Constructive Dismissal

09 July 2019

As an employer, you have a duty and responsibility to ensure you treat all your employees the same. This includes paying your employees correctly and when changing the terms of someone's employment.

It's against employment law to intentionally breach an employee's contract which could lead to their resignation. Failure to act legally can lead to a claim being raised against you at an employment tribunal, which could lead to heavy financial damages.

In this guide, we'll discuss what constructive dismissal is, common examples to look out for, and what the process is for claiming constructive dismissal.

What is constructive dismissal?

Constructive dismissal arises when an employee is forced to resign from their job due to the employer's conduct. The legal term for this is "constructive unfair dismissal"

It's often the result of the employment relationship breaking down that made their position untenable. With resignation being the only option. This is caused by a breach of an express or implied term of their employment contract.

The employee may feel they've been "constructively dismissed". This may lead to constructive dismissal claims in the future.

What is the law surrounding constructive dismissal?

The Employment Rights Act 1996 defines the legislation surrounding constructive dismissal in Great Britain.

The act protects all employees from being treated unfairly and being constructively dismissed.

Does an employee have to work their notice if they're forced to resign?

In most cases of constructive dismissal, the employee will resign with immediate notice in a resignation letter. Meaning because of the serious breach of contract, they won't work their notice period.

The resignation letter should include the reasons for their resignation. Such as:

  • A description of the employer's breach of contract.
  • A description of the anticipated breach of contract.
  • An explanation that the trust has gone between employee and employer, leading to a breakdown of the working relationship.

However, an employee can still work their notice and still protect their right claim against you.

As an employer, you need to understand the differences between constructive and unfair dismissal. Doing so can ensure you manage them both in your workplace correctly.

What's the difference between constructive and unfair dismissal?

The main difference between the two is that a constructive dismissal means the employee resigns, whereas an unfair dismissal is an employee being dismissed.

An unfair dismissal claim is when an employee feels they've been sacked in a way that's against employment law. With unfair dismissal, there is usually a process that hasn't been followed correctly, for example disciplinary action.

Common constructive dismissal examples

As an employer, you need to be aware of all the circumstances where constructive dismissal could come into play.

Below are reasons why employees may resign, claiming constructive dismissal as their reason. You must familiarise yourself with them:

  • False allegations: Making claims about an employee's performance that are unfounded and simply untrue.
  • Reducing an employee's pay: Not paying your employees correctly is a breach of the employment contract. Paying your staff is an express contractual term and a legal right so must be adhered to at all times.
  • Making unreasonable changes: Making changes to an employee's working hours, place of work, or job description. You shouldn't expect an employee to accept unreasonable changes to how they work. For example, giving an employee an unmanageable and excessive workload.
  • Removing contractual benefits: Removing an employee's company car, work phone, or other contractual benefits without good reason.
  • Demotion: Demoting an employee to a position that has less responsibility, status, or a lower salary without good reason.
  • Not providing a safe working environment: Forcing employees to work in breach of health & safety laws. You must always provide sufficient safety measures for all your employees.
  • Harassment, bullying, or discrimination: Treating an employee unfairly or differently due to a protected characteristic. This is against employment law under the Equality Act 2010.
  • Failure to make reasonable adjustments: Not making reasonable adjustments for any employees with disabilities. Legally you must make adjustments for your disabled staff, such as allowing them to park closer to the main entrance.

Does the fundamental breach of contract have to happen more than once to make a claim?

No, to claim constructive dismissal the breach only needs to happen once. For example, if you provide an unsafe working environment and an employee ends up being injured.

However, it can also stem from the employer's conduct over a large period of time which leads to the employee resigning.

As an employer, you need to understand if all your employees can make constructive dismissal claims against you.

Man with his head in his hands.

Can anyone claim constructive dismissal?

No, not everyone can make a constructive dismissal claim against you. They must be an employee. In most cases, employees must have been continuously employed for two years or more.

Be aware that workers or self-employed workers don't have the right to make a constructive dismissal claim against you.

As well as the above, working hours and shift patterns don't have an impact on an employee's right to raise a claim. For example, employees who work night shifts can still make a claim.

Can an employee make a claim if they haven't got two years of service?

Yes, an employee with less than two years service may be able to claim for wrongful dismissal. This is usually a breach of contract claim and will be limited to their notice period.

Compensation for this claim is usually limited to what the employee would have earned during their notice period. This includes pay and benefits

How easy is it to prove constructive dismissal?

Constructive dismissal cases aren't easy to prove. The following requirements must be met to have a successful claim:

  1. There's been a serious and significant breach of their contract of employment.
  2. The employee has resigned due to the actual breach and not for a different reason.

If they can do that, they may be successful in their claim for constructive dismissal.

What's the process for constructive dismissal claims?

As an employer, you need to understand how your employees can make a constructive dismissal claim.

The following are steps your employee will take when claiming constructive dismissal:

  1. An initial grievance may be raised against you. This gives you the opportunity to resolve the dispute before it goes any further.
  2. If the dispute or complaint isn't resolved, the employee will most likely resign.
  3. The employee may raise the claim to an employment tribunal.
  4. Early conciliation will usually be needed before the tribunal will accept the claim.

As an employer, you need to understand the likelihood of each claim making it to the tribunal.

Do employees need to make it clear they're claiming constructive dismissal when they resign to make a claim?

Yes, if an employee wants to raise a constructive dismissal claim against you they should make it clear in their resignation letter.

Failure to do so can make their case weaker if the claim makes it to an employment tribunal.

A person sat on the floor looking concerned.

Does every constructive dismissal claim end at an employment tribunal?

No, not every constructive dismissal claim ends in tribunal. You should try and reach a settlement agreement with your employee. You should always try this method as it will avoid time and money moving forward, as long as the claim doesn’t have any merit.

In some cases, the employee decides to make a tribunal claim if a settlement agreement cannot be reached.

Is there a time limit for an employee to make claims to an employment tribunal?

Yes, there's a time limit in place for employees wanting to claim constructive dismissal at an employment tribunal.

The claim must be issued within three months minus one day from the date they stopped working for you. This typically falls on the day of termination. However, this can be extended following ACAS early conciliation.

How much compensation may you have to pay for a constructive dismissal claim?

As an employer, you must be aware of how much compensation you may have to pay if the employee's claim is successful.

You should expect to pay your employee’s notice compensatory award, plus the following:

  • A basic award of up to £571 per week for each completed year the employee has worked for you (multiplied by 0.5, 1 or 1.5 depending on their age). The maximum cap is £17.130.
  • A compensatory award which may include the following: loss of earnings, bonuses, shares, benefits, and pension.

The compensatory award is capped at £93,878 or one year's salary, depending on which is lower.

The employee has a duty to mitigate their losses by doing all they can to find work during the process.

Does a constructive dismissal claim affect restrictive covenants?

A restrictive covenant is a clause within an employment contract that prohibits an employee from working with a rival or competing business once employment ends.

However, constructive dismissal can affect an employee's restrictive covenants if their claim is successful.

If an employee can show they were constructively dismissed they may be released from their post-termination restrictions. This is because the breach meant the employment contract can't be relied on in the future.

As an employer, you need to avoid constructive dismissal whenever you can.

An empty meeting room with tables and chairs set up.

How can you avoid constructive dismissal?

Constructive dismissal can harm your business. It can lead to a dip in productivity, employee morale, and reputational damages.

So, you must do whatever it takes to avoid it happening in your company. Let's discuss what you can do in more detail.

Try and resolve employee disputes

You should always attempt to resolve disputes with your employees informally before it gets taken to a more serious level.

As soon as a complaint or informal grievance is raised, hold a one-to-one meeting with the affected employee. This will allow you to listen to their complaint in more detail and find ways for them to be resolved.

Taking the time to resolve complaints early will hopefully strengthen the working relationship.

Keep on top of your contracts and policies

Employment law and HR legislation can often change. So, you should always keep on top of your contracts and policies.

Ensure you perform annual reviews on all your workplace policies, contracts, and employee handbooks.

You should make changes where required. However, be aware that you must make your employee aware of any changes you make and may need to carry out consultation. Failure to do so could be a breach of contract.

Investigate all complaints

You should fully investigate any complaints you receive to the best of your ability. This will increase your employee's confidence in you that you'll look out for them, and also solve the issue.

You should have a clear and concise policy in place that makes it clear to your employees who they should raise a complaint to.

Develop an inclusive workplace culture

As an employer, you have a responsibility to create an inclusive and diverse workplace culture in your business.

Allowing a toxic workplace culture to thrive will increase the likelihood of employees being bullied, harassed or discriminated against. You should hold regular work socials to improve workplace morale to help avoid this becoming the case.

Invest in training

You should invest in training and educating your employees on the effects certain behaviours can have on them. Ensure you provide training for all employees, as well as managers and senior executives.

If you're worried you may be on the way to a constructive dismissal claim, you should seek early professional advice.

Get expert advice on constructive dismissal from Peninsula

For most employers, treating your staff fairly and equally is second nature. But, this isn't always the case. Sometimes employee contracts are intentionally breached, for example withholding payment or removing contractual benefits.

It's against employment law to intentionally breach an employee's contract which could lead to their resignation. Failure to act legally can lead to a claim being raised against you at an employment tribunal, which could lead to heavy financial damages to pay.

Peninsula offers you expert 24/7 HR advice and support, our employment law solicitors will provide you with quality advice to protect you from constructive dismissal. Contact our employment team on 0800 028 2420 .


Suggested Resources