Constructive Dismissal

What is "constructive dismissal"

To prevent claims for constructive dismissal arising it is, first and foremost, essential for employers to understand the concept of constructive dismissal.

In law, a constructive dismissal takes place when an employee resigns in response to a fundamental breach of the employment contract by the employer.

This means that, although the employee has apparently resigned, the termination of the contract is treated as a dismissal.

An employee will not be able to establish constructive dismissal if the reason for the resignation is not the employer's breach of contract but some unconnected reason - for example that the employee has been offered another job elsewhere.

However, provided that the employer's breach is one of the reasons for the employee choosing to leave, it need not be the only reason.

In addition, an employee will not be able to establish constructive dismissal if they leave it too long before resigning. In these circumstances, the employee will be treated as having waived the breach or, to put it another way, as having affirmed the contract. There is no hard and fast rule for how soon the employee must resign after the employer's breach. The employee must act promptly once the facts are known to them, but some leeway may be given during attempts to resolve the matter.

If the breach of contract is also a breach of a statutory right, it has been held that it does not matter if the employee delays - the employee will not be deemed to have consented to a breach of their statutory rights. On that basis, if, for example, the employee has not been paid the statutory minimum wage or has been refused statutory breaks, they can resign at any time and claim constructive dismissal.

Fundamental breaches of contract

The key issue in seeking to avoid constructive dismissal claims is to understand what amounts to a fundamental breach of contract. The fact that there may be no written record of the terms of the contract is irrelevant - in the absence of a written contact the contract will be made up of a combination of terms that the parties have verbally agreed between themselves, terms that have grown up over time as a matter of practice and terms implied into the contract as a matter of law. Further, even if there is no single document headed "contract", there may be some terms recorded in writing: terms can be incorporated from an offer letter, a staff handbook, or even a job advert. If the recruitment process is poorly controlled, unwanted terms can acquire contractual status.

A fundamental breach is a serious breach of an important term of the contract, whether it is one that has expressly been agreed between the parties or one that has been implied.

Breach of express terms

If the term broken is an express one, it is then a question of whether the breach is serious or not. To avoid constructive dismissal claims arising from the breach of an express term, it is important that employers do not attempt to impose significant changes in contractual terms unilaterally. Minor changes are less of a risk area.

Before any change, there should be a process of discussion with a view to obtaining the employee's consent. It may be necessary for the employer to offer an incentive in order to get the employee's agreement to the change.

Breach of implied terms

While many cases of constructive dismissal arise from breaches of express terms, others are the result of a breach or breaches of implied terms. This can be especially problematic for the employer as there is no ready point of reference for such terms. Many are implied as a matter of conduct. For example, if for many years the employees have been provided with a free parking space, or subsidised canteen, this can become a term implied by custom and practice, and withdrawal of the benefit will be a breach of contract. Employees may also make constructive dismissal claims if their duties are changed or their place of work is moved, unless the contract allows for this. This is a problem easily avoided by making sure that contracts are drafted to allow a sufficient degree of flexibility.

Other terms are implied as a matter of law. For example, it is accepted that it is part of every employee's contract that the employer will provide a place of work that is suitable for the employee to carry out their contractual duties. Consequently, if the work environment triggers ill health or allergies when the employer could reasonably have prevented injury, there is a breach of that term.

One term implied into every contract of employment that is frequently at the heart of constructive dismissal claims is that the employer will not act in such a way as to undermine "mutual trust and confidence" between employer and employee. Examples of breaches of this term include undermining an employee's authority by countermanding their instructions, publicly reprimanding an employee, using insulting language, or imposing a punishment that is completely out of proportion to the disciplinary offence committed. There have been many reported cases centred on breaches of this term. Some examples of breaches are listed in the box below. However, the list should not be taken as a definitive one: although it is not the case that any unreasonable behaviour by the employer will amount to a breach of contract, there is no limit to the possible breaches of the term of mutual trust and confidence.

Because the employee is treated as dismissed, they can claim for breach of contract, or "wrongful" dismissal, in the county court or the employment tribunal (although tribunals can hear only those claims whose value does not exceed £25,000), or a claim for unfair dismissal in the employment tribunal, provided that the employee has two years' qualifying service. In each case, this is a claim for compensation.

So far as a contractual claim is concerned, compensation will be limited to the pay and benefits that the employee would have received had they been given proper contractual notice, which may be substantial. If an unfair dismissal claim is made, any compensation will be made up of a basic award roughly equivalent to a statutory redundancy payment, and a compensatory award of the amount of lost earnings actually suffered and anticipated, up to a maximum of £118,223 or 52 times the claimant's weekly pay if this is lower than £118,223.

Some constructive dismissal claims arise from a breach of contract that is also unlawful discrimination, in which case there will be no such limit on the loss of earnings recoverable, and the employment tribunal will be able to make an award of compensation for injury to feelings.

Procedural matters

The "Acas code of practice on disciplinary and grievance procedures" provides guidance on the procedures for employers and employees to follow when dealing with disputes. If either party unreasonably fails to follow the code an employment tribunal can adjust any award it makes by up to 25%.

If an employee submits a grievance letter, this will give the employer the opportunity to resolve the complaint made. If it offers a realistic olive branch at this stage, and the employee rejects it, the employer will then be in a position to argue that if there had been a breach of contract it would have remedied it and that there is no ground on which the employee is entitled to resign. Employers should try to prevent issues escalating to the point where the employee feels that they have no option but to resign.

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