No-Fault Dismissals

by Alan Devaney, Solicitor in Ronan Daly Jermyn’s employment group.

A no fault dismissal occurs where an employer exercises a contractual right to terminate an employee’s employment with notice, but without fault or without providing a reason. A no fault dismissal is permitted in law and has been recognised over the years, most recently in the 2021 case of Donal O’Donovan v Over-C Technology Limited, whereby the Court of Appeal overturned an injunction granted to an executive whose employment had been terminated on the basis of poor performance during his probationary period. The Court of Appeal in that case re-stated two clear principles as follows: –

“Firstly………… that an employer can terminate employment for any reason, or no reason, provided adequate notice is given. This applies whether or not the dismissal occurs during the probationary period. 

Secondly……. that the principles of natural justice apply to cases involving dismissal for misconduct but not to termination on other grounds”. 

That being said, proceeding to termination on a no-fault basis is not without risk, particularly where there are disciplinary matters or underlying performance issues. Below I have set out the risks to be considered.

Unfair Dismissal

Generally, an employee cannot bring an unfair dismissal claim unless they have 52 weeks of continuous service. This is subject to certain limited exceptions (for example there is no service threshold for dismissal relating to pregnancy, trade union membership, making a protected disclosures and other grounds). In addition, there is no service threshold to bring a discriminatory dismissal claim on the grounds of their race, sex, sexuality, age or any of the other discrimination grounds.

So we can say that if an employer proceeds to terminate on a no-fault basis, an employee is likely to fall outside of the scope of the Unfair Dismissals Act unless they have 52 weeks of continuous service or one of the above exceptions apply. To mitigate the risk of a discrimination claim, it would be best to document the non-discriminative, objective basis for the no fault dismissal.

Where the employee has in excess of 52 weeks service and they are dismissed on a no-fault basis, they will be afforded the protections of the Unfair Dismissal legislation. In that situation, it will be difficult for an employer to stand over this type of dismissal in the absence of fair procedures and natural justice. In fact, the burden will be on the employer to prove the dismissal was fair. It is important to be aware the maximum compensation which can be award for an Unfair Dismissal claim is 2 years remuneration and 5 years where it relates to a Protected Disclosure.

Recommendations

An employee dismissed on a no-fault basis can seek a non-binding Recommendation from the Workplace Relations Commission “WRC” under the Industrial Relations Act, 1969. This is the route usually taken when they fail to meet the service requirement under the Unfair Dismissals Acts. An employee can ask the WRC/Labour Court to examine their case and determine (by way of a non-binding recommendation) whether they were fairly dismissed or not. The approach of the WRC/Labour Court tends to focus on fair procedures – such as whether the employee had the right to fair procedures before they were dismissed.  Typically, the WRC/Labour court find that they do – but where the employer objects in a timely manner, to being bound by the decision, the ruling will be non-binding.  In certain sectors (e.g. public sector organisations) there may be a tendency to observe WRC/Labour Court rulings, but this is not obligatory.

Wrongful dismissal / Injunctive relief 

Lastly, there is a claim for wrongful dismissal, which means dismissal in breach of contract – and can only be litigated in the Courts (the Workplace Relations Commission has no jurisdiction). An employee can in theory bring a wrongful dismissal claim even during the first year – but such claims are difficult for employees to succeed in (and may become more difficult because of the O’Donovan decision – mentioned above). They tend to be confined to high-level executive roles with high salaries. An employee typically brings a wrongful dismissal claim in the first year, if they can establish that (i) they were entitled to fair procedures prior to dismissal (such as within a disciplinary process) but (ii) the employer did not afford them those fair procedures.

Applying to the Courts for injunctive relief for wrongful dismissal is generally a less attractive route for a dismissed employee in view of the time and very significant expense required to take this type of action. The Courts have also shown an unwillingness to grant injunctive relief to restrain a no-fault dismissal. This was the case in Bradshaw v Murphy 2014 where the High Court refused to grant an injunction to restrain a no-fault dismissal of a chef/restauranteur – despite allegations of misconduct which had not been investigated. In that case the employee had failed to meet the high bar required to secure such an injunction, namely he had not established that:

1. there is a serious issue for trial;
2. damages would be an inadequate remedy;
3. the balance of convenience lay in favour of granting the injunction.

An employee will have a greater prospect of being granted injunctive relief where they have grounds to demonstrate that there was a reason for the dismissal such as for poor performance or misconduct.

Essentially, in such a scenario an employee would apply to the Court seeking their rights to fair procedures so that they can address what are in their view the clear unaddressed disciplinary issues prior to any dismissal being affected.  It is key that there are no live or ongoing formal disciplinary matters. The cases where employees have secured injunctions for no fault dismissals have tended to involve scenarios where a disciplinary process was started, dropped and then replaced by a no-fault dismissal.

This was the case in Grenet v Electronic Arts Ireland Limited, whereby Mr. Grenet was dismissed for allegedly making an inappropriate comment on a call with another colleague. The dismissal was subsequently withdrawn, and it was claimed that his employment was validly terminated on a no-fault basis. Mr. Grenet brought a successful injunction restraining his dismissal.

In the O’Donovan case mentioned above, the Court of Appeal overturned the High Court’s decision and limited the circumstances in which the Court will interfere with a dismissal and grant an injunction. In that case the employee’s poor performance was brought to his attention, and the company terminated his employment with immediate effect and confirmed that the employee would be paid in lieu of notice. The employee issued injunctive proceedings in the High Court seeking to be immediately re-instated into his role and preventing the appointment of any other person into his role.  The High Court granted an injunction directing that the employee be re-instated.

The Court of Appeal decision overturned that decision and helpfully removed the uncertainty created by the High Court’s original decision. The Court of Appeal acknowledged the following:

1. It was accepted that the dismissal during probation was for poor performance, not misconduct.
2. The contract of employment included an express clause which permitted termination during probation for no reason.
3. The Court refused to imply a right to fair procedures into a contract.
4. The employee was dismissed pursuant to an express contractual term which entitled the employer to dismiss him if his performance was substandard.
5. The employee was appropriately paid his notice.

The Court helpfully commented that the trial Judge had failed to properly consider the fact that termination occurred during the probation period.  The Judge commented “During a period of probation, both parties are – and must be – free to terminate the contract of employment for no reason, or simply because one party forms the view that the intended employment is, for whatever reason, not something with which they wish to continue”.

The net result is that the number of employees seeking injunctive relief from the Court will be restricted to circumstances relating to misconduct in which no fair procedures are used. It is also important to point out that this rational applies whether or not dismissal occurs during the probationary period. Further than that, it is possible to dismiss for poor performance without a requirement to use fair procedures. However, the application of the Unfair Dismissals Acts should always be considered.

Where the dismissal relates to misconduct issues, fair procedures should always be applied.

We would recommend the following be considered when exploring dismissal of a poorly performing employee on a no-fault basis:

1. Where the employee is still within their probationary period or has under 52 weeks service, before moving to a termination, ensure the contract of employment, particularly the probationary clauses contain scope to terminate the contract for no reason.
2. Where the employee has in excess of 52 weeks service or falls into one of the exceptions, a performance improvement plan should be considered in line with company policies and procedures and, depending on the outcome, a dismissal thereafter.
3. Termination in circumstances of misconduct, even during probation, should be conducted in line with the Company’s disciplinary procedures and fair procedures / natural justice. This does not necessarily have to be the full disciplinary policy but can be an abridged version.

In conclusion, while no fault dismissals are possible, they are notoriously difficult to stand over and justify. A lot will depend on the nature of the performance issues and how they have been addressed in the past.  Prudent employers will ensure they obtain legal advice in advance of moving towards a no-fault dismissal.

About the author
Alan Devaney is a solicitor in RDJ’s employment group. He represents employers of all sizes and across all industries, advising on a wide range of employment relation matters including reviewing company policies and procedures, employment related due diligence, redundancies and wrongful and unfair dismissals. Alan has acted in the defence of claims in employment-related proceedings and understands the critical importance of adopting a pragmatic and commercially sensible approach to defending these type of claims.