Terminating an Employee with Mental Health Issues: A Guide

Managing mental health issues in the workplace can be tricky. Mental ill health is now the most common cause of work-limiting conditions among those aged 44 years and younger, so if you haven’t had to manage an employee with mental health issues already, the chances are you will in the future.

Employers have a duty of care to do what they reasonably can to support workers’ mental health, but HR professionals and managers must strike a balance between compassion and business needs.

So, what happens when an employee’s mental health starts affecting their performance? It goes without saying that the first port of call is to explore all reasonable adjustments to support your employee. However, if you exhaust these options, it may be necessary to think about terminating an employee with mental health issues.

However, you must follow a fair and legal process. If you don’t, you may expose your business to expensive employment tribunal claims for discrimination or unfair dismissal.

In this article, we’ll guide you through the steps you should take before considering termination and how to conduct a fair process to ensure that you support your employees while also protecting your business.  

Why mental health matters in the workplace

Unfortunately, mental illness is becoming more common. Over the past decade, the number of workers aged 16-34 who reported that their mental health limits the type or amount of work they can do has more than quadrupled. That means you need to be aware of the laws surrounding mental health and disability:

• Equality Act 2010: When an employee’s mental illness affects their normal day-to-day activity, it is classed as a disability, meaning they are protected from disability discrimination under the Equality Act.
• Employment Rights Act 1996: Currently, if an employee has completed 2 years’ continuous service, they are protected from unfair dismissal. This is set to change under the government’s new Employment Rights Bill, which intends to give employees ‘day one’ rights.
• Health and Safety at Work Act 1974: Under the act, employers have a duty of care to support workers’ health, safety and wellbeing, which includes their mental health.

A Deloitte report estimates that poor mental wellbeing costs the UK £42-45 billion per year through presenteeism, sickness absence, and staff turnover. However, the same research found that there’s a positive return on investment of around £5 for every £1 invested in mental health interventions in the workplace, so it’s well worth supporting your employees.

When terminating an employee with mental health issues may be necessary

If an employee has serious mental health issues that are making it impossible for them to do their job, and you’ve done everything you reasonably can to support them, you can fairly dismiss them.

Scenarios where you can consider dismissal include:

• When the employee has been on long-term sickness absence and there’s no reasonable prospect of return
• When there are repeated performance concerns linked to the employee’s mental health, despite reasonable adjustments
• When there is misconduct linked to an employee’s mental health issues (this can be a complex and sensitive situation, particularly if there are concerns over an employee’s mental capacity. Always get HR advice before dismissing someone on this basis).

Termination of an employee’s contract on mental health grounds must always be a last resort. If you were taken to an employment tribunal, you must be able to prove that you did everything you could to support the employee to do their job before dismissing them.

Practical steps before considering terminating an employee with mental health issues

There are lots of steps you need to take before you consider terminating your employee’s contract. Let’s go through them here:

Document everything and gather evidence

It’s important to maintain accurate documentation for all your employees. Keep records of job descriptions, sickness absence, performance, training and one-to-ones so you can refer to them and use them as evidence if you need to.

Good record-keeping is crucial for a smooth-running, high-performing business. But it also protects your organisation from employment tribunals. However, avoid only gathering evidence or keeping records for employees who have mental health issues or disabilities, as this could be seen as discrimination. 

Make reasonable adjustments and explore alternatives

Before you start the process of dismissing an employee, there’s a huge range of reasonable adjustments you can consider. In mental health cases, these reasonable adjustments may include:

• Flexible working, such as compressed hours to allow for a mid-week day off or earlier or later start times
• Adjustments to workload, such as sharing some responsibilities with another employee
• Phased return to work after a period of sickness absence
• Redeployment or role adjustments, such as offering the employee a less stressful role or one that does not trigger their mental health problems
• Increasing the number of days of absence that trigger the attendance policy

Recent case law demonstrates how important it is to make reasonable adjustments before dismissing an employee, such as in the Griffiths v Secretary of State for Work and Pensions [2015] case.

Get medical evidence

Medical evidence and occupational health reports are crucial in helping you measure the operational impact of an employee’s mental health condition.

Before terminating an employee with mental health issues, you should get a medical opinion from your employee’s GP (or another medical professional) and ask an occupational health specialist to report on any reasonable adjustments that could be made to support the employee in their role.

It’s also important to give the employee an opportunity to get their own medical opinion, in the event they disagree with any points raised in the initial reports.

Medical evidence must be used to assess capability and operational impact to ensure you follow a fair dismissal process. The recent case of O’Brien v Bolton St Catherine’s Academy [2017] highlights that employers must consider up-to-date medical evidence, weigh the likely length of absence, and balance that against the operational impact. The Court of Appeal emphasised that dismissing an employee without considering late medical evidence is risky.

Keep communicating with your employee

The key to getting the most out of your employee and supporting them to stay in their job role is to have meaningful conversations with them. Conduct regular check-ins to find out how they are doing and monitor the impact of any reasonable adjustments you have made.

Active listening is vital when you’re speaking to an employee about their mental health condition. Let them lead on conversations and listen to their suggestions about what may help them do their job better. If these ideas are reasonable, consider putting them in place and seeing if they make a difference.

Conducting a fair termination process

Sometimes, a person will simply be too unwell to carry out their job. Medical capability is considered a fair reason for dismissal under the Employment Rights Act.

If terminating an employee with mental health issues is inevitable, you must follow a fair and consistent process to comply with employment law and reduce your risk of being taken to a tribunal. To make sure you’ve followed a fair process, you should:

• Set up a structured capability process: Ensure you have a clear procedure in place that managers can follow and all employees can read in the employee handbook to ensure that all staff understand what is expected from them.
• Demonstrate clear communication: You should document all meetings and communication that takes place between the employee and their managers under the capability process, to show that you have kept them informed at every stage and have done everything you can to support them.
• Involve the right people: The dismissal process is a complex one and should be dealt with by senior management as well as line managers. If you don’t have an in-house HR team, you should get help from outsourced HR services.
• Use medical evidence: Back up capability claims with evidence from GPs, occupational health specialists and other medical professionals.
• Ensure the employee knows their rights: Employees have a right to be accompanied at meetings by a union representative or a colleague. You should also provide them with a written outcome and details of the appeals process on termination.

Dismissing an employee will never be a pleasant experience for anyone involved, but you can make it less stressful for the employee themselves, and your management team, by ensuring you follow a fair process.

How to handle employee termination compassionately

When you’re terminating an employee with mental health issues, it’s important to deal with it carefully. Your employee is probably already feeling low, so you don’t want to say anything to make them feel unnecessarily worse.

Our team’s tips for handling termination delicately include:

• Showing empathy and dignity: Your language and approach should be open and honest and not patronising. Be clear and concise but show that you understand that this must be difficult for your employee.
• Avoiding stigmatising language: Be careful not to use judgemental language and be aware of unconscious bias when communicating with your employee. Using discriminatory language could mean you fall foul of the Equality Act.
• Providing exit support: Allow your employee to take advantage of any employee assistance programmes (EAPs) you have or help them with counselling referrals.
• Managing team communication: Work with the employee to come up with a way to talk about their departure with the wider team. Some people may be comfortable with their health being spoken about, whereas others will not.

Risks of getting dismissal wrong

If you get it wrong when you dismiss an employee with mental health issues, it can have serious legal consequences and a huge impact on your business.

If you don’t follow a fair capability and dismissal process, you open yourself up to unfair dismissal and discrimination claims at an employment tribunal. According to the latest data from Acas, there has been a 41% increase in the number of disability discrimination cases it received for conciliation in 2024-25, so it’s vital to get the right HR and legal support to ensure you’ve done everything right.

But it’s not just about legal risk. If you deal with a dismissal on capability grounds insensitively, your former employee is likely to talk about it with colleagues and friends. This ultimately risks damaging your reputation, which could put top talent off from joining your company. It could also have a significant impact on team morale and your company culture.

When over 8 in 10 employees at organisations with a positive culture say they’re likely to recommend their organisation to people looking for a job, it shows how important it is to foster a positive culture that prioritises mental health.

So, while much of an employee’s mental health condition will be affected by factors outside of work, there is plenty that organisations can do to prevent someone’s mental illness from getting worse or impacting their job.

Training your managers

If your managers haven’t had to deal with a direct report who suffers from mental illness before, they might worry about saying the wrong thing. Speaking to someone who is mentally unwell can be emotionally draining on them, too.

Invest in mental health awareness and line management training to give them the active listening skills and resilience required to manage people with mental health problems.

How we can help

At Fitzgerald, our team is experienced in terminating employees with mental health issues. We can help you with a range of people management and employee relations services, including:

• Equality and diversity strategies
• Absence management
• Capability and underperformance
• Health & Safety policies
• Employee handbooks, policies and procedures
• Workplace assessments
• Occupational health referral management
• Risk assessments
• Employee Assistance Programmes (EAPs)
• Medical assessment and screenings
• Ill-health case management
• Grievance investigations, hearings and appeals
• Employee exits

Get in touch with the team on 0330 223 5253 or office@fitzgeraldhr.co.uk.