As an employer, what should I know about constructive dismissal? October 8, 2021

Whether an employee’s resignation was voluntary or forced may determine the risk of a claim

Constructive dismissal is a phrase that haunts many employers. If an employee resigns from their employment, it should bring an end to the working relationship. But if the employee claims they were forced to resign or had no choice but to resign, then there’s the possibility of a claim for unfair dismissal citing a constructive dismissal, depending on the circumstances. So what is constructive dismissal, what are the issues for employers, and what criteria must be met for a successful claim?

What is constructive dismissal? 

Constructive dismissal describes a situation where the employee seems to have left their employment voluntarily. As the employee may have resigned rather than had their employment terminated because their employment has become untenable, it could give rise to a claim by the employee. 

Usually, the employer hasn’t taken any active steps to terminate employment, but the employee is forced to resign because of the employer’s actions or inactions.

Examples of constructive dismissal situations include:

• Workplace bullying
• Poor treatment
• Underpayment of entitlements
• Serious safety concerns

What are the elements of constructive dismissal? 

To establish constructive dismissal, it’s first necessary to work out whether the employee:

1. Voluntarily resigned; or
2. Was forced to resign due to the circumstances created by the employer or in the workplace

If the resignation was forced, the legal position would be that the employment relationship was brought to an end by the employer’s conduct (whether passive or active conduct). In other words, the dismissal was ‘forced’ upon the employee through the employer’s offending conduct. But what does this mean? 

What is a forced resignation?

According to case law, the employee must prove that they had no effective or real choice but to resign from their employment. This will be established by:

• Considering the employer’s conduct and whether it was unreasonable for the employee to put up with it; and
• Considering whether the employer’s conduct (whether passive or active) was so serious that resignation was likely 

Case law suggests that the employer’s conduct must have been the principal contributing factor in the employee’s resignation. To determine this, various factors will be considered, including:

• The alternative options available to the employee
• The harshness of the circumstances 
• The significance of the change in circumstances that triggered the resignation 
• How the change in circumstances affects the employer’s obligations under the employment contract

It is important to say this concept sets a high bar and is heavily dependent on the facts. For example, a failure to pay wages or superannuation may justify resignation, but payment of wages a few days late is unlikely to be sufficient to establish constructive dismissal.

The final word

If your employee resigns and claims it was in response to your organisation’s actions or inactions, there’s a risk of an unfair dismissal claim on the grounds of a constructive dismissal. If there is a determination of forced resignation, the employee may be found to have been dismissed. However, this area of law is complicated, and past decisions do not necessarily indicate how future cases will be decided. It is important to seek legal advice for any issues of forced resignation. Contact us for more information about constructive dismissal.