Constructive dismissal (also known as constructive unfair dismissal) occurs where the employee resigns in response to conduct by the employer that is serious enough to allow the employee to treat the contract as terminated. The term “constructive dismissal” is not defined in statute but is a colloquial term for a fundamental or repudiatory breach of contract by the employer, which, if accepted by the employee, brings the contract to an end.
Whilst constructive dismissal is generally a highly fact specific situation, there are three essential requirements:
- there must be an actual breach of contract by the employer, which is a fundamental breach, i.e. one that goes to the root of the contract and is sufficiently serious to justify the employee’s resignation;
- the employee must resign in response to the breach, rather than for some other reason; and
- the employee must not delay in terminating the contract in response to the employer’s breach, otherwise the employee may be regarded as having accepted the breach with the result that the contract is treated as continuing (in such case, the employee may still be entitled to damages).
The burden of proof is on the employee to prove the above legal tests have been met.
The Isle of Man has relatively little guidance on this area of law and, in such circumstances, the Employment & Equality Tribunal will generally look to UK case law for guidance. The leading English case on constructive dismissal[1] provides a helpful summary:
“If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer’s conduct. He is constructively dismissed.”
It is not just the express terms of the employment contract which can be breached fundamentally: an employee may resign in response to the employer’s breach of the implied term of trust and confidence. That is to say, an employer must not, without reasonable and proper cause, act in a manner calculated or likely to destroy or seriously damage the implied term of trust and confidence between employer and employee.
Examples of constructive dismissal
By way of guidance, case law in the UK and the Isle of Man has provided us with the following examples of what tribunals have determined can amount to constructive dismissal:
- a serious breach of one or more key contract terms (e.g. an employer not paying an employee or demoting an employee for no justified reason);
- forcing an employee to accept unreasonable changes to his or her conditions of employment without agreement;
- bullying, harassment or violence by work colleagues;
- making the employee work in dangerous conditions;
- changing the employee’s duties by removing or adding duties;
- discrimination;
- failing to address a grievance;
- inept handling of disciplinary matters;
- inappropriate or unnecessary raising of work issues when an employee is on sick leave; and
- excessive or intolerable workloads.
Unreasonable behaviour by an employer will not in itself be enough to permit an employee to resign and claim constructive dismissal. The behaviour must be so serious as to amount to a fundamental breach of the employee’s contract of employment. For example, unacceptable verbal abuse by a manager, falsely accusing an employee of serious misconduct, failing to treat a long-serving employee with dignity and consideration or persistently trying to change an employee’s conditions of service.
We consider some of the more “common” themes of constructive dismissal below but note that is not an extensive guide and legal advice is recommended where an employee asserts a claim of constructive dismissal.
The “last straw” doctrine
An employee can resign in response to a series of breaches of contract or a course of conduct by the employer which, taken cumulatively, amounts to a breach of the implied term of trust and confidence. The final incident in the chain in itself may be insubstantial but nonetheless sufficient to render the whole series of incidents a fundamental breach. The test is whether, viewed objectively, the course of conduct showed that the employer, over time, had demonstrated an intention to no longer be bound by the contract of employment and the express and implied duties that go with that.
The “last straw” can bring to life earlier breaches of contract that may otherwise have been waived by the employee. The “final straw” therefore must contribute something to the breach[2], although what it adds might be relatively insignificant. The following principles should be considered:
- the final straw must not be utterly trivial;
- the act does not have to be of the same character as earlier acts complained of;
- it is not necessary to characterise the final straw as “unreasonable” or “blameworthy” conduct in isolation, though in most cases it is likely to be so;
- an entirely innocuous act on the part of the employer cannot be a final straw, even if the employee genuinely, but mistakenly, interprets the act as hurtful and destructive of trust and confidence by the employer. The test of whether the employee’s trust and confidence has been undermined is objective.
Where employers act in good faith and have reasonable and justifiable grounds for what they do, the employee will have difficulty arguing that such action, however unwelcome, provides grounds for a constructive dismissal claim under last straw principles.
Heat of the moment resignation
An employee who has properly given notice of termination has no right unilaterally to withdraw it, however, good practice requires an employer to give the employee opportunity to withdraw words of dismissal or resignation when spoken in the “heat of the moment” after they’ve calmed down. Resignations have to be clear and unambiguous and so an employer should act cautiously when there is ambiguity about whether the employee has actually accepted the breach, and consequently resigned and whether the words uttered by the employee were really intended to mean what they appeared to say[3]. In such circumstances, a reasonable period of time should be allowed to lapse to see whether the resignation was really intended and can be properly assumed. A “reasonable” period of time is likely to be relatively short, such as a day or two (although each case will be fact specific and advice should be taken by an employer in such circumstances).
Inept handling of disciplinary matters or poor handling of performance issues
Where an employee is suspended on the basis of conduct, there is potential for them to claim repudiatory breach if the allegations are unreasonable and of the utmost seriousness. In one case, an employee was suspended in the context of alleged sexual abuse which was later found to be a “knee jerk” reaction of the employer. Notwithstanding that the investigation exonerated the employee, the suspension triggered a depressive illness in the individual who subsequently resigned claiming fundamental breach. In particular, it was argued that a reasonable employer would not “without reasonable cause conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust”. The tribunal in this particular case found that, whilst the employer should have investigated the allegations, it did not have reasonable cause to suspend the employee and the severity of the allegations had had the effect of seriously damaging the relationship[4].
Similarly, placing an employee on a formal performance improvement plan without prior warning or discussion is likely to seriously damage the relationship of trust and confidence.
Failing to address a grievance
It is an implied term of employment that an employee will be allowed a reasonable opportunity to obtain redress of a grievance; a breach of this term may constitute a repudiatory breach for constructive dismissal purposes. Failure to address a grievance at all, or failure to address it within a reasonable time, can also amount to a fundamental breach of contract. The duty will only arise, however, once the employee has properly articulated their grievance to the employer.
That said, an English tribunal found that poor handling of a grievance, including failing to give an adequate explanation for refusing an appeal and/or disclosing the existence of a grievance to the aggrieved employee’s colleagues, did not necessarily mean that there has been a repudiatory breach by the employer. This underlines that each case will depend on its own facts.
Repudiatory breach cannot be cured
An employer cannot “cure” a repudiatory breach of contract by attempting to make amends or undo what has been done. Unless the employee has waived the breach or affirmed the contract, they have an unfettered right to choose whether to treat the breach as terminal.
A complaint of unfair constructive dismissal is dealt with in the same way as other unfair dismissal complaints, generally speaking, including as regards remedies available to the claimant and basis for calculating awards. In most cases, one year’s continuous service is required to bring a tribunal claim.
Does the employee have to work their notice in accordance with the contract?
Whilst, ordinarily, employees are required to give notice as per their contract of employment when resigning, in a constructive dismissal scenario it is usually justifiable for the employee to resign without giving and/or working their notice. This is on the basis that the employer has seriously breached the terms of the employment contract. If the employee chooses to work their notice period, the employee runs the risk that they will be considered to have consented to the breach and affirmed the contract.
Limitation on bringing a constructive dismissal claim
A complaint for constructive dismissal, like ordinary unfair dismissal, must be made within 3 months of the effective date of termination. If the reason for the employee’s dismissal is in relation to them taking industrial action, the employee has 6 months to make a claim.
Note, however, that the Isle of Man employment tribunal does have discretion to allow a complaint out of time if there is good reason for the delay.
Eligibility
A complaint of unfair constructive dismissal is dealt with in the same way as ordinary unfair dismissal complaints, generally speaking, including as regards remedies available to the claimant and basis for calculating awards. In most cases, one year’s continuous service is required to bring a tribunal claim, but there are exceptions.
Employers should also be aware that it is also possible for an individual to bring a claim for wrongful dismissal in the Isle of Man High Court which, unlike the Employment & Equality Tribunal, does not have a cap on compensatory damages. A wrongful dismissal claim does not reflect the fairness or otherwise of the dismissal but the fact of the contractual provisions on termination of employment being breached (usually this relates to the employer’s failure to give due notice and pay the employee accordingly).
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References:
[1] Western Excavating (ECC) Ltd v Sharp [1978] ICR 221
[2] Waltham Forest v Omilaju [2004] EWCA Civ 1493
[3] See leading case Omar v Epping Forest District Citizens Advice [2023] EAT 132
[4] Gogay v Hertfordshire County Council [2000] IRLR 703