In employment law, constructive dismissal, also called constructive discharge or constructive termination, occurs when an employee resigns 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 one of the constructive acts.
United States law
In the United States, constructive discharge is a general term describing the involuntary resignation of an employee. 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:
- Family and Medical Leave Act of 1993 (FMLA)
- Equal Pay Act of 1963 (EPA)
- Americans with Disabilities Act of 1990 (ADA)
- Genetic Information Nondiscrimination Act of 2008 (GINA)
- Age Discrimination in Employment Act of 1967 (ADEA)
- Title VII of the Civil Rights Act of 1964 (Title VII)
- Any state employment law
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.
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."
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 treat themselves as dismissed. 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 (i.e. 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 he is employed (with or without notice) in circumstances in which he is 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." 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 Department of Trade and Industry states:
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.
Types of constructive dismissal
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 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 matters not if the employer did not mean to repudiate the contract.
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 (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 serious breach causes 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.
Constructive dismissal is typically caused by:-
- unilateral contract changes by the employer such as:
- breach of contract in the form of bullying, e.g.:
- ignoring complaints,
- persistent unwanted amorous advances,
- bullying and swearing,
- verbal abuse (typically referring to gender, size or incompetence),
- singling out for no pay rise,
- criticising in front of subordinates,
- lack of support (e.g. forcing to do two peoples' jobs),
- failure to notify a woman on maternity leave of a vacancy which she would have applied for if she had been made aware of it,
- refusal to confirm continuity on TUPE transfer,
- revealing secret complaints in a reference (even ones required by a regulator), or
- breaches such as:
- behaviour which is arbitrary, capricious, inequitable, intolerable or outside good industrial practice,
- conduct that undermined trust and confidence (i.e. offering an incentive to resign to avoid performance managing capability),
- refusal to look for an alternative role due to workplace stress,
- disproportionate disciplinary penalty,
- employer cons employee into resigning.
Flexibility and mobility clauses
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.
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.
The conduct by the employer could be:
- a one-off serious breach of contract,
- anything to the employee's detriment (not necessarily a breach of contract) that acts as a last straw after a string of serious breaches,
- a serious breach that acts as the last straw after a string of less serious breaches, or
- a string of less serious breaches related in time and nature that add up to a serious breach (random mistakes over the years are not enough – it would be more like a sustained campaign to undermine).
Employee must resign quickly
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, but even if a breach was waived, the last straw revives it for the purpose of determining whether overall there was a repudiation.
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.
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.
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 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.
- Turner v. Anheuser-Busch, Inc., 7 Cal. 4th 1238, 1251, 876 P.2d 1022 (1994)
- Text of Section 95(1)c of the Employment Rights Act 1996 as in force today (including any amendments) within the United Kingdom, from legislation.gov.uk
- Malik & anor v Bank of Credit and Commerce International SA 1997] UKHL 23;  AC 20
- Western Excavating (ECC) Ltd v Sharp  ICR 221
- Lewis v Motorworld Garages Ltd  ICR 157
- Savoia v Chiltern Herb Farms Ltd  IRLR 166
- British Leyland UK Ltd v McQuilken  IRLR 245
- Weathersfield Ltd v Sargent  ICR 425
- Hilton International Hotels (UK) Ltd v Protopapa  IRLR 316
- Cantor Fitzgerald International v Callaghan  ICR 639
- Wadham Stringer Commercials (London) Ltd and Wadham Stringer Vehicles Ltd v Brown  IRLR 46
- Lytlarch Ltd v Reid  ICR 216
- Triton Oliver (Special Products) Ltd v Bromage (EAT 709/91) IDS Brief 511
- William Hill Organisation Ltd v Tucker  ICR 291
- Greenaway Harrison Ltd v Wiles  IRLR 380
- Courtaulds Northern Spinning Ltd v Sibson  ICR 451
- Goolds v McConnell  IRLR 516
- Western Excavating (ECC) Ltd v Sharp
- Korkaluk v Cantor Fitzgerald International  ICR 697
- Isle of Wight Tourist Board v Coombes  IRLR 413
- Palmanor v Cedron  IRLR 303
- Courtaulds Northern Textiles Ltd v Andrew  IRLR 84, EAT
- Gardner v Beresford  IRLR 63
- Seligman v McHugh  IRLR 316
- Visa International Service Association Ltd v Paul  IRLR 42
- Euro-Die (UK) Ltd v Skidmore (EAT 1158/98) (2000) IDS Brief B665/14
- TSB Bank plc v Harris  IRLR 157
- Woods v WM Car Services (Peterborough) Ltd  ICR 666
- Billington v Michael Hunter & Sons Ltd EAT 0578/03, IDS Brief 758
- Thanet District Council v Websper EAT 1090/01, IDS Brief 728
- Stanley Cole (Wainfleet) Ltd v Sheridan  ICR 297
- Caledonian Mining Co Ltd v Bassett  ICR 425
- Land Securities Trillium Ltd v Thornley  IRLR 765
- United Bank Ltd v Akhtar  IRLR 507
- Murco Petroleum Ltd v Forge  ICR 282
- Dryden v Greater Glasgow Health Board  IRLR 469
- Logan v Commissioners of Custom and Excise  IRLR 63
- Abbey National plc v Robinson  IDS Brief 680
- JV Strong & Co Ltd v Hamill  IDS Brief 684
- Jones v F Sirl & Son (Furnishers) Ltd  IRLR 493
- Bunning v GT Bunning & Sons Ltd  EWCA Civ 983
- Aparau v Iceland Frozen Foods plc  IRLR 119
- Omilaju v Waltham Forest London Borough Council  ICR 481
- Text of Section 139(1) of the Employment Rights Act 1996 as in force today (including any amendments) within the United Kingdom, from legislation.gov.uk
- Text of Section 95(2)b of the Employment Rights Act 1996 as in force today (including any amendments) within the United Kingdom, from legislation.gov.uk