Constructive Dismissal and Forced Resignations

Most employment relationships will end on a mutual understanding, that is by having the employer or employee formally end the relationship between the parties.

However, there are some occasions where the conduct of the employer can amount to a repudiation of the contract, where the employer by certain words or conduct, demonstrates that they intend not to be bound by the terms of the contract. Those circumstances can sometimes be considered as a ‘constructive dismissal’.

This was defined in Western Excavating v Sharp [1978] QB 761 at 769 by Lord Denning MR as a situation where:

‘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 employee is entitled to treat himself as discharged from any further performance’

Hower Lord Denning does add two crucial elements:

The conduct must in either case be sufficiently serious to entitle the employee to leave at once; and the employee must make the decision soon after the conduct is made apparent to him.

 

So what kind of conduct is sufficiently serious?

In Hem v Cant [2007] FCA 81, the court found that constructive dismissal applied when an employer falsely claimed an employee had stolen company property and requested his resignation.

Moreover, not being paid wages or even superannuation can also constitute constructive dismissal however not always. As the case of Bruce v Fingal Glen Pty Ltd [2013 FWC 3941 sets out, payment of wages a couple of days late may not be regarded as forcing the resignation and so not construed as constructive dismissal.

In any case, the conduct that the employer would need to engage in for it to be construed as constructive dismissal would be based on a wide variety of grounds.

 

What about the Fair Work Act?

Being constructively dismissed fits within the application of unfair dismissal law under statute. It is then commonly treated as a forced resignation.

Section 386(1)(b) states that an individual will be deemed to have faced unfair dismissal at the behest of the employer if “the person resigned from their employment but was compelled to do so due to the conduct, or series of actions, initiated by their employer”.

The Fair Work Commision is required to determine whether the misconduct “forced” the employee to resign or terminate their employment.

Again this can include a broad set of conduct, such as:

• Interpreting a future intention to resign as a resignation (Marks v Melbourne Health [2011] FWA 4024)
• Failure to pay wages over a significant period (Hobbs v Achilleus Taxation Pty Ltd ATF the Achilleus Taxation Trust; Achilleus Accounting Pty Ltd ATF The Achilleus Accounting Trust [2012] FWA 2907) or;
• Having a heated discussion to the point where the employer wrongly assumes the employee is dismissed, or having the employee express their resignation due to the circumstances. This can be referred to as a ‘heat of the moment’ resignation (Bender v Raplow Pty Ltd [2011] FWA 3407).

 

However, the courts have interpreted that employees were not ‘forced’ out of their employment in the following instances:

• Engaging in disciplinary process or performance management (Love v Alcoa of Australia Limited [2012] FWAFB 6754 and Ashton v Consumer Action Law Centre [2010] FWA 9356).
• Interpreting the state of negotiations on pay prior to a decision being made by the employer (Blair v Kim Bainbridge Legal Service Pty Ltd T/as Garden & Green [2011] FWA 2720).
• Failure to pay wages on time by a small margin (Bruce v Fingal Glen Pty Ltd [2013] FWC 3941).

 

What are my Remedies? 

If constructive dismissal is established the employee will be entitled to resign without notice and may be entitled to damages for the breach of the contract. The employee may then be able to make an unfair dismissal application to the Fair Work Commission.

The Commission may order a person’s reinstatement, or financial compensation, if the Commission is satisfied that the person was protected from unfair dismissal at the time of being dismissed, and found that the person has been unfairly dismissed.

 

Key takeaways

Constructive dismissal occurs when an employer’s actions or conduct fundamentally breach the employment contract, entitling the employee to resign immediately and potentially seek compensation.

The Workplace Team at Chamberlains Law Firm have all the necessary expertise to help you understand this process and accompany you in case of a dispute.