engage quickly or either party decides not to proceed. If conciliation does not result in a settlement, ACAS issues a certificate that you use to proceed with your tribunal claim.

Critically, contacting ACAS pauses (tolls) the 3-month time limit for your claim. The clock stops when you notify ACAS and resumes one month after the certificate is issued (or sooner if you decide to withdraw). This means you should contact ACAS as early as possible — well before the 3-month deadline — to give conciliation time to work without eating into your time limit. You can contact ACAS at acas.org.uk or by phone.

Constructive dismissal occurs when your employer fundamentally breaches your employment contract — making your working conditions so intolerable that you have no reasonable choice but to resign. Despite the fact that you resigned, the law treats this as a dismissal because you were essentially forced out. The legal basis is the implied contractual term of mutual trust and confidence, which your employer must not destroy.

Classic examples of employer conduct that can amount to constructive dismissal include: unilateral cuts to pay or hours without agreement; bullying, harassment, or discriminatory treatment; demoting you without cause; systematically undermining your authority; forcing you to work in unsafe conditions; or failing to deal with a formal grievance about serious mistreatment. A single very serious breach or a cumulative pattern of behaviour can both qualify.

To bring a constructive dismissal claim at the Employment Tribunal, you need 2 years' continuous employment (unless the breach also involves discrimination or whistleblowing, where day-one rights apply). You must also resign promptly after the breach — if you continue working without protest, you may be taken to have accepted the new terms. The claim must be brought within 3 months of the last act (minus one day), after ACAS early conciliation.

Pregnancy and maternity are protected characteristics under the Equality Act 2010. Dismissing an employee because of pregnancy, a pregnancy-related illness, or for taking or intending to take maternity leave is unlawful direct sex discrimination as well as an automatically unfair dismissal. Critically, these protections apply from day one of employment — you do not need 2 years' service. The 'protected period' begins when your pregnancy starts and ends 2 weeks after the birth (or at the end of maternity leave, whichever is later).

During the protected period, any detrimental treatment connected to your pregnancy is presumed to be unlawful. This includes: performance management triggered by pregnancy-related absences, redundancy selection criteria that disadvantage you, failure to make reasonable adjustments for pregnancy-related conditions, or dismissal while on maternity leave for a reason connected to the pregnancy. Even if the employer was not aware of the pregnancy at the time of dismissal, the protection can still apply once they become aware.

If you are at risk of redundancy while pregnant or on maternity leave, you have an additional right: the right to be offered any suitable alternative vacancy in your employer's organisation (or an associated entity) before other employees at risk — even if you have not applied for it. Failure to offer you this priority right is automatically unfair dismissal. You can bring both an unfair dismissal claim and an Equality Act claim in the Employment Tribunal — the time limit is 3 months from the last act, after ACAS early conciliation.

The time limit for an unfair dismissal claim in the Employment Tribunal is 3 months less one day from the effective date of termination (EDT) — the date your employment actually ended, not the date notice was given. For example, if your last day was 15 June, your claim must be received by the Tribunal by 14 September. Missing this deadline is almost always fatal to your claim — extensions are granted only in very limited circumstances (where it was not reasonably practicable to comply).

Before filing, you must contact ACAS for early conciliation (EC). The time limit is paused while EC is active and for a further 1 month afterward. If your 3-month deadline would have expired during EC or the 1-month post-EC window, you get extra time. Practically: contact ACAS as early as possible, and if your deadline is approaching, make sure EC has been initiated before it expires.

Some other employment claims have different time limits: discrimination claims are also 3 months from the act, unlawful deduction claims are 3 months from the deduction, wrongful dismissal contract claims are 3 months if in the tribunal (or 6 years in court), and redundancy pay claims are 6 months. Always check the specific time limit for your claim type — mixing them up is a common mistake.

A settlement agreement (formerly a 'compromise agreement') is a legally binding contract between an employer and employee. In exchange for a financial payment, you waive the right to bring — or continue — employment claims such as unfair dismissal, discrimination, or unlawful deduction from wages. Once signed, the agreed claims are settled permanently.

For the agreement to be legally valid under the Employment Rights Act 1996 (s.203), it must be in writing, it must relate to a specific complaint or proceeding, and you must have received independent legal advice from a qualified adviser — typically a solicitor, barrister, trade union rep, or CAB adviser — who holds professional indemnity insurance. Your employer will normally pay a contribution of £500–£1,500 towards your legal fees.

Settlement discussions take place under 'without prejudice' privilege, meaning they cannot normally be referred to in Tribunal proceedings if negotiations break down. You are never obliged to accept an offer or sign the agreement.

Settlement agreement values have three components. First, your statutory entitlements: redundancy pay (if applicable, based on age, service, and capped weekly pay) and notice pay (pay in lieu of notice for your statutory minimum notice period). Second, the ex gratia element: compensation negotiated for the claims you are waiving. Third, a contribution to your legal advice costs.

The ex gratia payment is driven by your claim strength. For a routine departure without a strong claim, employers typically offer 1–2 months' salary. For a genuine unfair dismissal claim with good evidence, 2–4 months. For discrimination claims — which are uncapped at Tribunal — 3–6 months or more, because the employer's litigation risk is higher. These are starting points; strong evidence, a credible claim, and an experienced solicitor can significantly improve the outcome.

The first £30,000 of total termination payment is tax-free. Anything above this is taxable at your marginal income tax rate. PILON is always fully taxable regardless of the threshold.

Under ITEPA 2003 s.403, the first £30,000 of a total termination payment — including statutory redundancy pay, ex gratia, and enhanced notice pay — is exempt from income tax and employee National Insurance. Amounts above £30,000 are taxed as employment income at your marginal rate. Your employer typically deducts tax before paying the settlement sum.

Pay in lieu of notice (PILON) is treated differently. Since April 2018, all PILON payments are fully taxable as earnings — they no longer benefit from the £30,000 exemption regardless of whether the contract contains a PILON clause. If your settlement includes PILON, expect to receive it net of income tax and NI.

Injury to feelings awards (in discrimination claims) are not subject to income tax. Legal fees paid directly to your solicitor by the employer are generally not taxable in your hands, provided the payment is made for legal advice on the termination of employment.

Employment Tribunal compensation for unfair dismissal has two parts. The basic award is calculated like statutory redundancy pay: years of service (up to 20) × weekly pay (capped at £751 for 2026/27) × age multiplier. The compensatory award covers your actual financial loss — primarily lost salary — capped at the lower of 52 weeks' gross pay or £123,543 for 2026/27.

Discrimination and whistleblowing claims are different: there is no cap on the compensatory element, and you can also claim injury to feelings under the Vento bands framework. Vento bands range from £1,300 (less serious, lower band) to £62,900 (most serious, upper band). Aggravated damages and personal injury (psychiatric harm) can be awarded on top in the most serious cases.

Both awards can be increased by up to 25% (ACAS uplift) if the employer failed to follow a fair disciplinary/grievance process, or reduced by any percentage the Tribunal considers fair for contributory conduct on your part.

Vento bands set the range within which Employment Tribunals award injury to feelings compensation in discrimination claims (sex, race, disability, age, religion, sexual orientation, etc.). The name comes from the Court of Appeal case Vento v Chief Constable of West Yorkshire Police [2002]. The bands are updated each April to reflect inflation by the Employment Tribunal Presidential Guidance.

The lower band (£1,300–£12,600 for 2026/27) covers less serious one-off acts: a single discriminatory remark, a single act of unfavourable treatment. The middle band (£12,600–£37,700) covers more serious cases: sustained treatment, repeated acts, or a pattern of discrimination. The upper band (£37,700–£62,900) is reserved for the most serious cases — deliberate, sustained, or particularly demeaning treatment — and should only be used in exceptional circumstances.

The injury to feelings award is separate from and in addition to financial loss compensation. It is not subject to income tax. Exceptionally serious cases can also attract aggravated damages on top of the Vento award.

Gross misconduct is conduct that is so serious that it destroys the trust and confidence at the heart of the employment relationship. If genuinely established after a fair investigation and disciplinary process, it justifies immediate dismissal without notice (summary dismissal) — the employee forfeits their notice entitlement. Common examples include theft or fraud, physical violence, serious harassment or bullying, deliberate damage to property, serious breach of health and safety rules, and bringing the employer into serious disrepute.

Despite the severity of the conduct, employers must still follow a fair dismissal procedure before dismissing for gross misconduct. This means investigating the allegations, inviting the employee to a disciplinary hearing, allowing them to bring a colleague or union rep, considering their response, and offering a right of appeal. Failure to follow this process can make an otherwise fair dismissal unfair — ACAS uplift can add up to 25% to any Tribunal award.

Not all serious conduct amounts to gross misconduct — the label depends on the contract, the employee handbook, and the specific circumstances. Where the same conduct would not result in dismissal for other employees (inconsistent treatment), a dismissal for gross misconduct can still be unfair.

The Employment Tribunal is a specialist court that hears employment law disputes between employers and employees (and workers). It is independent of government and ACAS. Unlike civil courts, it has its own rules, flexible procedures, and specialist legal expertise. Most hearings are open to the public and reported online.

The most common claims are unfair dismissal, discrimination (under the Equality Act 2010), unlawful deduction from wages, breach of contract, and failure to pay statutory entitlements (redundancy pay, holiday pay, statutory sick pay). Before starting a Tribunal claim, you must contact ACAS for early conciliation — this pauses the time limit while ACAS tries to facilitate a settlement.

Time limits are strict: most claims must be brought within 3 months less one day of the act you are complaining about (e.g. the date of dismissal). Missing the deadline almost always means losing the right to claim — Tribunals extend time only where it was not reasonably practicable to comply. There is no fee to bring a claim (fees were abolished in 2017).

Under the Equality Act 2010, disability is a protected characteristic. A disability is defined as a physical or mental impairment that has a substantial and long-term adverse effect on normal day-to-day activities. 'Long-term' means the condition has lasted (or is expected to last) at least 12 months. Some conditions — cancer, HIV, MS — are deemed disabilities from diagnosis, regardless of current effect.

There are several forms of disability discrimination. Direct discrimination: treating someone worse because of their disability. Indirect discrimination: a provision, criterion, or practice that puts disabled people at a disadvantage without objective justification. Failure to make reasonable adjustments: not adjusting working arrangements, physical features, or policies to remove disadvantages. Discrimination arising from disability: unfavourable treatment because of something arising from a disability (e.g. dismissing someone for absences caused by their condition). Harassment and victimisation are also prohibited.

Employers have a duty to make reasonable adjustments to remove or reduce disadvantages that disabled employees face. Whether an adjustment is 'reasonable' depends on its cost, practicality, and the employer's resources. Reasonable adjustments include: phased return to work, changed hours or location, modified duties, assistive technology, and additional breaks. Failure to make reasonable adjustments is one of the most common forms of disability discrimination claim.

The general rule is that employees need 2 years' continuous employment to bring an unfair dismissal claim (Employment Rights Act 1996 s.108). However, there are numerous exceptions where the 2-year qualifying period does not apply — these are called 'automatically unfair' reasons for dismissal.

You can claim unfair dismissal from day one if dismissed for: pregnancy or maternity-related reasons; whistleblowing (making a protected disclosure); trade union membership or activities; asserting a statutory right (e.g. claiming the National Minimum Wage); jury service; working time rights; health and safety activities; or being a trustee of an occupational pension scheme. These are listed in ERA 1996 ss.99–105 and s.238A.

Discrimination claims under the Equality Act 2010 also have no qualifying period and no cap on compensation. If your dismissal was connected to a protected characteristic (sex, race, disability, age, religion, sexual orientation, gender reassignment, marriage, pregnancy/maternity), you can claim from day one regardless of service length.