Constructive dismissal

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In employment law, constructive dismissal, also called constructive discharge, occurs when employees resign because their employer's behaviour has become so intolerable or heinous or made life so difficult that the employee has no choice but to resign. Since the resignation was not truly voluntary, it is in effect a termination. For example, when an employer makes life extremely difficult for an employee, to attempt to have the employee resign, rather than outright firing the employee, the employer is trying to effect a constructive discharge.

The exact legal consequences differ between different countries, but generally a constructive dismissal leads to the employee's obligations ending and the employee acquiring the right to make claims against the employer.

The employee may resign over a single serious incident or over a pattern of incidents. Generally, the employee must have resigned soon after the incident.

United States law

In the United States, constructive discharge has differing meanings depending on the jurisdiction. In California, the California Supreme Court defines constructive discharge as follows:

"In order to establish a constructive discharge, an employee must plead and prove, by the usual preponderance of the evidence standard, that the employer either intentionally created or knowingly permitted working conditions that were so intolerable or aggravated at the time of the employee's resignation that a reasonable employer would realize that a reasonable person in the employee's position would be compelled to resign."[1]

UK law

In United Kingdom law, constructive dismissal is defined by the Employment Rights Act 1996 section 95(1)c:[2]

The employee terminates the contract under which he is employed (with or without notice) in circumstances in which he is entitled to terminate it without notice by reason of the employer's conduct.
The circumstances in which an employee is entitled are defined in common law. The notion of constructive dismissal most often arises from a fundamental breach of the term of trust and confidence implied in all contracts of employment. In order to avoid such a breach "[a]n employer must not, without reasonable or proper cause, conduct himself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between the employer and the employee."[3] Whilst a breach can be of the implied term of trust and confidence, a fundamental breach of any of the express or implied terms of a contract of employment is sufficient.


The Department of Trade and Industry states:

A tribunal may rule that an employee who resigns because of conduct by his or her employer has been 'constructively dismissed'. For a tribunal to rule in this way the employer's action has to be such that it can be regarded as a significant breach of the employment contract indicating that he or she intends no longer to be bound by one or more terms of the contract: an example of this might be where the employer arbitrarily demotes an employee to a lower rank or poorer paid position. The contract is what has been agreed between the parties, whether orally or in writing, or a combination of both, together with what must necessarily be implied to make the contract workable.[4]

Following a constructive dismissal, claim for "unfair dismissal" and a claim for "wrongful dismissal" may arise.

Types of constructive dismissal

Although they tend to mash into one in a tribunal, strictly there are two types of constructive dismissal: statutory and common law.

At common law[5] the requirement is acceptance of a repudiatory breach, which means the employer has indicated it no longer considers itself bound by an essential term of the contract, e.g. the requirement to pay wages or the requirement not to destroy the mutual bond of trust and confidence. It matters not if the employer did not mean to repudiate the contract.[6]

Under statute[2] the requirement is employer's "conduct" allowing the employee to "terminate without notice"; as this can only happen with a repudiatory breach it amounts to the same thing.

Relation to unfair dismissal

A common mistake is to assume that constructive dismissal is exactly the same as unfair treatment of an employee - it can sometimes be that treatment that can be considered generally evenhanded nevertheless makes life so difficult that the employee is in essence forced to resign[7] (e.g., a fair constructive dismissal might be a unilateral change of contract justified by a bigger benefit to the business than the inconvenience to the employee), but the Employment Appeal Tribunal doubts that it will be very often that the employer can breach ERA96 s98(4) whilst being fair.

A constructive dismissal occurs when the employer's serious breach causes[8] the employee to accept that the contract has been terminated, by resigning. The fairness of it would have to be looked at separately under a statutory claim for unfair dismissal.

The problems for the employer are that constructive dismissal is a contractual claim, which can be made in a tribunal for up to £25,000 or in court without limit, and, by dismissing constructively, it by definition misses out on the correct procedure meaning that even if the reason was fair, the decision was probably not, and so an unfair dismissal usually arises, creating a statutory claim alongside the contractual claim.

The court can look behind the lack of, or different, stated reason given by the employee at the time of resignation to establish that a cover story was in fact a resignation caused by fundamental breach.[9]

Typical causes

The person causing the dismissal does not need the authority to dismiss, as long as they acted in the course of employment.[2][10]

Grounds

Constructive dismissal is typically caused by:-

  • unilateral contract changes by the employer such as:
    • deliberate[11] cuts in pay or status (even temporary[12]),
    • persistent delayed wages,
    • refusal of holiday,[13]
    • withdrawal of car,[14]
    • suspension without pay (or even on full pay[15]),
    • dramatic changes to duties, hours[16] or location (beyond reasonable daily travelling distance[17]), or
  • breach of contract in the form of bullying, e.g.:
    • ignoring complaints,[18]
    • persistent unwanted amorous advances,[19]
    • bullying and swearing,[20]
    • verbal abuse (typically referring to gender,[21] size[22] or incompetence[23]),
    • singling out for no pay rise,[24]
    • criticising in front of subordinates,[10]
    • lack of support (e.g. forcing to do two peoples' jobs),[25]
    • failure to notify a woman on maternity leave of a vacancy which she would have applied for if she had been made aware of it,[26]
    • refusal to confirm continuity on TUPE transfer,[27]
    • revealing secret complaints in a reference (even ones required by a regulator[28]), or
  • breaches such as:
    • behaviour which is arbitrary, capricious, inequitable, intolerable or outside good industrial practice,[29]
    • conduct that undermined trust and confidence (i.e. offering an incentive to resign to avoid performance managing capability),[30]
    • refusal to look for an alternative role due to workplace stress,[31]
    • disproportionate disciplinary penalty,[32]
    • employer cons employee into resigning.[33]
Flexibility and mobility clauses

A flexibility clause does not allow the employer to change a type of job[34] as it is implied that the flexibility is to operate within the original job.

A mobility clause is subject to the implied term of mutual trust which prevents the employer from sending an employee to the other side of the country without adequate notice or from doing anything which makes it impossible for the employee to keep his side of the bargain.[35]

Insufficient grounds

There is no right to automatic pay rises.[36] Nor is a smoking ban a breach.[37]

Compensation

The employee's conduct is irrelevant to liability, although it can affect quantum; in other words it cannot get the employer off the hook, but could reduce compensation if he helped bring about his own downfall.

Timing

The conduct by the employer could be:

  • a one-off serious breach of contract,
  • anything to the employee's detriment (not necessarily a breach of contract) that acts as a last straw[38] after a string of serious breaches,[39]
  • a serious breach that acts as the last straw after a string of less serious breaches,[40] or
  • a string of less serious breaches related in time and nature that add up to a serious breach (random mistakes over the years are not enough - it would be more like a sustained campaign to undermine).

Employee must resign quickly

The employee has to resign within a reasonable time of the trigger, which is the one-off outrage or the last straw. The employee could work under protest while he or she finds a new job.[41]

Waiver

If the employer alleges that the employee waived a breach by not resigning, each breach needs to be looked at to see if it was waived separately,[38] but even if a breach was waived, the last straw revives it for the purpose of determining whether overall there was a repudiation.[6]

Affirmation

If the employer alleges that the employee has affirmed a breach by not resigning, the employee could point out that no consideration was paid for it and so no contract change has been accepted. Acceptance of a replacement job would prove affirmation.[42]

An employee who stays on for a year after refusing to sign a new contract does not necessarily accept it.[43]

Last straw

The last straw does not have to be similar to the earlier string of events or even unreasonable or blameworthy - it need only be related to the obligation of trust and confidence and enough that when added to the earlier events the totality is a repudiation.[44]

Notice period

Although the employer's breach must be serious enough to entitle the employee to resign without notice, the employee is entitled to give notice if he prefers, so could enjoy the benefit of wages during the notice period.

To prevent the employer alleging that the resignation was caused by a job offer, the employee should resign first and then seek a new job during the notice period.

During the notice period, the employer could make the employee redundant[45] or summarily dismiss him, if it has the grounds to do so fairly, otherwise the reason for termination will be resignation and not dismissal, since the employee cannot serve a counternotice.[46]

Notes

  1. ↑ Turner v. Anheuser-Busch, Inc., 7 Cal. 4th 1238, 1251, 876 P.2d 1022 (1994)
  2. ↑ 2.0 2.1 2.2 Official text of Section 95(1)c of the Employment Rights Act 1996 as in force today (including any amendments) within the United Kingdom, from the UK Statute Law Database
  3. ↑ Malik & anor v Bank of Credit and Commerce International SA 1997] UKHL 23; [1998] AC 20
  4. ↑
  5. ↑ Western Excavating (ECC) Ltd v Sharp [1978] ICR 221
  6. ↑ 6.0 6.1 Lewis v Motorworld Garages Ltd [1986] ICR 157
  7. ↑ Savoia v Chiltern Herb Farms Ltd [1982] IRLR 166
  8. ↑ British Leyland UK Ltd v McQuilken [1978] IRLR 245
  9. ↑ Weathersfield Ltd v Sargent [1999] ICR 425
  10. ↑ 10.0 10.1 Hilton International Hotels (UK) Ltd v Protopapa [1990] IRLR 316
  11. ↑ Cantor Fitzgerald International v Callaghan [1999] ICR 639
  12. ↑ Wadham Stringer Commercials (London) Ltd and Wadham Stringer Vehicles Ltd v Brown [1983] IRLR 46
  13. ↑ Lytlarch Ltd v Reid [1991] ICR 216
  14. ↑ Triton Oliver (Special Products) Ltd v Bromage (EAT 709/91) IDS Brief 511
  15. ↑ William Hill Organisation Ltd v Tucker [1999] ICR 291
  16. ↑ Greenaway Harrison Ltd v Wiles [1994] IRLR 380
  17. ↑ Courtaulds Northern Spinning Ltd v Sibson [1988] ICR 451
  18. ↑ Goolds v McConnell [1995] IRLR 516
  19. ↑ Western Excavating (ECC) Ltd v Sharp
  20. ↑ Korkaluk v Cantor Fitzgerald International [2004] ICR 697
  21. ↑ Isle of Wight Tourist Board v Coombes [1976] IRLR 413
  22. ↑ Palmanor v Cedron [1978] IRLR 303
  23. ↑ Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84, EAT
  24. ↑ Gardner v Beresford [1978] IRLR 63
  25. ↑ Seligman v McHugh [1979] IRLR 316
  26. ↑ Visa International Service Association Ltd v Paul [2004] IRLR 42
  27. ↑ Euro-Die (UK) Ltd v Skidmore (EAT 1158/98) (2000) IDS Brief B665/14
  28. ↑ TSB Bank plc v Harris [2000] IRLR 157
  29. ↑ Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666
  30. ↑ Billington v Michael Hunter & Sons Ltd EAT 0578/03, IDS Brief 758
  31. ↑ Thanet District Council v Websper EAT 1090/01, IDS Brief 728
  32. ↑ Stabley Cole (Wainfleet) Ltd v Sheridan [2003] ICR 297
  33. ↑ Caledonian Mining Co Ltd v Bassett [1990] ICR 425
  34. ↑ Land Securities Trillium Ltd v Thornley [2005] IRLR 765
  35. ↑ United Bank Ltd v Akhtar [1989] IRLR 507
  36. ↑ Murco Petroleum Ltd v Forge [1987] ICR 282
  37. ↑ Dryden v Greater Glasgow Health Board [1992] IRLR 469
  38. ↑ 38.0 38.1 Logan v Commissioners of Custom and Excise [2004] IRLR 63
  39. ↑ Abbey National plc v Robinson [2001] IDS Brief 680
  40. ↑ JV Strong & Co Ltd v Hamill [2001] IDS Brief 684
  41. ↑ Jones v F Sirl & Son (Furnishers) Ltd [1997] IRLR 493
  42. ↑ Bunning v GT Bunning & Sons Ltd [2005] EWCA Civ 983
  43. ↑ Aparau v Iceland Frozen Foods plc [1996] IRLR 119
  44. ↑ Omilaju v Waltham Forest London Borough Council [2005] ICR 481
  45. ↑ Official text of Section 139(1) of the Employment Rights Act 1996 as in force today (including any amendments) within the United Kingdom, from the UK Statute Law Database
  46. ↑ Official text of Section 95(2)b of the Employment Rights Act 1996 as in force today (including any amendments) within the United Kingdom, from the UK Statute Law Database
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