What is constructive dismissal?

Constructive dismissal occurs when an employee is forced out of their job against their will. This can be because of changes to their working conditions, a drop in salary or a hostile work environment.

It’s called ‘constructive’ because the employee hasn’t been fired. Instead, they’ve chosen to resign because they feel they have no other choice but to do so.

What is the difference between unfair and constructive dismissal?

Constructive dismissal is often confused with unfair dismissal. It’s important to understand the difference between the two, so you can take appropriate action if an employee makes a claim against your organisation. One of the key differences to look out for is, in cases of constructive dismissal, the employee makes the choice to resign. In cases of unfair dismissal, the employer fires the employee.

Unfair dismissal occurs when an employee is sacked without having done anything wrong or being given a fair warning. It can also happen if they were fired without undergoing a formal disciplinary process.

Below are some situations when firing your employee could be grounds for an unfair dismissal claim:

If they’re being let go because of their race, gender, religion, or another characteristic that is protected under the Equality Act
If they’re whistleblowers and you’re trying to silence them
If they’re being fired because they’re pregnant or on maternity leave
If they’re being let go because they joined a trade union
If they were fired after making a flexible working requests
If they were forced to retire

Both types of dismissal claims can be costly and time-consuming for businesses. They can also damage your reputation and employer brand, particularly if the case goes to court and receives media attention.

Grounds for claiming constructive dismissal

There are two main grounds for claiming constructive dismissal: a breach of an express contractual term, or the implied term of ‘trust and confidence’. :

Breach of express contractual terms

An express contractual term is a specific condition that’s written into an employee’s contract. For example, their salary, job title, or working hours are all express terms.

If the employer breaches one of these terms, ie it breaks its contract with the employee, the employee can resign and claim constructive dismissal. It doesn’t even have to be a major breach – even a small change, such as altering the employee’s working hours by 15 minutes, could be enough to give them grounds to claim (if, in this scenario, the employee didn’t agree to a new contract that reflected the change in working hours).

Breach of the ‘implied trust and confidence’

The implied term of ‘‘trust and confidence’ (ITTC) developed through case law. These terms are not expressly written in employees’ contracts, but are implied as existing by common law or statute. It’s essentially a general understanding that employers will not behave in a way that destroys the relationship of trust and confidence between them and their employees.

Examples of behaviour that could breach ITTC include:

Bullying or harassment
Unreasonable workloads
Favouritism or discrimination

If an employee feels that you have breached ITTC, they can resign and claim constructive dismissal.

However, the breach should be the only reason they’re resigning. They also need to state specifically that they consider themselves to have been constructively dismissed.

Examples of constructive dismissal

There are many different scenarios that can prompt an employee to resign and claim constructive dismissal. Some of the most common include:

1. Forced salary reduction

Forcing an employee to take a pay cut – or even threatening to do so – can be grounds for constructive dismissal. The case is especially strong if the salary reduction is significant or would leave the employee struggling to make ends meet.

This type of constructive dismissal usually leads to high compensation amounts because the pay cut has a major impact on the employee’s standard of living.

2. Unjustified demotion

An employee can claim constructive dismissal if they feel their demotion was unjustified or unfair.

There are instances when demotion is justified, but employers need to follow the proper procedures. This may include warnings, coaching, additional training, and exhausting other forms of support before demoting an employee.

Alternatively, if the demotion goes against an express contractual term – like their job title – this could also give them grounds to claim.

3. Unfair or unfounded allegations of poor performance

Accusing an employee of poor performance – whether verbally or in writing – can be considered as constructive dismissal by the employee. So how can this lead to a constructive dismissal claim?

Because ideally, your company should have clear-cut procedures for dealing with employee performance issues. This usually starts with a warning or verbal discussion, followed by a formal meeting if the problem persists. Of course, you also need to give employees time to improve their performance before taking more serious action. This is where tracking performance through the use of HR software is important: a clear history of performance conversations will be crucial evidence should an employee decide to bring a claim

If an employee feels that you’ve skipped straight to making unfair or unfounded accusations, they could claim that you’ve breached the implied term of trust and confidence.

4. Undue stress caused by employer or working conditions

This is another common type of constructive dismissal. It usually happens when an employee is put in a situation that’s so stressful that it has a serious impact on their health, wellbeing, and ability to perform the job.

Some situations that could cause undue stress include the following:

Being constantly harassed or bullied by a manager or colleague
Unreasonable workloads that are impossible to complete
Working in dangerous or unsuitable conditions

All of these can make employees feel like they have no other choice but to quit or suffer long-term problems.

And if you, as the employer, have failed to address these issues – even after being made aware of them – then the employee may have grounds for a constructive dismissal claim.

5. The workplace is unsuitable for an employee’s disability

Employers are legally required to make reasonable adjustments in the workplace for employees with disabilities and health conditions (both mental and physical).

A few examples of reasonable adjustments are:

Making changes to the employee’s workstation or equipment (eg giving an employee with arthritis a special keyboard)
Allowing a disabled employee to work in another part of the office (eg transferring a wheelchair user to the ground floor)
Giving an employee extra time to complete tasks
Offering flexible hours or a phased return to work for employees who recently became disabled or unwell

If an employer fails to make these reasonable adjustments and it’s having a negative impact on the employee’s ability to do their job, then this could be considered constructive dismissal.

Process of a constructive dismissal claim

A constructive dismissal claim can be a complicated and stressful process for employers. Here’s a guide to help you understand the process and what you can do to prepare for it. The steps below assume that the employee has already resigned from their position.

1. Acas ‘early conciliation’

Before going to an employment tribunal, the employee must tell Acas that they intend to go to an employment tribunal. They will then be offered ‘early conciliation’, where Acas will try to work with the employer and the employee to come to an agreement. This would prevent the case going to an employment tribunal. The employer can decline the offer of early conciliation if it wishes.

2. If an agreement is not reached, the claim proceeds to an employment tribunal

In case of an unsuccessful mediation or negotiation, the employee can choose to progress the claim to an employment tribunal. Conciliation talks can continue between the employee and employer before and during the tribunal process, if they wish.

After conducting a preliminary hearing, the tribunal will set a date for a hearing, at which both sides will present their evidence and arguments. After hearing both sides, the tribunal will make a decision on the case. If the employee’s claim is successful, they may be awarded compensation.

3. You may appeal the tribunal’s decision.

If you disagree with the tribunal’s decision, you may be able to appeal it. Consult with your legal advisor to see if you have grounds for an appeal. Some appeals are heard by the Employment Appeal Tribunal, while others are dealt with by the same tribunal.

4. Pay any compensation that is awarded

If the tribunal orders you to pay compensation to the employee, you must do so promptly or you may be fined.

Compensation for successful constructive dismissal claims

If an employee’s constructive dismissal claim is successful, they may be awarded compensation by an employment tribunal. This compensation is made up of a basic award and a compensatory award.

The basic compensation award for constructive dismissal

This type of compensation is a statutory award, meaning it’s calculated based on several factors such as age, how much the employee is paid per hour, and years of service.

The employment tribunal can require employers to pay up to a maximum of £17,130 for the basic compensation award.

The compensatory award for constructive dismissal

Compared to the basic award, the compensatory award is usually much larger because it’s designed to take account of factors such as :

Wages lost from the date of dismissal until the tribunal hearing
Future loss of earnings
Loss of statutory rights (eg annual leave and sick pay)
Loss of pension rights
The cost of looking for a new job

At present, the employment tribunal caps the amount that can be awarded for the compensatory award at £93,878 or the employee’s gross salary worth 52 weeks (whichever amount is lower). This is in addition to the basic award of up to £17,310 (figures at 6 April 2022).

How to avoid claims for constructive dismissal

While there are some occasions when an employee might make a false or exaggerated constructive dismissal claim, employers that don’t treat their employees correctly leave themselves exposed to potential claims.

Reduce the potential risk of claims for constructive dismissal by ensuring:

That your workplace policies and procedures are up-to-date and compliant with employment law. This will show the tribunal that you take employee rights and welfare seriously. Make sure your policies are accessible through an HR system such as Ciphr HR, and that you capture a history of your employees’ acceptance of these policies
You have a robust grievance procedure, so employees can raise concerns without fear of reprisal
Any changes to employees’ contracts are made in consultation with the individuals concerned, and their union (if applicable)
That all employees are treated fairly and equally, regardless of their age, gender, race, religion, or sexual orientation
You carry out regular risk assessments and take steps to mitigate any identified risks
That employee concerns and complaints are addressed promptly and fairly
An employment lawyer reviews your contracts and policies before you making any changes

Not only will these steps protect you from unfounded constructive dismissal allegations, but they will also help you build a workplace where employees feel valued and engaged with their work

Summary

Constructive dismissal is a serious matter that can have far-reaching consequences for both employers and employees.

The good news is that there are things you can do to reduce the risk of a claim being made against you. By taking proactive steps to create a fair and safe workplace, you can help prevent constructive dismissal claims from being made in the first place.

Ciphr HR creates an auditable history of your interactions with employees – including performance management reviews, grievances, and contract and policy acceptance – so that, should you face a claim for constructive dismissal, you have all the relevant information to hand.

To find out how we can support your organisation with HR data management – and streamline your processes to create a better employee experience – download our brochure or request a demo of Ciphr HR now.

Further reading: Five ways employee self-service can improve absence management and reduce absences

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