Running a small business means sometimes making difficult decisions, including letting someone go. But before you act, it’s essential to understand the five fair reasons for dismissal under UK employment law and how to handle each one fairly.
At Beagle HR, we often speak to small business owners who feel uncertain about what’s “fair” when it comes to ending employment. This guide breaks it down in plain English so you can protect your business and your people.
⚖️ What Does a “Fair” Dismissal Mean?
A dismissal is considered fair if:
- It falls under one of the five potentially fair reasons, and
- You follow a reasonable, transparent process.
Failing to meet both conditions could lead to an unfair dismissal claim even if your reasons were genuine.
📘 The Five Fair Reasons for Dismissal
Under Section 98 of the Employment Rights Act 1996, there are five main reasons a dismissal can be fair:
1️⃣ Capability or Performance
This applies when an employee isn’t able to perform their job to the required standard due to lack of skill, qualification, or health issues.
Example:
An administrator consistently makes payroll errors despite extra training and feedback.
To do it fairly:
- Offer clear feedback and measurable goals.
- Provide reasonable support, such as training or adjustments.
- Hold performance reviews and document outcomes.
- Consider redeployment before dismissal.
👉 See our upcoming guide on How to Conduct a Fair Dismissal Meeting for step-by-step advice.
2️⃣ Conduct or Behaviour
This covers misconduct or inappropriate behaviour from lateness to gross misconduct like theft or harassment.
To do it fairly:
- Investigate thoroughly before taking action.
- Follow your disciplinary policy.
- Give the employee a chance to respond.
- Keep records of all communications and evidence.
Remember: Dismissal for conduct must be proportionate not every mistake justifies termination.
3️⃣ Redundancy
This happens when a role is no longer needed, usually due to business restructuring or financial changes.
Example:
You merge two roles after a system upgrade, meaning one employee’s job no longer exists.
To do it fairly:
- Consult with affected employees.
- Use clear and objective selection criteria.
- Explore redeployment opportunities.
- Provide redundancy pay where required.
👉 For more detail, read our article on The Redundancy Process, Costs, and Alternative Solutions.
4️⃣ Statutory Restriction
This applies when continuing to employ someone would break the law.
Example:
A driver loses their licence, or a care worker fails a DBS check.
To do it fairly:
- Explore other roles within the company first.
- Consider temporary suspension rather than immediate dismissal.
- Document all steps to show you acted reasonably.
5️⃣ Some Other Substantial Reason (SOSR)
This is the “safety net” reason used when no other category fits, but there’s still a legitimate business reason for dismissal.
Examples include:
- A fixed-term contract ending (e.g., maternity cover).
- Personality clashes affecting team performance.
- Refusal to accept essential contractual changes.
Process matters:
Even under SOSR, you must consult, document, and act reasonably.
👉 Read our full guide: Dismissal for “Some Other Substantial Reason” (SOSR).
🧩 Why This Matters for SMEs
Getting a dismissal wrong can be expensive financially and reputationally.
Tribunal claims, low morale, and team disruption can cost far more than taking time to handle things correctly.
That’s why having clear HR policies is essential. They provide structure, fairness, and protection.
👉 Learn more in our article: Why HR Policies Matter for SMEs.
💡 Key Takeaway
Understanding the five fair reasons for dismissal helps you make confident, compliant decisions.
Always check that your reason is genuine and your process is fair.
At Beagle HR, we guide small businesses through these situations step by step helping you act fairly, stay compliant, and protect your team.
👉 Speak to Beagle HR today for expert advice on handling dismissals the right way.
