In employment law, constructive dismissal, also called constructive discharge or constructive termination, occurs when an employeeresigns 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 an unreasonable situation was imposed.
United States law
In the United States, constructive discharge is a general term describing the involuntary resignation of an employee.[1] There is no single federal or state law against constructive dismissal in general. From a legal standpoint, it occurs when an employee is forced to resign because of intolerable working conditions which violate employment legislation, such as:[2]
An employer showing favoritism to another employee without reason or explanation
The burden of proof in constructive dismissal cases lies with the employee.
The Equal Employment Opportunity 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.[3]
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."[4]
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 allows them to treat themselves as dismissed without notice. 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 (e.g. 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 environment". 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.
The employee terminates the contract under which they are employed (with or without notice) in circumstances in which they are 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."[6] 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 examples given on this page for actions by an employer likely to constitute grounds for constructive dismissal under Canadian law also almost certainly hold true under English law.
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.[7]
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[8] 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 does not matter if the employer did not mean to repudiate the contract.[9]
Under statute[5] the requirement is employer's "conduct" allowing the employee to "terminate with or without[5] 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 – 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[10] (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 repudiatory breach causes[11] 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.[12]
Typical causes
The person causing the dismissal does not need the authority to dismiss, as long as they acted in the course of employment.[5][13]
Grounds
Constructive dismissal is typically caused by:-
unilateral contract changes by the employer such as:
deliberate[14] cuts in pay or status (even temporary[15]),
A flexibility clause does not allow the employer to change a type of job[37] 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.[38]
Insufficient grounds
There is no right to automatic pay rises.[39] Nor is a smoking ban a breach.[40]
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 repudiatory or fundamental breach of contract,
a series of acts or omissions which amount to a repudiatory or fundamental breach of contract, or
a 'last straw' act or omission which, although in itself not a repudiatory or fundamental breach of contract can when taken in the context of earlier breaches amount to conduct which is a repudiatory or fundamental breach of contract.
Note: unreasonable conduct will not suffice to establish constructive dismissal claim since a repudiatory or fundamental breach of contract must be established.
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.[41]
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,[42] but even if a breach was waived, the last straw revives it for the purpose of determining whether overall there was a repudiation.[9]
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.[43]
An employee who stays on for a year after refusing to sign a new contract does not necessarily accept it.[44]
Last straw
The last straw does not have to be similar to the earlier string of events or even unreasonable or blameworthy – 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.[45]
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[46] 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.[47]
United Kingdom labour law regulates the relations between workers, employers and trade unions. People at work in the UK can rely upon a minimum set of employment rights, which are found in Acts of Parliament, Regulations, common law and equity. This includes the right to a minimum wage of £10.42 for over-23-year-olds from April 2023 under the National Minimum Wage Act 1998. The Working Time Regulations 1998 give the right to 28 days paid holidays, breaks from work, and attempt to limit long working hours. The Employment Rights Act 1996 gives the right to leave for child care, and the right to request flexible working patterns. The Pensions Act 2008 gives the right to be automatically enrolled in a basic occupational pension, whose funds must be protected according to the Pensions Act 1995.
In United Kingdom law, the concept of wrongful dismissal refers exclusively to dismissal contrary to the contract of employment, which effectively means premature termination, either due to insufficient notice or lack of grounds. Although wrongful dismissal is usually associated with lack of notice sometimes it can also be caused by arbitrary dismissal where no notice was required but certain grounds were specified in the contract as being the only ones available but none existed.
Unfair dismissal in the United Kingdom is the part of UK labour law that requires fair, just and reasonable treatment by employers in cases where a person's job could be terminated. The Employment Rights Act 1996 regulates this by saying that employees are entitled to a fair reason before being dismissed, based on their capability to do the job, their conduct, whether their position is economically redundant, on grounds of a statute, or some other substantial reason. It is automatically unfair for an employer to dismiss an employee, regardless of length of service, for becoming pregnant, or for having previously asserted certain specified employment rights. Otherwise, an employee must have worked for two years. This means an employer only terminates an employee's job lawfully if the employer follows a fair procedure, acts reasonably and has a fair reason.
A severance package is pay and benefits that employees may be entitled to receive when they leave employment at a company unwillfully. In addition to their remaining regular pay, it may include some of the following:
The Employment Rights Act 1996 is a United Kingdom Act of Parliament passed by the Conservative government to codify existing law on individual rights in UK labour law.
The New Zealand Employment Relations Act 2000 is a statute of the Parliament of New Zealand. It was substantially amended by the Employment Relations Amendment Act 2001 and by the ERAA 2004.
Wallace v United Grain Growers Ltd, 1997 CanLII 332, [1997] 3 SCR 701 is a leading decision of the Supreme Court of Canada in the area of Canadian employment law, particularly in determining damages arising from claims concerning wrongful dismissal.
Nethermere Ltd v Gardiner And Another [1984] ICR 612 is a UK labour law case in the Court of Appeal in the field of home work and vulnerable workers. Many labour and employment rights, such as unfair dismissal, in Britain depend on one's status as an "employee" rather than being "self-employed", or some other "worker". This case stands for the proposition that where "mutuality of obligation" between employers and casual or temporary workers exists to offer work and accept it, the court will find that the applicant has a "contract of employment" and is therefore an employee.
Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589 is an English trust law case, especially relevant for UK labour law and UK company law, concerning pension funds and the implementation of a poison pill.
Johnson v Unisys Limited [2001] UKHL 13 is a leading UK labour law case on the measure of damages for unfair dismissal and the nature of the contract of employment.
Western Excavating (ECC) Ltd v Sharp [1978] ICR 221 is a UK labour law case, concerning unfair dismissal, now governed by the Employment Rights Act 1996.
Buckland v Bournemouth University [2010] EWCA Civ 121 is a UK labour law case, concerning unfair dismissal, now governed by the Employment Rights Act 1996.
An employment contract in English law is a specific kind of contract whereby one person performs work under the direction of another. The two main features of a contract is that work is exchanged for a wage, and that one party stands in a relationship of relative dependence, or inequality of bargaining power. On this basis, statute, and to some extent the common law, requires that compulsory rights are enforceable against the employer.
Dryden v Greater Glasgow Health Board [1992] IRLR 469 is a UK labour law case concerning the contract of employment. It held that a variation of company workplace customs, which are incorporated into individual contracts of employment can take place after a proper consultation without breaching employees' contracts.
Rigby v Ferodo Ltd [1988] ICR 29 is a UK labour law case concerning the contract of employment. It held that if an employer reduces wages without a worker's consent, the worker may continue to work and claim the shortfall.
Murray v Minister of Defence is an important case in South African labour law. An appeal from a decision in the Cape Provincial Division by Yekiso J, it was heard in the Supreme Court of Appeal (SCA) on 18 February 2008. Mpati DP, Cameron JA, Mlambo JA, Combrinck JA and Cachalia JA presided, handing down judgment on 31 March. Counsel for the appellant was KPCO von Lieres und Wilkau SC ; NJ Treurnicht SC appeared for the respondent. The appellant's attorneys were Van der Spuy Attorneys, Cape Town, and Hill McHardy & Herbst Ing, Bloemfontein. The respondent was represented by the State Attorney, Cape Town, and the State Attorney, Bloemfontein.
In law, wrongful dismissal, also called wrongful termination or wrongful discharge, is a situation in which an employee's contract of employment has been terminated by the employer, where the termination breaches one or more terms of the contract of employment, or a statute provision or rule in employment law. Laws governing wrongful dismissal vary according to the terms of the employment contract, as well as under the laws and public policies of the jurisdiction.
Reda v Flag Ltd [2002] UKPC 38 is a case from Bermuda law, advised upon by the Privy Council, that is relevant for UK labour law and UK company law concerning the dismissal of a director.
Société Générale, London Branch v Geys [2012] UKSC 63 is a UK labour law case, concerning wrongful dismissal. The Supreme Court's decision was a significant ruling in regard to the competing automatic and elective theories of contractual repudiation, affirming the elective theory.
Boyo v London Borough of Lambeth [1994] ICR 727 is a UK labour law case, concerning wrongful dismissal.
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