Unfair dismissal settlements and compensation

This article is a guide to unfair dismissal compensation and negotiating settlement agreements, setting out the basics for you, the employee who has actually been dismissed. In our related article you can also read more about constructive dismissal which is where you are still in your job but feel that you’re being forced to leave.

What are unfair dismissal settlement agreements?

Employers often offer settlement agreements to settle a potentially unfair dismissal claim: they offer you a sum of money so that they do not have to follow a dismissal procedure. Try to resist the temptation simply to take the first offer, and instead tell them you’ll get back to them after a week or so. This gives you time to get some proper expert advice.

What is the minimum length of service for unfair dismissal compensation?

You usually need to be employed for at least two years to bring a claim for unfair dismissal compensation, although there are some exceptions – see below.  Before you have two years’ service there is no requirement for your employer to follow an official procedure. Put simply, providing they give appropriate notice an employer can dismiss you without giving a reason. They don’t have to mention your performance, a company restructure or any reason at all, although often they do give a reason anyway.

What if you get fired after say 23 months, and they do not give you your one month’s notice? Well, unfortunately all you can do is bring a claim for your one month’s notice. It is however often possible to obtain some kind of compensation in these situations with some negotiating, regardless of the legalities of the situation. The closer the termination date is to the two years’ service, the stronger your argument would be.

If you are dismissed after 1 week before the 24 month mark, without notice, in circumstances which should not warrant summary termination for gross misconduct, the Tribunal can add the one week statutory notice, giving the minimum two years’ service for an unfair dismissal claim. The last day of employment would then be the date when proper statutory notice would have ended.

Which unfair dismissal claims do not require 2 years service?

Although generally two years’ continuous employment is needed to be able to bring an unfair dismissal claim, if the dismissal is for one of the “automatically unfair” reasons below there is no qualifying period:





  • Dismissal related to asserting a statutory right


  • Dismissal relating to Trade union membership or non-membership


  • Dismissal in connection with the national minimum wage


  • Dismissal connected with refusing to exceed the 48-hour working week



Just because you have less than two years’ service, you are not automatically barred from bringing one of the above claims. For example if the dismissal is related to discrimination on grounds of sex, race, age, disability, sexual orientation, religious belief, or fears about healthy and safety at work (eg coronavirus) there is no 2 year requirement and no limit on the amount of damages the Tribunal can award for unfair dismissal.

Top Tips

Alex Monaco
  • 1
    You normally need to be employed for at least two years in order to bring a claim for unfair dismissal.
  • 2
    When you are unfairly dismissed the time limits are very strict – you only have 3 months to bring a claim in the tribunal. This does not get extended by any grievance process.
  • 3
    If you win a claim then your compensation will reflect how much money you lost by being out of a job. For example, if you were only out of a job for 2 weeks, you will get very little compensation.
See our article on unfair dismissals due to coronavirus unsafe workplaces

What is the definition of unfair dismissal?

Let’s assume that you have your two years’ service and you would like to know if your dismissal was fair. Firstly, you need to look at the reason given for the dismissal. There are five main acceptable reasons:

  1. Capability
  2. Conduct
  3. Redundancy
  4. Illegality
  5. Some other substantial reason


If the reason given to you was not one of the above, the chances are that you were unfairly dismissed. For example, if you were dismissed because you are friends with the old CEO who has been fired, this is not a fair reason.

If you have been given a potentially fair reason, the next thing to look at is the procedure. If a fair procedure was not followed, then you can still claim for unfair dismissal. Any compensation could be reduced to reflect the chances that you would have been dismissed if the correct procedure has been followed.

Exactly what is a fair procedure varies depending on the size and administrative resources of your employer. The bigger the company, the more hoops they should jump through. As a guideline: in a capability dismissal, you should be given warnings and chances to improve. You should have a fair hearing, with the chance to bring a colleague. And you should have a right of appeal to a higher level of management (or a different manager if it is a small employer). The ACAS code of practice is  used by the employment tribunals to measure whether a procedure was fair.


How can I prove that the reason given was not the real reason for my dismissal?

This is always tricky: you may have been given a fair reason, and the procedure was fair, but you may still be able to claim for unfair dismissal if you know that there was an underlying reason and this was a sham exercise. This argument should be used with some caution: tribunals are part of the establishment and are not readily persuaded by conspiracy theorists. But still, if you prove that there was a different reason for your dismissal then you may be successful in your claim, even though on the face of it the process seemed fair.

How much should I get in my unfair dismissal settlement agreement?

It is worth looking at what an Employment Tribunal would award, as this can help you to work out what a fair settlement agreement value is. The maximum ‘compensatory’ award in tribunal for unfair dismissal is one year’s salary, or £88,519, whichever is lower (as from April 2020).

However, you have a duty to mitigate your loss, which means that if you get a new job straight away on the same or more money, you won’t be entitled to any compensatory award at all. The other element of unfair dismissal compensation is a ‘basic award’. This is similar to statutory redundancy pay – and is a week’s pay or up to £538  (whichever is lower) per year of service – as from April 2020).  This is unlikely to amount to much, unless you’ve been there for years. Often its better to try to remain employed rather than quit or be fired, that way you can leverage a higher settlement from your employer because they will effectively pay you to leave.

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