In employment law, constructive dismissal, also called constructive discharge or constructive termination, occurs when an employee resigns as a result of the employer creating a hostile work environment. Since the resignation was not truly voluntary, it is in effect, a termination. For example, when an employer places extraordinary and unreasonable work demands on an employee to obtain their resignation, this can constitute a constructive dismissal.
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, a party seeking relief must have resigned soon after one of the constructive acts.
United States law
In the United States, constructive discharge has differing meanings depending on the jurisdiction. The U.S. Equal Employment Community Commission has provided a 3-part test to determine whether or not a constructive discharge has occurred: (1) a reasonable person in the complainant’s position would have found the working conditions intolerable; (2) conduct that constituted discrimination against the complainant created the intolerable working conditions; and (3) the complainant’s involuntary resignation resulted from the intolerable working conditions. 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."
Canada law
Canadian courts recognize there are circumstances in which the employer, although not acting explicitly to terminate an individual’s employment, alters the employment relationship’s terms and conditions to such a degree that an employee is entitled to regard the employer’s conduct as a termination, and claim wrongful dismissal, just as if they had been let go without any notice or termination pay in lieu of notice.
Constructive dismissal arises from the failure of the employer to live up to the essential obligations of the employment relationship, regardless of whether the employee signed a written employment contract. Employment law implies into employment relationships a common-law set of terms and conditions applicable to all employees. For example, once agreed upon, wages are implicitly locked in by the common-law of contract as an essential term of the employment relationship. In this regard, it is a constructive dismissal if an employer fails to pay an employee.
An employer’s breach of the employment contract releases the employee from their obligation to perform under the contract, and thus treat themselves as dismissed. Hence, a constructive dismissal always becomes a wrongful dismissal.
Changes to the employment relationship
Typically, the first way to claim constructive dismissal involves an employer making substantial changes to the employment contract, such as:
- a demotion;
- altering the employee’s reporting structure, job description or working conditions;
- lowering an employee’s compensation;
- changing hours of work;
- imposing a suspension or leave of absence; and
- relocating the employee’s workplace.
In addition, failure on the part of an employer to provide employment standards (i.e. overtime pay, vacation pay, etc.), can result in a constructive dismissal.
Nevertheless, for an employee to have a successful case for constructive dismissal, the employer’s breach must be fundamental. What is “fundamental†depends on the circumstances, and not all changes to the employment relationship give rise to a constructive dismissal. For example, administrative, i.e. non-disciplinary, suspensions might not amount to a constructive dismissal if imposed in good faith and justified by legitimate business reasons (i.e. lack of work). As well, a small reduction in salary, in tough times, and administered rationally, might not be a constructive dismissal.
Toxic work environments
An employee may also be able to claim a constructive dismissal based on an employer’s conduct, rather than a change to a specific or implied term of the employment contract. Here, the second way to claim constructive dismissal examines whether the employer’s (or employee of the employer) course of conduct, or even a single incident, demonstrates an intention to no longer be bound by the written or implied employment contract. An example of this kind of constructive dismissal is a “toxic work environmentâ€. In this regard, if a work environment is so poisoned that a reasonable person wouldn’t be expected to return, then constructive dismissal is likely.
A toxic work environment is classically defined as unjustified criticism as well as vague and unfounded accusations of poor performance, especially where authority and respect with co-workers had been seriously undermined and compromised. Another example of toxic work environment is where the employer fails to prevent workplace harassment.
UK law
In United Kingdom law, constructive dismissal is defined by the Employment Rights Act 1996 section 95(1)c:
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." 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.
Following a constructive dismissal, claim for "unfair dismissal" and a claim for "wrongful dismissal" may arise.
Types of constructive dismissal
Although they tend to blend into one in a tribunal, strictly there are two types of constructive dismissal: statutory and common law.
At common law 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.
Under statute 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 â€" 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 (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 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.
Typical causes
The person causing the dismissal does not need the authority to dismiss, as long as they acted in the course of employment.
Grounds
Constructive dismissal is typically caused by:-
- unilateral contract changes by the employer such as:
- deliberate cuts in pay or status (even temporary),
- persistent delayed wages,
- refusal of holiday,
- withdrawal of car,
- suspension without pay (or even on full pay),
- dramatic changes to duties, hours or location (beyond reasonable daily travelling distance), or
- breach of contract in the form of bullying, e.g.:
- ignoring complaints,
- persistent unwanted amorous advances,
- bullying and swearing,
- verbal abuse (typically referring to gender, size or incompetence),
- singling out for no pay rise,
- criticising in front of subordinates,
- lack of support (e.g. forcing to do two peoples' jobs),
- 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,
- refusal to confirm continuity on TUPE transfer,
- revealing secret complaints in a reference (even ones required by a regulator), or
- breaches such as:
- behaviour which is arbitrary, capricious, inequitable, intolerable or outside good industrial practice,
- conduct that undermined trust and confidence (i.e. offering an incentive to resign to avoid performance managing capability),
- refusal to look for an alternative role due to workplace stress,
- disproportionate disciplinary penalty,
- employer cons employee into resigning.
Flexibility and mobility clauses
A flexibility clause does not allow the employer to change a type of job 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.
Insufficient grounds
There is no right to automatic pay rises. Nor is a smoking ban a breach.
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 after a string of serious breaches,
- a serious breach that acts as the last straw after a string of less serious breaches, 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 â€" 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.
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, but even if a breach was waived, the last straw revives it for the purpose of determining whether overall there was a repudiation.
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.
An employee who stays on for a year after refusing to sign a new contract does not necessarily accept it.
Last straw
The last straw does not have to be similar to the earlier string of events or even unreasonable or blameworthy â€" 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.
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 they prefer, so that they 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 or summarily dismiss them, 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.
Notes
