What is constructive dismissal?

In employment law, constructive dismissal refers to a case when an employee is forced to resign from their position due to the employer committing a serious breach of contract.

Although the term is named constructive ‘dismissal’, no dismissal actually takes place. Instead, the actions of the employer undermine the employment relationship to a point where the employee feels they have no alternative but to resign.

In these instances, the employer’s behaviour is often either in breach of an express term documented within the employment contract or in breach of an implied term of employment.

As a result of this the employee will effectively treat himself or herself as having been dismissed unfairly.
In most cases, employees are unlikely to claim for constructive dismissal due to very few tribunals being successful. Moreover, the median compensation for constructive dismissal is significantly lower than most people think; therefore the risk vs reward means that other forms of complaints are advised first.

Grounds for constructive dismissal

There are a number of potential issues that may result in a constructive dismissal being filed against an employer. Grounds for an employee to claim constructive dismissal include:

  • Reducing pay with no agreement from the employee
  • Demotion to a lesser role without good reason
  • Unfounded claims of poor performance
  • Forcing the employee to work in hazardous conditions against health and safety regulations
  • Turning a blind eye to harassment or bullying by colleagues

In any case, the breach must be deemed serious enough by an employment tribunal to warrant the resignation. The employee must also raise their claim relatively quickly following the incident(s) in order for a tribunal to acknowledge the nature and severity of the issue.

What is the difference between constructive dismissal and unfair dismissal?

People often discuss unfair and constructive dismissal without having a thorough understanding of what each of the terms mean, and more importantly the difference between the two. This can cause unnecessary confusion and it’s important for small business owners to understand when to use each to defend their case.

The difference between the two is that constructive dismissal occurs when an employee resigns in response to a breach of contract from the employer, whereas unfair dismissal occurs when an employer has dismissed the employee in an unfair manner. An employee can only claim for constructive dismissal if the employer has breached the contract, there are no other factors contributing to the resignation and the employee resigned a short period after the employer treated them unfairly. On the other hand, a case involving unfair dismissal is often more complicated, and is explained in more detail here.

Qualifying period and compensation

An employee must have at least two years’ service with a company in order to file a claim for constructive dismissal.

If the claim is judged to be valid by a tribunal, the employee will be due to paid compensation as a result of the employer’s behaviour.

The level of compensation equates to the same as unfair dismissal and will judged by a tribunal based on the following aspects:

  • How long the employee has been employed
  • Weekly pay before tax
  • Past, present and future loss of net earnings
  • Overtime
  • Bonuses and other types of earnings

The law behind constructive dismissal

The Employment Rights Act 1996: Part X defines the legislation on constructive dismissal.

For more information on case law specific to this topic, the case of Western Excavating v Sharp sets a precedent for all constructive dismissal cases.

Summary

  • Constructive dismissal occurs when an employer’s unlawful behaviour forces an employee to resign from their position.
  • An employee must have at least two years’ service with a company in order to file a claim for constructive dismissal.
  • If the claim is judged to be valid by a tribunal, the employee will be due to paid compensation as a result of the employer’s behaviour.