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Constructive dismissal: an overview for employers

Article

14 mins read

Updated on 20 May 2022

Our subject expert
Sally Gwilliam

Partner - Employment Law

Constructive dismissal can blind-side even well-run businesses: an employee resigns, claims your conduct left them no choice, and suddenly you’re defending an unfair-dismissal action with significant compensation at stake. Because the legal test hinges on whether your behaviour amounted to a fundamental breach of contract, routine decisions – from unilateral pay cuts to mishandled grievances – can become critical evidence.

This guide gives employers and HR leaders a concise, jargon-free roadmap. You’ll see what an employee must prove, the workplace behaviours most often alleged to be repudiatory breaches, how timing and the 'last-straw' doctrine work, and the practical measures – clear policies, fair performance management and open communication – that help prevent claims before they arise.

Need a quick sense-check on a tricky situation or a policy health-check? Talk to our friendly employment law solicitors for prompt, pragmatic support.

What is constructive dismissal?
What constitutes a constructive dismissal claim?
What treatment or conduct could result in a constructive dismissal claim?
Fundamental terms – express and implied contractual terms
The rules around raising grievances and the resignation
Repudiatory breaches and the ‘last straw’
Constructive dismissal vs unfair dismissal
Other circumstances where constructive dismissal claims may be brought
Remedies for constructive dismissal
How can employers prevent constructive dismissal claims?

What is constructive dismissal?

Constructive dismissal is where the employer does not dismiss the employee, but the employee resigns (with or without notice) and can show that they were entitled to do so because of the employer's conduct.

What constitutes a constructive dismissal claim?

Constructive dismissal claims are notoriously difficult for employees to prove, and there is no clear test as to whether a repudiatory breach has occurred. In each case, it will be a matter of evaluating the evidence and facts in the context and all the circumstances of the case. However, in order to be successful with a constructive dismissal claim an employee must be able to demonstrate that there has been:

A repudiatory breach of contract (a fundamental breach which goes right to the root of the employment contract or which shows the employer no longer wishes to be bound by at least one of the key terms of the employee’s contract) by the employer, which can be evidenced. This may be an actual or anticipatory breach and can be a single act or a series of acts, but must be sufficiently serious to justify the employee resigning.
An acceptance of the breach by the employee and the employee treats the contract as at an end, resigning promptly in response to the breach.
No delay in accepting the breach, as otherwise an innocent party has waived the breach and treats the contract as continuing (affirmation of the contract). If there is a course of conduct or chain of events which taken together amount to a repudiatory breach of the implied term of trust and confidence, previous affirmation does not matter because the final act revives the right to resign and claim constructive dismissal.

What treatment or conduct could result in a constructive dismissal claim?

As stated above, the breach of contract by the employer needs to be a fundamental breach of an express or implied term and go to the root of the contract in order to justify a claim of constructive dismissal. This would likely include amongst other things:

failure to give the correct period of notice to terminate
failure to pay for work carried out by the employee for the employer
reducing an employee’s pay without agreement
changing an employee’s duties without notice or agreement where there is no provision for such change in the employee’s contract, particularly where the changes are significant
failure to observe the implied term of mutual trust and confidence
serious or continued failure to provide a safe working environment
discrimination against the employee by the employer
failure to address an employee’s grievance
poor handling of disciplinary matters and where a suspension or allegation is entirely unjustifiable, particularly in cases where the allegation is a serious one
an employee being subjected to detriments on the grounds of having made a protected disclosure

Fundamental terms – express and implied contractual terms

An express contractual term is one which is clear and written down, usually in the employee’s contract of employment. For example, if an express contractual term to pay a certain salary is breached, this is usually written down in the employee’s contract of employment and it is very clear when there has been a breach of that fundamental term and so a potential claim for constructive dismissal. An implied contractual term is one which is not written down but may be deemed to bind the parties because it makes the relationship work or can be implied from custom and practice between the parties or the employer and other of its employees. Breach of an implied contractual term can also be a basis for a constructive dismissal claim if the breach can be evidenced and goes to the root of the contract. A breach of the implied term of mutual trust and confidence, such as a failure to provide an impartial grievance process, an employer intentionally misleading an employee or where an employer fails to take reasonably practicable steps to provide a safe system of work and fails to investigate complaints relating to health and safety properly or at all, are examples of such a breach which could lead to a successful constructive dismissal claim.

It may be that the terms of a contract are disputed and so fundamental breach of those terms by the employer is more difficult for the employee to prove. In those circumstances the employee will be required to establish that the breached term was agreed between the parties and then that it has been fundamentally breached by the employer.

The rules around raising grievances and the resignation

Previously an employee was not able to bring a claim for constructive dismissal if they had not brought a grievance first under the statutory dispute resolution procedure. This was abolished in April 2009, but it is still recommended in most cases that an employee raises a grievance and exhausts the employer’s internal process before bringing an employment tribunal claim. Failure to do so might negatively affect the level of compensation a tribunal chooses to award an employee, as employment tribunals have a discretion to increase or reduce awards by up to 25% where the employer or employee unreasonably fail to comply with the Acas Code of Practice on Disciplinary and Grievance Procedures (Acas Code). This also means that employers should be careful to ensure that they comply fully with the Acas Code and also deal with grievances of ex-employees, particularly if they may still bring a claim against the employer. You can find more information on the potential expense to your business in our guide to employment tribunal costs.

To succeed in a constructive unfair dismissal claim, an employee must be able to show that they resigned at least in part, in response to the relevant fundamental breach even if it is not the only cause of resignation. Where there are a number of reasons for resignation, whether the repudiatory breach was the principal cause is relevant to establish compensation to be awarded, but does not impact how liability is decided where the fundamental breach at least played some part in the decision to resign.

Ideally, the employee should state in a grievance or letter of resignation or in some other correspondence the reason(s) for their resignation to make this clear. There is not a requirement to do this, it just may make the employee’s claim weaker unless evidence clearly points to the same reason(s) when the constructive dismissal case is heard in the ET.

The timing of resignation is also important, but delay on the part of the innocent party does not, if there is no express or implied affirmation of the contract, constitute affirmation. The longer the delay though, the more likely affirmation will be implied. If an employee ‘stands and sues’ and so decides to continue to work under protest and making it clear that they disagree with the breach and reserve their rights and/or are just giving the employer the opportunity to try to rectify the breach, this will not prejudice their right to later accept the repudiation and claim constructive dismissal, but it will depend on what the breach was as to whether this argument works and again, the longer that this continues the more likely the ET may infer the contract was affirmed by the employee.

Repudiatory breaches and the ‘last straw’

The ‘last straw doctrine’ means that an employee can resign due to a series of breaches of contract or course of conduct by their employer which, together, amounts to a breach of the implied term of trust and confidence. The final incident in the chain is usually minor but cannot be trivial, it must be sufficient to justify the series of incidents as a breach of the implied term. For a claim to succeed based on a resignation under the ‘last straw doctrine’ the course of conduct of the employer, over time, must demonstrate an intention not to remain bound by the employee’s contract of employment and whether trust and confidence has been undermined is an objective test. As stated above, those breaches that had previously been waived can be revived by a last straw event but must add something to the breach even if it is not of the same character as previous complaints. Essentially though, if employers are acting in good faith and have reasonable and justifiable grounds for their actions, an employee will struggle to prove a breach of the implied term of trust and confidence.

Constructive dismissal vs unfair dismissal

So what are the key differences and similarities between unfair dismissal and constructive unfair dismissal?

	Unfair dismissal	Constructive dismissal
Who terminates the contract?	The employer dismisses the employee, terminating the employment contract	The employee resigns on the basis that it can treat the contract as at an end by reason of the employer’s fundamental breach of contract
Who has the burden of proof in the claim?	The employer	The employee
What does the employee have to prove to successfully bring the claim?	The employee will need to prove that they have been dismissed by their employer, for an unfair reason (not one of the 6 fair reasons for dismissal) and that even if the dismissal was for a fair reason, they have acted unreasonably in respect of the dismissal.	That they resigned promptly with or without notice and as a direct result of a breach or series of breaches of the employment contract by the employer, which were fundamental and went to the root of the contract and entitled the employee to treat the employment contract as at an end.
Time limits	An employee is required to bring a claim within 3 months of their effective date of termination, which is the date which their P45 is made up until, their last date of employment.	Within 3 months of the last date of employment, which is usually the date of resignation, unless an employee serves notice, in which case it is 3 months from the last date of the notice served. If you are unsure of the time limits for an employee bringing an employment tribunal claim, our specialist employment solicitors can help.
Compensation	This is calculated based on a basic award relating to the employee’s wages (capped at a weekly maximum), the employee’s number of full years of continuous service and an age factor. On top of the basic award a compensatory award is made and calculated by reference to the lost earnings resulting from the employee losing their job. This means that the compensation is much higher if the employee is out of work for longer.	The compensation for constructive dismissal is calculated in the same way as for unfair dismissal. However, an employee needs to give credit when assessing damages in their notice period. For example, if an employee has a 3-month notice period but secures a new job after 2 months, the employee will not be able to claim for the last month of their notice pay.
Qualifying period	An employee must have 2 years of continuous service in order to bring an unfair dismissal claim, unless this is for automatic unfair dismissal where no qualifying period is required.	An employee must also have 2 years of continuous service to bring a constructive dismissal claim, apart from where the reason for resignation related to an automatically unfair reason such as a TUPE transfer or going on maternity leave.

Other circumstances where constructive dismissal claims may be brought

There are some more unusual circumstances where an employee may wish to bring a constructive dismissal claim, as set out below:

On a TUPE (Transfer of Undertakings (Protection of Employment) Regulations) transfer the right of an employee to resign and claim constructive dismissal in the usual way as a result of a repudiatory breach of contract by the employer, remains. TUPE also makes additional provision for constructive dismissal claims where a transferring employee resigns because the transfer involves a substantial change in their working conditions to their material detriment. In that case an employee would be treated as dismissed (with notice) by the employer.
Discrimination against the employee by the employer will usually be a repudiatory breach entitling an employee to bring a claim for constructive unfair dismissal (there are rare occasions when it is not). A serious breach of an employer’s obligations to make reasonable adjustments found to be discriminatory against a disabled employee, can be a breach of the implied term of trust and confidence and a repudiatory breach entitling the employee to claim constructive dismissal. Further, if sex discrimination is found to be the reason for an employer rejecting a part-time working request on an employee’s return from maternity leave, this would also amount to a fundamental breach of contract entitling that employee to resign and claim constructive dismissal.
If there is not a genuine redundancy or an employee has been unfairly selected or the process has been unfair an employee may also be able to bring a constructive dismissal claim. If a claim is ‘fait accompli’ and an employee has evidence that an employer specifically wanted to remove them on a discriminatory or other unfair basis, or if there is no meaningful procedure or consultation process, an employee may be able to resign and successfully claim constructive dismissal. For more information, see our guide on how to establish that a redundancy is genuine.
A contractor may be able to claim constructive unfair dismissal if they are able to demonstrate that in reality they are an employee with at least 2 years of continuous service or in the case of an automatically unfair event, they would just have to prove that they are an employee.

Remedies for constructive dismissal

As stated above, the main remedy for constructive dismissal, just as with unfair dismissal is compensation for unfair dismissal and is made up of a basic award and a compensatory award. The basic award is calculated in the same way as a statutory redundancy payment and the employment tribunal may reduce the basic award if it finds that the employee’s conduct before dismissal (or notice of dismissal), makes this just and equitable. For example, if an employee has been paid a statutory redundancy payment the basic award will be reduced by the amount of the redundancy payment unless the tribunal does not believe that the main reason for dismissal was in fact redundancy. The compensatory award will then be based on the amount the Tribunal considers just and equitable in all the circumstances taking into account the loss sustained as a result of the dismissal and attributable to action taken by the employer. This means that the losses must be linked to the resignation and be a consequence of it, must be as a result of the employer’s actions and it is just and equitable to make an award in the circumstances. The compensatory award can also be reduced if the employee’s conduct contributed or if it is the employer’s process which is at fault and even with correct process there would have been no difference in the end result.

Damages for breach of contract can also be claimed by an employee if they are successful in their constructive dismissal claim. A breach of contract claim does not require a qualifying period of service and can be brought in either the employment tribunal (subject to a cap of £25,000) or in the civil courts. Damages for breach of contract should put the employee in the financial position they would have been in if the contract had been performed as it should have been. The net notice pay is the starting point and the employee has to try and mitigate their loss and earn as soon as they are able. If the employer’s breach of contract has gone beyond a failure to just make payments under the employee’s contract and caused damage, for example to their health, this can also be taken into account in awarding damages, but not if the employee has already been compensated under a personal injury claim or otherwise, for example, in a compensatory award for unfair dismissal.

How can employers prevent constructive dismissal claims?

Whilst constructive dismissal claims are difficult for an employee to successfully prove, this does not prevent employees from trying and employers would be well advised to try where possible to avoid this from happening. Here are our top tips for minimising the chance of constructive dismissal claims occurring:

Up-to-date, clear and accessible company policies: ideally employees should be involved and consulted in the drafting of company policies and well aware of the content and practicality of company policies and the terms of their contracts. If there is less confusion and more clarity on what is expected from employees and what employees are entitled to, claims for breach of contract or constructive dismissal are less likely. Training of managers and human resources in how to follow disciplinary and grievance policies and keeping these (and training on them) up to date, is particularly important. It is advisable to seek professional advice on these policies regularly to ensure that they are up to date.
Performance management: regular and honest but objective and sensitive appraisals should be frequent during the year, so that any dip in performance can be dealt with quickly and improvements made in the best interests of the employer and employee. Where such improvements cannot be made there will at least already be a dialogue and it will not be a huge surprise to the employee, and they are less likely to feel aggrieved, if they find themselves being formally performance managed.
Open communication: if employees feel listened to and part of a cohesive team with good communication, and clear tasks and expectations they are more likely to be highly motivated and less likely to bring a constructive dismissal claim.
Become knowledgeable on company contracts and employment law: if employers are fully aware of the terms of their contracts and the Equality Act and their practical impact, they will be more likely to know what is fair and reasonable and avoid constructive dismissal claims, again, getting company policies right can help with this.

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