What does constructive dismissal refer to and who can claim it? JMW Solicitors' Head of Employment Law, Paul Chamberlain explains how employers should respond to claims and how to better protect the business against constructive unfair dismissal claims from occurring.
A constructive dismissal arises when an employee resigns in response to a fundamental breach of an express or implied term of their employment contract, by the employer.
An employee will need to establish the following elements to be successful in their claim:
A person can only submit a claim for constructive unfair dismissal if they meet the following eligibility criteria:
Learn more: What is the difference between a worker and an employee?
In order to successfully claim constructive dismissal, an employee must resign in response to a fundamental breach of contract by the employer. The breach should be significant and go “to the root of the employment contract”, which was confirmed by Lord Denning in Western Excavating (ECC) Ltd v Sharp.
The breach itself may relate to either an express or implied term of the employee’s contract. An express term is generally a written term and can be found within the employee’s contract; for example, the right to receive their salary or wages.
An implied term is one which is implied into the employment contract by common law or legislation. The implied term commonly relied upon by employee’s claiming constructive dismissal, is the breach of mutual trust and confidence.
Examples of fundamental breaches of contract that an employee may seek to rely upon include:
The employee must be able to provide evidence that they responded to the employer’s breach. It will strengthen an employee’s claim if they resign shortly following the fundamental breach that they are relying upon.
Where an employee delays before submitting their resignation, it will be open for the employer to argue that the breach was affirmed/accepted by the employee because of their delay in resigning.
There is no requirement for an employee to submit a grievance or exhaust their employer’s grievance procedure before resigning from their employment. It is therefore possible that an employee could resign without formally raising the issues that led to their resignation and still submit a claim for constructive dismissal.
However, if an employee’s claim is successful, the Employment Tribunal will consider this when determining the level of compensation that should be awarded. In accordance with the Acas Code of Practice, an employee’s unreasonable failure to submit a grievance may lead to a reduction in their compensation by up to 25%. A failure to submit a grievance will not however lead to an automatic reduction, and the Employment Tribunal will need to consider the employee’s reasons.
Learn more: Employment tribunals: the costs for employers
It is mandatory that an employee contact Acas before they submit an Employment Tribunal claim and they must obtain an Early Conciliation Certificate. An employer should therefore assess whether the employee validly complied with this requirement.
Assess whether the employee has submitted the claim within the requisite time limit. When bringing a claim for constructive dismissal, an employee should submit the claim within 3 months less one day of their effective date of termination i.e. the date on which they resigned or the final day of their notice period, if they worked it.
If the employee fails to comply with this requirement, they will need to evidence why it was not “reasonably practicable” for them to do so.
An employer should consider whether they intend to fight or settle the claim, taking into consideration the prospects of successfully defending the claim, including the risk of any potential reputational damage.
An employer should estimate and budget for the legal costs that may be involved in responding to and defending an Employment Tribunal claim. This amount will be dependent on the complexity of the case.
In addition to legal costs, an employer should consider the potential management time involved in defending the claim. For example, witnesses and HR will need to spend time outside of their operational roles to assist with gathering relevant documents, preparing witness statements, and giving evidence at the Tribunal hearing.
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Review internal policies and procedures to identify whether any amendments are necessary to ensure that employees are aware of the internal processes to follow in order to raise concerns.
If an employee is successful in a claim of constructive dismissal, they may receive a damages award comprised of the following:
The basic award is a statutory award that is calculated based on factors including the employee’s age, age at the date of termination and their length of service. The basic award is subject to a cap of £16,320 as of 6 April 2021.
The compensatory award seeks to compensate the employee for the losses that the employee has sustained because of their dismissal. For example, loss of wages for periods of unemployment following the resignation. The compensatory award is subject to a cap of the lowest of either £89,493 or 52 weeks gross salary as of 6 April 2021.
As discussed previously, the employee’s compensatory award may be reduced if they have unreasonably failed to comply with the Acas Code by failing to raise a grievance.
In contrast, if the employer fails to comply with the Acas Code (for example by not following a fair procedure), then the employee’s compensation may be increased by up to 25%.
Wrongful dismissal: how is it different from unfair dismissal?