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Our Essential Guide to Constructive Unfair Dismissal

Our Essential Guide to Constructive Unfair Dismissal

Date: 16th May 2018 | By: Claire Malley | Categories: Employment law

Many companies will be familiar with the term “unfair dismissal” and may have faced threats of an unfair dismissal claim when dismissing an employee.

Broadly speaking, an employee will be able to successfully bring an unfair dismissal claim if their dismissal was not for one of what is regarded as a ‘fair’ reason (conduct, capability, redundancy, statutory restriction or “some other substantial reason”) or the employer did not act reasonably in treating that reason as a sufficient reason for dismissal.

If an employee feels forced to resign, rather than being formally dismissed by the employer, then there is a possibility that they could then pursue a constructive unfair dismissal case. For a constructive dismissal claim to succeed, the employee needs to show that:

  • Their employer was in repudiatory breach of the employment contract;
  • They resigned in response to that breach; and
  • They did not delay too long before resigning in response to their employer’s breach. If the employee continues working for any length of time following the breach they will be regarded as having chosen to “affirm” the contract.
    • One incident may amount to repudiatory conduct but sometimes it is a series of incidents or pattern of behaviour which, taken as a whole, amounts to such conduct. In these circumstances any previous breaches of contract that may have otherwise been waived by the employee may be treated as part of a continuing course of conduct.

      How successful are constructive dismissal tribunal cases?

      It’s estimated that just 5% of cases are ultimately successful. However, since the government abolished tribunal fees in 2017, the number of cases being brought has increased.

      The conciliatory service ACAS have reported that employment tribunal cases jumped by 39.5% in the 2017/18 financial year, although they also admit that this may be an underestimation.

      ACAS also indicate that early conciliation notifications have increased from approximately 1700 a week to 2200 a week. These figures seem to indicate that employees are now more willing to take a claim to tribunal, thanks to the fact that it no longer costs around £1200 to do so.

      Repudiatory breach of contract

      A without notice resignation normally only happens when an employee feels that it is impossible to continue in their present position, and, put simply, walks out of their job.

      If, however, an employee gives notice of their resignation, then the employer could argue that they have ‘affirmed’ the breach in contract, and therefore cannot claim constructive dismissal.

      Remember that there is a clear distinction between unfair dismissal and constructive dismissal. Unfair dismissal involves the employer actively dismissing an employee, whereas constructive dismissal means that the employee chooses to resign due to a repudiatory breach of contract.

      What constitutes a repudiatory breach?

      Employers have to be aware of what could constitute a repudiatory breach of contract, leading to a claim for constructive dismissal. However, for an employee to claim constructive dismissal that transgression must be so serious that it goes to the ‘root of the contract’.

      We’re not talking mild misdemeanours here, but breaches so serious they force the employee to remove themselves from the working environment with immediate effect. These can include:

      • A pay cut or demotion
      • Radical changes to working conditions including working hours, location or duties
      • Subjection to unlawful discrimination
      • Unreasonable demands that could be construed as an attempt to set the employee up to fail in their role, or make their position so untenable that they are forced to resign
      • A breach of employer/employee ‘mutual trust and confidence’ as laid out in the terms of the employee’s contract.

      A one-off or a catalogue of incidents?

      A repudiatory breach of contract doesn’t have to be one single event – it can be a series of actions that lead up to a ‘last straw’ situation, where a final act triggers a resignation. However, it is up to the employee in any constructive dismissal tribunal to demonstrate that they attempted to rectify the situation at an earlier date, rather than simply allowing an unacceptable chain of events to go unchecked.

      What do Employers Need to be Aware of?

      constructive unfair dismissal

      Employees can generally bring an unfair dismissal claim once they have two years’ continuous employment, aside from where their dismissal is classified as an automatically unfair dismissal (including for reasons connected to pregnancy or childbirth, health and safety activities, whistle-blowing exercising various time off rights, or asserting a statutory right), or in other limited circumstances in which cases no qualifying period is required.

      In addition to having the right to bring an unfair dismissal claim when they are dismissed, employees can also bring a (constructive) unfair dismissal claim in circumstances where they resign in response to the employer’s conduct.

      In order to successfully bring a constructive unfair dismissal claim, an employee needs to demonstrate:

      • A repudiatory breach of contract (actual or anticipatory) by the employer
      • An election by the employee to accept the breach and treat the contract as at an end, i.e. the employee must resign in response to the breach
      • The employee must not “waive” the breach by delaying too long in accepting the breach and treating the contract as continuing
        • It is important to remember that as well as the express written terms in an employee’s contract of employment, there may also be additional terms incorporated by custom and practice, and there are a number of implied terms including the implied term of mutual trust and confidence.

          For example, the employer must not, without reasonable and proper cause, conduct themselves in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between employer and employee. These implied terms can be used as the basis for a constructive dismissal claim in the same way as a breach of an express term.

          How to prove constructive dismissal

          If an employee hasn’t been paid, has been physically assaulted or abused, or subject to discriminatory behaviour by the employer, then it is relatively straightforward for them to prove a case of constructive dismissal and, consequently, claim compensation from the employer. However, this isn’t always the case, and in fact, the majority of constructive dismissal cases are dismissed by tribunals, either because there is no body of proof or that the employee has been deemed to have accepted the employer’s behaviour over a prolonged period of time.

          An employee may try to resolve the situation by raising a grievance or submitting a ‘Without Prejudice’ letter. This grievance or ‘Without Prejudice’ letter sets out in detail the fundamentals of the contractual breaches that have led to the employee feeling they can no longer continue in their current position. That can be a single incident or an accumulation of events that lead ultimately to a breach of trust and confidence between employer and employee.

          A ‘Without Prejudice’ letter setting out the breach/es on which the employee may rely will usually include an invitation to the employer to rectify the situation before the employee feels forced to resign. It is at this point that an employer has a chance to renegotiate and de-escalate the situation. If the employee is unwilling to respond to any attempts to settle the matter amicably, or an agreement cannot be reached, then the employee will either have the choice of returning to work or to resign and then pursue a case for constructive dismissal.

          If the employee is unwilling to respond to any attempts to settle the matter amicably, or an agreement cannot be reached, then the employee will either have the choice of returning to work (in which case, any future attempt to bring a case for constructive dismissal would effectively be rendered null and void), or to resign and then pursue a case for constructive dismissal.

          Constructive dismissal compensation

          If (and it’s a big if) a constructive dismissal tribunal finds in favour of the employee, then they may be entitled to compensation. The exact amount will depend on the circumstances, but there is a certain amount of parity in pay-outs with those awarded for unfair dismissal cases. The government has now capped this to one year’s salary or £83682, whichever is lower. Successful claimants will need to demonstrate that they have actively tried to find alternative employment in the interim period.

          That Qualifying Period in more detail

          A new employee cannot even think about putting in a claim for constructive dismissal until he or she have worked for the employer for a minimum of two years. This is exactly the same as for an ordinary ‘unfair dismissal’ claim period. The two-year period has to be continuous. . Except in the cases of very short breaks which do not break continuity, an employee cannot leave, come back, and immediately have the qualifying service to make a claim for unfair or constructive dismissal.

          However, there are exceptions to this requirement for two years’ service, particularly if the circumstances relate to the employee being forced out due to being a ‘whistle-blower’, discrimination (including on the grounds of race, gender, disability, pregnancy, or sexuality), or for health and safety reasons.

          Is there any difference between constructive dismissal and unfair constructive dismissal?

          Basically, no. These are simply two terms that relate to the same situation.

          Case Study – dealing with an unfair dismissal claim

          In the case of Mostyn v S and P Casuals Ltd, the Employment Appeal Tribunal (EAT) overturned a tribunal’s decision that an employee had not been constructively unfairly dismissed when his employer threatened to impose a significant cut in his basic pay.

          In this case, Mr Mostyn was asked by S and P Casuals Ltd, in response to a significant decline in his sales figures, to accept a salary cut in his basic pay from £45,000 to £25,000. He alleged that his employer was trying to remove him by the cheapest means possible and that this was so severe and underhand as to allow him to consider his contract breached.

          S and P Casuals Ltd treated this as a grievance, which was rejected, indicating that the changes to his contract would be actioned. Mr Mostyn resigned with immediate effect and brought a claim for constructive unfair dismissal, primarily based on a breach of the implied term of mutual trust and confidence.

          The Employment Tribunal (ET) held the actions of S and P Casuals Ltd were likely to destroy or seriously damage the relationship of trust and confidence, but that they had reasonable and proper cause for taking these actions and therefore there had been no breach of the implied term.

          The EAT determined that the ET had erred in considering that S and P Casuals had reasonable and proper cause, and noted that there are very few cases where having “reasonable and proper cause” has defeated a claim of constructive unfair dismissal.

          No employer could have a reasonable and proper cause for breaching the express term in relation to salary payment or the implied term of mutual trust and confidence where that breach consisted of the unilateral imposition of a significant pay cut on an employee.

          This case is a clear example of when an employer’s actions can lead to a successful constructive unfair dismissal claim, but all employers should be aware of the risk of such a claim in any circumstances where they wish to change an employee’s terms or otherwise behave in a way which may lead to the employees becoming aggrieved.

          Conclusion

          Constructive dismissal can put an employer at risk of costly tribunals, a damaged reputation, and an impact on your productivity. However, all of this can be avoided if the potential for a case to be brought is nipped in the bud early enough, either through consultation with the employee or by ensuring that contractual obligations are met in full, giving the employee no cause to bring a case in the first place.

          Responsibility lies with both parties to ensure everything is done early on to mitigate the overall impact of a potential constructive dismissal situation. It is imperative to ensure that your HR department is appraised of any potentially damaging unfair dismissal case, and that your legal team is also briefed in and kept up to date of all developments.

          The onus is on the employee to prove a case for constructive dismissal, and to provide evidence that their situation has become untenable.

          Cases can be the result of a single trigger event or a succession of incidents. If successful, an employee could be awarded a compensation claim of a year’s salary or £83,682, whichever is the lower sum.

          It is crucial for employers to understand not only their rights, but those of their employees too.

          Please seek advice from our advice line if you are considering changing an employee’s terms, or otherwise treating them in a way which is likely to be met with complaint or resistance.

          CALL 033 33 215 005 | EMAIL info@wirehouse-es.com

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