What is Constructive Dismissal?


Constructive dismissal, in effect forced resignation, is generally poorly understood, mainly because it can manifest itself in a myriad of different situations depending upon the terms of any given employment relationship.

Constructive dismissal occurs when the conduct of the employer was so “harmful, adverse or unfriendly to” the contract of employment and the employment relationship that the employee could not be expected to put up with it.

Common examples include:

  • an employer expressly suggesting that an employee resign (irrespective of whether the employee made the suggestion) so as to assist with preserving the employee’s future ability to obtain work;
  • an employer actively making it very difficult or impossible for an employee to fulfil their role;
  • an employer continuously failing to provide, to a serious degree, a safe and/or healthy working environment; or
  • an employer imposing unauthorised and detrimental variations to the employee’s contract, such as a pay-cut, demotion, change of working hours, relocation or unreasonably failing to prevent or punish a co-worker who may be harassing or discriminating against the employee.

The employee must prove that the employer’s actions were the principal contributing factor leading to their resignation. The employer’s action must be found to have directly and consequentially resulted in the termination of the employment (that the employee had no effective or real choice but to resign) and that the employee would have remained employed but for the alleged conduct.[1]

The resignation must occur immediately after, or very shortly after, the conduct complained of, otherwise the employee could be said to have accepted the continued existence of the employment contract (in effect, ‘tolerating’ the conduct).

Constructive dismissal often forms the basis of “dismissal-related” claims such as unfair dismissal or a breach of the general protections provisions of the Fair Work Act.

A recent example is the case of Foster v Sushi Tribe Pty Ltd T/A Pacific Retail Management [2].  That case involved Mr Foster, a graphic designer employed by Sushi Tribe for over 8 years.  On 22 June 2015 Sushi Tribe gave Mr Foster two options; either he could take a voluntary redundancy package or become an independent contractor.

Mr Foster rejected the offer of becoming an independent contractor. The redundancy offer was then retracted by Sushi Tribe.  On 13 July Mr Foster was presented with a new, but inferior, contract.  It changed his employment to part-time but also substantially increased his duties.

Mr Foster alleged that his manager, Ms Mills, had regular confrontations with him, making his work situation intolerable. He said he was the subject of a deliberate campaign to manage him out, which had a significant negative impact on his mental and physical health.

Mr Foster tendered a “forced resignation” on 28 August 2015 and lodged his unfair dismissal claim on 15 October 2015.

Mr Foster had a witness, Mr Adams, who had elected to take the voluntary redundancy but had been subjected to similar treatment as Mr Foster. Mr Adams also witnessed Mr Foster’s treatment at the hands of Ms Mills.

Given Sushi Tribe failed to specifically respond to the allegations at the Fair Work Commission hearing, Mr Foster only had to get across the necessary evidentiary threshold without the concern of opposing evidence or submissions.

The Fair Work Commission found that Mr Foster was constructively dismissed. It reached this conclusion because of:

  • Sushi Tribe’s attempt to achieve a redundancy or independent contractor change;
  • the abrupt withdrawal of the redundancy offer;
  • the subsequent treatment of Mr Foster which affected his health and welfare and family life; and
  • the reduction in his hours and the increase in his workload.
Summary

All constructive dismissal cases make it clear that employers need to carefully consider their actions when they decide they wish to be rid of an employee. There is rarely a low-risk shortcut that can substitute proper redundancy discussions or performance management.

For more information about this Update or any Employment Law matter please contact Mike Baldwin senior counsel on (08) 9321 3755.  .

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.

[1] Mohazab v Dick Smith Electronics Pty Ltd (No. 2) (1995) 62 IR 200; O’Meara v Stanley Works Pty Ltd [2006] AIRC 496.

[2] [2016] FWC 2201.