Termination of Employment Policies

Written by Joanne Hughes, Policy & Compliance Specialist at Policy Pros

Last reviewed: March 2026

What Are Termination of Employment Policies?

Termination of employment policies set out the procedures and legal framework that govern how an employee's contract of employment comes to an end. Whether the termination arises through resignation, dismissal, redundancy, retirement, or mutual agreement, a well-drafted policy ensures that the process is handled lawfully, fairly, and consistently.

For UK employers, termination of employment is one of the most legally sensitive areas of people management. Getting it wrong can result in costly employment tribunal claims, reputational damage, and a breakdown in workforce trust. A clear, comprehensive termination policy protects both the employer and the employee by providing a structured process that aligns with current legislation and best practice.

The primary legislation governing termination of employment in the United Kingdom is the Employment Rights Act 1996 (ERA 1996). This Act establishes the statutory framework for unfair dismissal, notice periods, redundancy payments, and the rights of employees when their employment ends. Employers must also have regard to the ACAS Code of Practice on Disciplinary and Grievance Procedures, which sets out the minimum standards of fairness that tribunals expect employers to follow when dismissing an employee.

Types of Termination

A termination of employment policy must address the various ways in which an employment relationship can come to an end. Each type of termination carries distinct legal requirements and procedural obligations.

Resignation: An employee may voluntarily end their employment by giving notice in accordance with their contract. The policy should set out the process for accepting resignations, confirm the notice period required, and explain any obligations during the notice period, such as the return of company property and completion of handover tasks.

Dismissal: Where an employer terminates the employment relationship, the dismissal must be for a fair reason and follow a fair procedure. The five potentially fair reasons for dismissal under section 98 of the Employment Rights Act 1996 are capability or qualifications, conduct, redundancy, statutory restriction (where continued employment would contravene a statutory duty or restriction), and some other substantial reason (SOSR) justifying the dismissal. Any dismissal that falls outside these categories, or that is carried out without a fair procedure, may be found to be unfair by an employment tribunal.

Redundancy: Redundancy occurs when an employer reduces or ceases its workforce requirements for a particular role or location. Employers must follow a fair selection process, consult with affected employees (and, where 20 or more redundancies are proposed within 90 days, engage in collective consultation under the Trade Union and Labour Relations (Consolidation) Act 1992), and offer suitable alternative employment where possible. Employees with two or more years' continuous service are entitled to a statutory redundancy payment calculated by reference to age, length of service, and weekly pay (subject to a statutory cap).

Retirement: Since the abolition of the default retirement age in 2011, employers cannot force employees to retire unless they can objectively justify a compulsory retirement age for the role. Any retirement policy must comply with the Equality Act 2010 and avoid age discrimination.

TUPE transfers: Where a business or undertaking is transferred to a new employer, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) protect employees from dismissal by reason of the transfer. Dismissals connected to a TUPE transfer are automatically unfair unless there is an economic, technical, or organisational reason entailing changes in the workforce.

Notice Periods: Statutory Minimum vs Contractual

The Employment Rights Act 1996 sets out the statutory minimum notice periods that employers must give employees. An employee who has been continuously employed for one month or more but less than two years is entitled to at least one week's notice. For employees with two or more years' continuous service, the statutory minimum notice period increases by one week for each complete year of service, up to a maximum of 12 weeks' notice.

Contractual notice periods may exceed the statutory minimum but cannot fall below it. Many employers specify longer notice periods in contracts of employment, particularly for senior or specialist roles. A termination policy should clearly set out both the statutory and contractual notice provisions, explain the circumstances in which notice may be waived or payment made in lieu of notice (PILON), and address garden leave arrangements where applicable.

Employees are also required to give notice when resigning. The statutory minimum notice an employee must give is one week, provided they have been employed for one month or more. Again, the contract may require a longer period.

Fair Reasons for Dismissal Under the Employment Rights Act 1996

Section 98 of the ERA 1996 identifies the five potentially fair reasons for dismissal. An employer bears the burden of showing that the reason for dismissal falls within one of these categories:

Capability or qualifications: Where an employee is unable to perform their role to the required standard, whether due to lack of skill, aptitude, or health. The employer must typically follow a performance improvement process or, in cases of long-term ill health, obtain medical evidence and consider reasonable adjustments before dismissing.
Conduct: Where an employee's behaviour falls below acceptable standards, including gross misconduct (such as theft, violence, or serious breach of trust) that may warrant summary dismissal without notice. The employer must follow the ACAS Code of Practice, including investigation, notification of allegations, a disciplinary hearing, and a right of appeal.
Redundancy: As outlined above, where the employer's requirement for employees to carry out work of a particular kind has ceased or diminished.
Statutory restriction: Where continued employment would contravene a legal duty or restriction, for example where an employee loses a professional licence or work permit required for their role.
Some other substantial reason (SOSR): A broad category that covers dismissals for reasons that do not fall neatly into the other four categories but are nonetheless substantial enough to justify dismissal. Examples include a genuine breakdown in trust and confidence, or a refusal to accept reasonable changes to contractual terms following a genuine business reorganisation.

Procedural Fairness Requirements

Even where an employer can show a fair reason for dismissal, the dismissal may still be found unfair if the employer failed to follow a fair procedure. The ACAS Code of Practice on Disciplinary and Grievance Procedures sets out the basic requirements of a fair process:

Carry out a reasonable investigation into the matter before any disciplinary hearing
Inform the employee in writing of the allegations or issues and provide copies of relevant evidence
Hold a formal meeting at which the employee has the opportunity to respond, and allow the employee to be accompanied by a trade union representative or work colleague
Make a decision based on the evidence and inform the employee of the outcome in writing
Provide the employee with a right of appeal against any disciplinary sanction, including dismissal

Failure to follow the ACAS Code does not automatically make a dismissal unfair, but employment tribunals are required to take account of any unreasonable failure to comply with the Code when determining claims. Where the Code has not been followed without reasonable excuse, the tribunal may increase any compensation award by up to 25 per cent.

Settlement Agreements

In some cases, employer and employee may agree to end the employment relationship by entering into a settlement agreement (formerly known as a compromise agreement). A settlement agreement is a legally binding contract under which the employee agrees to waive their right to bring certain claims against the employer in return for a financial payment or other consideration.

For a settlement agreement to be valid under section 203 of the Employment Rights Act 1996, the employee must have received independent legal advice from a relevant independent adviser (usually a solicitor) on the terms and effect of the agreement. The adviser must be identified in the agreement, and there must be a contract of insurance or professional indemnity insurance in force covering the risk of a claim by the employee for the adviser's negligence.

Settlement agreements are commonly used where there is a dispute or potential dispute about the termination, or where the employer wishes to achieve a clean break. They can cover a wide range of claims, including unfair dismissal, discrimination, breach of contract, and statutory redundancy pay. The termination policy should reference the option of settlement agreements and the requirement for independent legal advice.

What a Termination Policy Must Document

A comprehensive termination of employment policy should cover the following areas as a minimum:

The scope of the policy and to whom it applies (employees, workers, fixed-term staff)
The types of termination covered (resignation, dismissal, redundancy, retirement, mutual agreement, TUPE)
Statutory and contractual notice periods, including payment in lieu of notice and garden leave
The fair reasons for dismissal and the procedures to be followed for each
Disciplinary and capability procedures, including reference to the ACAS Code of Practice
Redundancy selection criteria, consultation requirements, and statutory redundancy pay entitlements
Final pay arrangements, including accrued but untaken holiday, outstanding expenses, and any deductions
Return of company property (equipment, access badges, IT credentials)
Restrictive covenants and post-termination obligations (confidentiality, non-compete, non-solicitation)
Exit interviews and offboarding procedures
Record-keeping requirements and data retention in compliance with UK GDPR
The right to be accompanied at disciplinary or dismissal hearings
Appeal procedures following dismissal
Reference to settlement agreements and the availability of independent legal advice

The Impact of the Employment Rights Bill 2025

The Employment Rights Bill 2025 represents the most significant reform of UK employment law in a generation. For termination of employment, the Bill introduces several key changes that employers must prepare for.

The most notable change is the proposal to make unfair dismissal a day-one right. Under the current framework, employees must have two years' continuous service before they can bring an unfair dismissal claim (with certain exceptions, such as automatically unfair dismissals). The Employment Rights Bill 2025 proposes to remove this qualifying period, meaning that employees will be protected from unfair dismissal from the first day of their employment. This change will require employers to review and strengthen their termination procedures, ensuring that every dismissal is supported by a fair reason and a fair process from the outset.

The Bill also proposes to introduce a statutory probationary period during which a lighter-touch process for dismissal may apply, though full details of the procedural requirements during probation are still subject to consultation. Employers should monitor the progress of the Bill and begin updating their termination policies and manager training programmes in readiness for implementation.

Other relevant provisions in the Employment Rights Bill 2025 include strengthened protections against fire and rehire practices (where an employer dismisses employees and re-engages them on less favourable terms), and enhanced rights for employees to be consulted before changes to their terms and conditions of employment.

Employers who do not update their termination policies to reflect these changes risk exposure to a higher volume of unfair dismissal claims and increased scrutiny from employment tribunals. Early preparation is strongly recommended.

How Policy Pros Can Help

Policy Pros provides professional human resources policy writing services for UK businesses of all sizes. Our team drafts bespoke termination of employment policies that are fully aligned to the Employment Rights Act 1996, the ACAS Code of Practice, and the forthcoming Employment Rights Bill 2025.

Whether you need a standalone termination policy, a complete suite of HR policies, or a review of your existing documentation to ensure compliance with the latest legislative changes, we are here to help. Every document we produce is written in clear, professional English, tailored to your organisation's size and sector, and designed to be a practical working tool for your managers and HR team.

Contact Policy Pros today to discuss your termination of employment policy requirements.