Constructive Dismissal: Employers’ Guide

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Constructive dismissal is where an employer has committed a sufficiently serious breach of contract that the employee’s only option is to resign in response to the employer’s conduct or treatment.

While constructive dismissal is recognised as being difficult for employees to prove at tribunal, employers are advised to follow best practice to reduce the risk of having to defend such tribunal claims.

 

What is constructive dismissal?

Constructive dismissal refers to when an employee resigns in response to a repudiatory breach of the employment contract by the employer. The act or omission by the employer has to be sufficiently serious to justify the resignation. It can also be a series of acts or omissions, which taken together amount to a repudiatory breach and the last act or omission triggering the resignation (‘the last straw’).

An employee can resign on notice, and does not necessarily have to resign straight after the employer’s breach. The employee is also permitted to continue working until they have a new job, as long as they have made it clear that they are working under protest and the breach is not accepted. However, any significant delay by the employee could be deemed to waive the breach.

Constructive dismissal is classed as a dismissal under unfair dismissal legislation. This means an employee with qualifying service may make constructive unfair dismissal claims, and wrongful dismissal claims, despite having resigned.

Constructive dismissal does, however, differ to unfair dismissal, with the latter relating to situations where the employer can show neither good reason for the dismissal nor that they have followed a fair and lawful dismissal process.

 

Who can claim constructive dismissal?

Claims for constructive unfair dismissal can only be made by those with employee status and at least two years’ continuous service at the time they resigned. If the dismissal is deemed automatically unfair or due to discrimination, the two-year qualifying period does not apply.

Employees have only 30 days less one day of the contract ending to bring a claim. This is the case for most tribunal claims, where there is a three-month time limit for an employee to submit a claim. However this time limit may be paused if Early Conciliation is taking place. Early Conciliation is the first step in making a claim to an Employment Tribunal and provides an opportunity for the situation to be resolved without the need to go before the tribunal.

If the case progresses to an Employment Tribunal hearing, an employee would need to prove that the reason for the resignation was that the actions of their employer were so serious that the employee had no choice but to resign.

 

Unfair constructive dismissal

Under the statutory requirements of s.98 Employment Rights Act 1996, the tribunal must not only establish constructive dismissal; it must also determine if the dismissal was unfair. This can quickly become problematic – both for the parties and the tribunal – to identify the reason for the dismissal when it was not the employer who ultimately terminated the contract. However, this remains a requirement to be determined.

In practice, this means that even if the employer asserts there was no constructive dismissal, it still has to state its position as to the fairness of the dismissal within its ET3 form, on a without prejudice basis. The burden is also on the employer to prove that dismissal was for one of the five potentially fair grounds for dismissal.

 

‘Automatically unfair’ treatment

Employees who have resigned as a result of being subjected to treatment that is deemed automatically unfair, they may be able to claim for constructive dismissal without requiring two years’ continuous service.

The following behaviours and treatment would be classed as automatically unfair:

  • The individual is pregnant or on maternity leave
  • They have asked for their legal rights at work, eg to be paid minimum wage
  • They took action about a health and safety issue
  • They work in a shop and refused to work on a Sunday
  • They are a trade union member and took part in trade union activities including official industrial action or they were acting as an employee representative
  • They have reported the employer for wrongdoing (whistleblowing)

If the employee resigns after 2 years’ service, it would also be automatically unfair if the reason for terminating the contract was because the business was transferred to another employer or they failed to declare a spent conviction.

 

Constructive dismissal due to discrimination

Employees are protected under the Equality Act from discrimination relating to a protected characteristic.
If the employee’s resignation was because the employer discriminated against them, they may be able to bring a constructive dismissal claim against the employer.

It could qualify as discrimination if the employee was treated unfairly because they are or are seen to be, or they are associated with someone who is seen to be:

  • pregnant or on maternity leave
  • from a particular race, ethnicity or country
  • married or in a civil partnership
  • a man or a woman
  • disabled
  • lesbian, gay, bisexual or trans (LGBT)
  • have a particular religion or set of beliefs
  • older or younger than the people you work with

 

Requirements for constructive dismissal 

There are three mandatory requirements for a claim for constructive dismissal:

  1. There must be an actual or anticipatory breach of contract by the employer which is a fundamental or repudiatory breach, ie one that goes to the root of the contract so as to be sufficiently serious to justify the employee’s resignation.
  2. The employee must resign in response to the breach, rather than for some other reason.
  3. The employee must not delay too long in terminating the contract in response to the employer’s breach, otherwise the employee may be regarded as having elected to affirm the contract and the right to accept the employer’s breach would be lost.

 

A broad range of conduct and behaviours can amount to a fundamental breach of contract, entitling an employee to resign and claim constructive dismissal, eg:

  • Unilateral reduction of an employee’s pay
  • Insistence that an employee work hours they are not contractually obliged to
  • Refusal to pay overtime payments when the employee has already worked the overtime
  • Unilateral changes in an employee’s duties
  • Failure to provide an employee with the work they are employed to do
  • Requiring an employee to move to a different place of work without reasonable notice
  • Aggressive attempts to persuade an employee to accept a change in the way they are paid
  • Imposing a disciplinary sanction short of dismissal which is disproportionate (or outside the range of reasonable penalties for that offence) in the circumstances of the case

Importantly, behaviour that is ‘unreasonable’ would not in and of itself be sufficient to meet the threshold or to allow an employee to resign and claim constructive dismissal. The employer’s behaviour has to be so serious that it amounts to a fundamental breach of the employee’s contract of employment, rendering it untenable to continue.

 

1. Fundamental breach of contract by the employer

Fundamental breaches of contract can relate to either express of implied contractual terms. An example of breach of an express term could be when the employer significantly reduces the employee’s pay without agreement, while breach of an implied term could include the duty to maintain trust and confidence. In the case of the latter, for a claim for constructive dismissal to succeed, the employee has to show that the employer has acted without reasonable and proper cause in way that could or is likely to destroy or seriously damage the relationship of trust and confidence between them.

The test for the tribunal is objective; when determining if the employer’s conduct constitutes a fundamental breach of the contract of employment, the range of reasonable responses test would not be relevant.

A breach of the implied duty to maintain trust and confidence will always constitute a fundamental breach, meaning the employer’s conduct will have to be extremely serious before a breach of the implied duty can be established.

Whether other breaches of contract will amount to fundamental breaches will depend on the specific circumstances of each matter.

For example, case law shows an employer’s failure to deal with an employee’s grievance, or to address it within a reasonable timeframe, has also been found to constitute a fundamental breach of an implied duty. However, this requires the employee to have properly raised and expressed their grievance to their employer.

 

The law straw doctrine

By law, the employer’s breach does not have to be limited to a one-off or single action, omission or incident to constitute a fundamental mental breach as the basis of constructive dismissal. It can be that the employer has repeatedly breached the contract term(s) in minor ways, but the effect of all of the breaches taken together constitutes a sufficiently serious breach.

This is referred to as the ‘last straw’ doctrine, whereby the employee endures a series of ‘minor’ actions or omissions by the employer and finally resigns in response to the last straw.

For instance, it would constitute a contractual breach if the employer once paid the employee a week late, but it is doubtful that this would be significant enough to warrant the employee’s right to resign. However, if the employer makes late salary payments multiple times, this pattern of late payments together could constitute a breach that makes it difficult for the employee to continue working for the employer thereby justifying the resignation.

 

2. The employee must have resigned

Constructive dismissal claims require the employee to have resigned, and the resignation must have been in response to the employer’s fundamental breach. In practice, it may not always be clear if and when the employee actually resigned.

By way of example, if the employer says to the employee to “quit or be sacked” and the employee responds that they will resign, the employer’s words are likely to be taken by the tribunal as an ultimatum that have the effect of terminating the employment. In this case, the dismissal is likely to be considered as express dismissal rather than a constructive dismissal.

If ambiguous language is used to end a contract of employment, such as when the word “notice” may have more than one meaning, or when an employee gives notice of leaving one department to join another with the same employer rather than of terminating employment entirely, the tribunal should consider how a ‘reasonable’ listener would have understood the ambiguous language in the specific circumstances. Later events can be used to help with the interpretation of the wording provided they do not signify a change in opinion and are genuinely helpful in explaining what happened.

The question of what a reasonable employer may have comprehended does not arise when a person uses clear-cut ‘resignation’ language that the employer can understand. Arguments based on what a reasonable employer could have thought cannot be used to override the natural sense of the words and the fact that the employer understood them to signify that the employee was leaving. It is not appropriate to use a person’s non-disclosed purpose when establishing what their intended meaning is when they use language.

A party cannot often claim that straightforward language used to end an employment contract did not mean what it seemed to imply. However, various cases suggest that there may be “special circumstances,” such as words spoken in the heat of the moment or under emotional stress, where those words can be withdrawn if they are done so promptly. When there are exceptional circumstances, an employer should wait a fair amount of time before accepting a resignation at face value because new information may surface that makes it questionable as to whether the resignation was truly meant and may be presumed.

A resignation can also be communicated one the employee’s behalf through an intermediary such as a solicitor or union representative to the employer, provided clear language is used.

 

3. Resignation in response to the breach

Even if the employer has fundamentally breached the terms of the contract and the employee has validly resigned, there can only be a constructive dismissal if the resignation was in response to the breach.

Specifically, a resignation would not be deemed to be in reaction to a fundamental breach if the employee believes that their employer would later repudiate the contract but such action has not yet been taken by the employer.

In practice, it can be challenging to tell the difference between an employer’s anticipatory breach of a contract and actions that do not constitute an anticipatory breach but give rise to an employee’s reasonable belief that the employer would break the contract in the future. The former might serve as justification for a constructive dismissal, but not the latter.

Similar to how an employee cannot use conduct that occurs after resignation to support a claim of constructive dismissal, post-resignation conduct could not have been a fundamental breach because the contract had already been terminated by the resignation (if it was tendered without notice), and in any case, it could not have been any part of the reason for resignation because the conduct had not yet occurred.

If an employee resigned for more than one reason, rather than focusing on which one was the ‘main’ reason, they would need to show that at least one of the reasons related to a fundamental breach. In other words, rather than being the effective reason or the major cause of the employee’s departure, a fundamental breach by the employer must be a factor.

The employee is not obliged to provide the employer with the reason for their resignation at the time they resign. Similarly, there is no obligation for an employee to raise a grievance about the employer’s conduct before resigning, but this give rise to an argument that compensation should be reduced because the employee failed to comply with the requirements of the ACAS Code to raise the objectionable conduct in advance of resignation that is being relied on as having amounted to a fundamental breach.

 

Can the employee resign without giving notice?

Ordinarily, employees are required to give and work the correct notice when resigning from their job.

In a constructive dismissal scenario, however, where the employer has seriously breached the terms of the employment contract, it is usually justifiable for the employee to resign without giving the requisite notice.

This means they may resign with or without notice, but they should be entitled to resign and terminate their contract without notice.

Should they work their notice period, it may be reasonable for the employer to consider this as proof that the employee has consented to the breach and affirmed their contract by remaining an employee.

 

What will the employee need to show to claim constructive dismissal?

When bringing a claim for constructive dismissal, the burden of proof is on the employee to prove that the legal tests have been met.

Constructive dismissal cases are frequently dismissed by tribunals because the employee has been unable to provide a sufficient body of proof to evidence the breach or where the employee has been deemed to have accepted the employer’s behaviour over a prolonged period of time.

Some breaches will be easier to establish than others. A pay dispute, for example, can be evidenced by payslips and bank statements. Breaches relating to trust and confidence, however, can be more challenging to prove and may require the support of emails, text messages, witness statements and any notes you may have taken relating to relevant events or incidents or conversations.

Substantial evidence will be needed to support any case and prove that the breach was fundamental to the contract of employment and left the employee with no alternative than resignation.

The employer can then look to defend their case, which may mean arguing that there was no breach at all and the resignation was voluntary, or that any breach was not sufficiently severe to justify resignation or constitute constructive dismissal and that they behaved in a reasonable manner.

 

Does the employee need to raise a grievance first?

Employees and employers are expected to try and resolve disputes informally and internally before pursuing a tribunal claim.

Depending on the circumstances, it may be appropriate for the employee to raise a grievance and give the employer the opportunity to respond and take action.

The employee may send a ‘Without Prejudice’ letter detailing the contractual breach(es) and reasons for the complaint and inviting the employer to rectify the situation before the employee feels forced to resign.

This provides the employer with the opportunity to address the situation. If the employee is unwilling to respond to any attempts to settle the matter amicably, or an agreement cannot be reached, then the employee will either have the choice of returning to work or to resign and then pursue a case for constructive dismissal.

 

Employee’s duty to mitigate

Employees are under a duty to mitigate their losses by making reasonable efforts to try to find new work as soon as they resign.

Even if the employee’s actual loss of earnings is much higher, the tribunal is likely to only award them loss of earnings for one month after the dismissal, for instance, if it determines that they should reasonably have found another job within a month of their dismissal at the same pay as their prior position.

The employer has the burden of proving the employee’s failure to mitigate. The employee does not need to provide evidence that what they did was appropriate; it just needs to be proven that they behaved in an unreasonable manner. Being reasonable and not acting unreasonable are two different things. Facts determine what is reasonable or unreasonable. The tribunal’s judgement ultimately determines whether or not the employee acted unreasonably, although the employee’s opinions and wishes can be taken into consideration. Since the employee is the one who suffered a wrong, the tribunal would not impose an overly-strict standard.

Only after the dismissal has become effective does the need to mitigate become applicable. Therefore, declining a proposal made before the actual dismissal will not be considered a failure to mitigate, although it could, in appropriate circumstances, amount to contributory fault.

A refusal to accept an offer of work from the dismissing employer made after the dismissal will not necessarily be a failure to mitigate. The treatment of the employee or the circumstances of the dismissal may make it reasonable for the employee to refuse such an offer.

Instead of calculating a percentage reduction, as in the case for contributory fault, when the tribunal finds that an employee failed to mitigate their loss, it should determine when the employee would have found employment if they had taken the necessary steps and what their pay rate would have been in the new position.

The totality of the facts will determine whether a claimant failed to mitigate their loss by taking a position at a lesser salary level. After a protracted period of unemployment, it could be unreasonable for an employee to refuse to accept a reduced rate of compensation.

An employee may not necessarily be being ‘unreasonable’ if they become self-employed or start their own business, depending on their personal situation and the employment options available. When an employee has reasonably attempted to mitigate their losses by starting a new business, they would be entitled to reimbursement for the startup costs; nevertheless, any profits made during the relevant time should be subtracted from the compensatory award.

It may even be reasonable for an employee to retrain for a different type of job or to pursue higher education in mitigation.

As the employer is responsible for demonstrating a failure to mitigate, they should look into relevant websites and credible sources to determine whether any acceptable job openings have occurred during the employee’s unemployment. Copies of these job postings may be presented by the employer as evidence at a remedy hearing, and the claimant may be questioned in cross-examination on positions that were open but not pursued.

 

How much is constructive dismissal compensation?

Compensation for constructive dismissal is made of two parts; a basic award and a compensatory award.
The basic award is set is as follows:

  • One and a half week’s pay for each year of employment if you are aged 41 and above.
  • One week’s pay for each year of employment if you are aged 22-40.
  • Half a week’s pay for each year of employment if you are under the age of 22.

Calculations can apply for up to a maximum of 20 years’ continuous service. The level of pay will usually be set at the employee’s normal weekly gross pay at the time of your resignation, up to the relevant maximum threshold, £571.
The maximum compensation limit for unfair dismissal is £93,878. This is in addition to the basic award cap, which is £17,130 (30 weeks’ pay subject to the limit on a week’s pay).

In most cases, constructive dismissal claims do not make it to the tribunal but instead are settled with a compromise agreement. It is important for employees to understand the amount they could potentially be awarded by the tribunal to gauge the level of an acceptable offer.

The compensatory award is set to award employees where it is ‘just and equitable’ based on specific losses arising as a result of their employer’s actions. Types of losses that could be claimed include:

  • loss of wages including contractual and non-contractual benefits where applicable
  • loss of future wages
  • loss of statutory rights
  • loss of pension

If the employee’s claim is successful, the tribunal will assess their total loss, and their earnings from alternative employment during the notice period should be taken into account against sums already received from the employer, such as pay in lieu of notice or enhanced redundancy payments.

The tribunal has the power to reduce both the basic award and the compensatory award if the employee’s conduct contributed to the situation, or where an employer can show that even if they had followed a correct process, the decision to dismiss would still have been the same.

 

Need assistance?

DavidsonMorris’ team of employment law specialists offer support to employers on all aspects of workforce management and workplace dispute resolution. We provide specific advice on constructive dismissal matters, providing an assessment of the issue and full consideration of the options open to you. Constructive dismissal claims are typically complex. Given the many factors to consider and the sensitivities of the issues typically involved, we recommend taking early advice to understand your rights and the options open to you to ensure your best interests are protected.

Contact our employment lawyers for advice and guidance on any aspect of constructive dismissal.

 

Constructive dismissal FAQs

What can be classed as constructive dismissal?

If an employer does not terminate the employment contract but commits a fundamental, actual or anticipatory breach of it, entitling the employee to resign, and the employee, without delaying too long, resigns in response to that breach, that resignation may amount to a constructive dismissal.

Is constructive dismissal hard to prove?

It is generally acknowledged that it is difficult for employees to prove constructive dismissal at tribunal. Substantial evidence is required and in most cases, the matter is settled before the tribunal.

What is the maximum payout for constructive dismissal?

The statutory cap is £93,787, or 52 weeks gross salary, whichever is the lower, in addition to the basic award of up to a maximum of £17,130.

Last updated: 8 November 2022

Author

Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.

She is a recognised by Legal 500and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.

Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals

About DavidsonMorris

As employer solutions lawyers, DavidsonMorris offers a complete and cost-effective capability to meet employers’ needs across UK immigration and employment law, HR and global mobility.

Led by Anne Morris, one of the UK’s preeminent immigration lawyers, and with rankings in The Legal 500 and Chambers & Partners, we’re a multi-disciplinary team helping organisations to meet their people objectives, while reducing legal risk and nurturing workforce relations.

Legal Disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct at the time of writing, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

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