Constructive dismissal is a legal term in the United Kingdom that refers to when an employer has acted in such a way that the employee feels they have no choice but to resign.
If the individual has over 2 years’ service, or if they have resigned in response to specific issues such as health and safety breaches or whistleblowing concerns, they can seek substantial damages.
There are various ways a court could judge an employer to have forced an employee out unfairly, with most coming down to a breach of contract or employment rights.
In this article, we will fully explain what constructive dismissal is, the laws governing it, give some constructive dismissal examples and advise you on what to do if your or your business are accused by an employee.
Constructive Dismissal Explained
Constructive dismissal occurs when an employer has acted in such a way that the employee feels they have no choice but to resign.
The reasons for this feeling can be due to any number of things (see examples below), but it usually comes down to some breach of the employee’s contract or of their rights as an employee.
It is important to note that constructive dismissal is not the same as unfair dismissal.
Unfair dismissal occurs when an employer dismisses someone for a reason that is deemed to be unfair, such as pregnancy or whistleblowing.
Constructive dismissal is where the employee technically resigns but because their position had become untenable due to the misactions of their employer. If the employee has over 2 years’ service however they can also bring a separate claim for unfair dismissal.
The Laws Governing Constructive Dismissal
Constructive dismissal is governed by the Employment Rights Act 1996. Under this act, employees are protected from various kinds of discrimination, unfair treatment, breach of contract and employment rights.
If one of your employees feels that they have been forced to leave their job due to constructive dismissal they could pursue legal action against you. In most cases, the employee must have been continuously employed by you for at least two years to be able to make a claim for constructive dismissal against you. Where this time limit is not necessary is in cases of discrimination. They must show that you have fundamentally acted in a way that made it impossible to stay in their job.
It is important to note that the burden of proof in constructive dismissal cases is on the employee to show that you made their position untenable. The opposite is true in unfair dismissal cases where the employer must prove reasonable justification for terminating an employee’s contract.
The damages associated with constructive dismissal include compensation to the employee for notice pay, pasts loss of earnings and future loss of earnings together with an award for loss of statutory rights.
As well as these damages, your business’s reputation and your own reputation as an employer can suffer potentially irrevocable damage if you are judged guilty of constructive dismissal.
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Typical Examples of Constructive Dismissal
1. A Forced Salary Cut (or Threat of a Cut)
This is one of the most common things that can lead employees to feel they have no choice but to leave, particularly where the salary reduction was not part of any mutual agreement between you and your employee. Resignations due to salary issues often result in high compensation claims by employees.
If you want to reduce an employee’s salary, you must give them notice and/or pay instead of that notice. If you do not, the employee may resign and claim constructive dismissal against you. The reduction or removal of bonuses can also constitute a breach if it is done without good business reason like a financial emergency or an agreement between both parties.
2. An Unjustified Demotion (or One that Breaches Contract)
Demoting an employee without good reason or in breach of contract can be another common form of constructive dismissal. This is because it means that the employment relationship has fundamentally changed and the terms on which the employee originally agreed to work for you have been breached.
From your point of view, there may have been a good reason for the demotion, and it will be up to your employee to prove that it was unjustified or breached their contract. Make sure you keep a record of any discussions you had with the employee if this happens.
3. Unfair or Unfounded Allegations of Poor Performance
Unfair allegations of poor performance against an employee, either in writing or verbally, can be considered to be constructive dismissal by your employee. Therefore, if you are considering making allegations about the work ethic or results of one of your employees then it is important that these are well-founded or there could be potential problems if they decide to quit.
Always have a formal, written record of performance metrics or results-based data for every employee, both to use as evidence in potential legal proceedings and to ensure your company is performing to its full potential.
4. Unreasonable or Unfair Disciplinary Procedures
If you unreasonably or unfairly discipline an employee then they may feel that their position is untenable. Again, the problem will be whether the disciplinary procedures were fair and reasonable or not. If you are accused of constructive dismissal, you may need to show why it was necessary to take certain steps in terms of disciplining the employee.
Another possible reason for constructive dismissal could be if there were unreasonable delays when investigating an employee for alleged poor performance or indiscretion as this could have caused them unnecessary stress at work which might force them to resign rather than face prolonged uncertainty about what action (if any) would be taken against them.
5. Reporting an Employee to a Regulator Unjustly
If you make an employee report to a regulator incorrectly or unjustly, they may feel obliged to resign on the basis that their position has fundamentally changed. They might also claim constructive dismissal if there were delays in correcting this mistake meaning that they suffered unnecessary stress as a result of it. This could be particularly true for employees working in regulated industries where reporting issues quickly is key, such as financial services.
Whenever you need to report an employee to a regulator, make sure that you understand both your obligations and your employee’s rights, and that you always act fairly, reasonably and without delay.
6. A Complete Change in Job Nature
A complete change in an employee’s job nature, for example, if they are moved from a managerial role to one that is non-managerial or vice versa can also be construed by the employee as constructive dismissal. Likewise, if you suddenly expect employees to work night shifts when they have never had to do so in the past (or are not contracted to do so), this could also be grounds to sue you for constructive dismissal.
Whether you are judged to have made a forced change to your employee’s job which made their position untenable will often come down to whether it was reasonable given your business needs and/or if there were any prior agreements made.
7. Bullying or Harassment
Bullying or harassment can be considered to be constructive dismissal by your employee, especially if it was a pattern of behaviour that ultimately forced them to leave. The employee may either accuse you of doing the bullying or harassment yourself or not taking the appropriate steps to prevent them from being victimised by somebody else in your company. Either way, if they believe that their position became untenable because of their treatment, you may face legal consequences.
It is therefore very important that you create the right culture in your business. You need to set out strict guidelines about what is and is not acceptable behaviour and ensure that all employees understand the rules. If there are any accusations of bullying or harassment, make sure you investigate these quickly and fairly.
8. Undue Stress Caused by Employer or Working Conditions
When employees suffer from undue stress caused either by their employer or working conditions, they may feel that their position is untenable and resign on this basis. This could be the case if an employee was expected to work in very difficult circumstances which they did not agree to when taking the job.
These conditions may involve new unrealistic targets or company goals which put the employee under a high level of pressure. It is therefore very important that you ensure that all of your employees understand what is expected from them and if they do not, you must be able to clearly demonstrate why these new expectations are reasonable.
Looking after your employees’ mental health and job satisfaction is also very important because difficult working conditions can really take their toll on people. Make sure that there is a clearly defined process for employees to voice concerns and get any help they need.
9. Dangerous Working Conditions
Another reason that an employee might resign on the basis of constructive dismissal is if they are placed in dangerous working conditions. This could include a number of things, for example:
- Working with dangerous machinery or tools that are faulty
- Being exposed to hazardous chemicals without the necessary safety equipment
- Working in a dangerous location, such as near electricity pylons or live traffic
- Not having the correct equipment, such as hard hats or high vis jackets
- Working with heavy lifting equipment without proper training and supervision
Any situation in which the employee has not agreed to and/or where they believe their safety is at risk could be grounds for constructive dismissal. If an employee is actually injured as a result of their work duties and duly resigns, they could also have grounds. In these situations, the fines and compensation you could be forced to pay are significant. However, your company could also be in serious legal trouble for forcing employees to work in dangerous conditions which breach health and safety regulations or workers’ rights laws.
It is therefore very important that you think about any potential risks your employees may face every time you introduce new elements into their job roles or ask them to work under different conditions. You must also provide all of the necessary training and equipment so it’s clear how they can protect themselves from harm if anything does happen.
10. A Workplace Unsuited for an Employee’s Disability
If you place employees in a workplace that is not suitable for their disability, they may feel that it will be impossible to do an effective job. They might then resign on the basis of constructive dismissal and also accuse you of breaching equality laws if necessary.
This could be an issue even if no actual harm came to the employee as a result of the workplace conditions because there are legal implications surrounding this type of situation. You need to ensure that your business is fully up-to-date with health and safety legislation so any potential risks have been identified and suitably addressed. Employees should also know what role they have been given within the company which includes being clear about the physical demands required from each employee, especially those who have disabilities or particular needs.
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Why Employers Need a Lawyer
When an employee resigns on the basis of constructive dismissal they are effectively saying that your company has broken your contract with them. If you do not have a lawyer to deal with this situation, either because you were unaware it could happen or for some other reason, any negotiations between yourself and the former employees can become potentially very dangerous.
Employees may see this as an opportunity to gain more money than would be agreed in normal circumstances by taking legal action against your business instead of negotiating directly about compensation levels. If there is no evidence available which supports your side of events, then they will most likely win whatever case they bring forward due to a lack of hard facts backing up your argument.
A constructive dismissal case can be potentially very damaging for your business if you are found to have breached your employee’s contract or rights. If you are in a position where you are being threatened with legal action due to one of the constructive dismissal examples above, get in touch with us and we will be able to advise you on the best course of action to take.