Sometimes, an employee may feel that things at work are so bad - maybe their boss is treating them really unfairly or hasn’t done anything to remedy issues the person has raised - that they have no option but to resign. This is called constructive dismissal (or forced resignation).
It doesn’t matter if the business wanted to get rid of the employee or not. What matters is that the employee felt that things were so unbearable that they had no choice between staying in the job or resigning.
An employee in this position can take a personal grievance against the employer for unjustified dismissal, which can wind up costing the business money, time, and effort to resolve or defend.
This article takes a look at constructive dismissal, the implications for your business, what to do if a team member feels pressured to resign, and ways to mitigate risk and manage employee issues and dismissals fairly.
What is constructive dismissal?
Constructive dismissal is not defined as such in the Employment Relations Act (Section 103 details the situations that give an employee grounds to make a personal grievance claim but doesn’t use the term ‘constructive dismissal’). It has, however, been well established in case law.
Employment.govt.nz defines constructive dismissal as when “an employer’s action or inaction makes the situation at work so intolerable for the employee that the employee resigns.”
The three general categories of constructive dismissal involve the employer either:
- Giving an employee a choice between resigning or being dismissed.
- Acting in a deliberate way (directly or indirectly) to pressure the employee into resigning.
- Acting so badly (by either breaching the terms of employment or the duty of good faith) that the person feels they cannot stay in the job.
As mentioned above, there doesn't have to be any intention or desire on the employer’s part for the employee to resign. The main test is whether their actions or inactions caused the employee to resign and whether the resignation was reasonably foreseeable.
Typically, constructive dismissal cases result from problems or actions building up over time rather than being the result of a single incident or event.
So an employee can’t resign and claim constructive dismissal because they don’t want to face fair and proper performance management or disciplinary action, or because their boss has given them a lawful and reasonable request to perform a task that’s outside their usual role.
What to do if an employee feels pressured to resign
Obviously, it’s best for employees to be able to raise matters or concerns with their employer or manager before they feel they have to resign. If the employment relationship is healthy and lines of communication are open, it’s highly unlikely that things will get so bad without either party raising it beforehand.
If the relationship is strained or the problem is longstanding or complex, taking steps to resolve the matter in a mutually beneficial way could be more difficult. The situation may require mediation.
If the issue can’t be resolved and the employee feels that they have no choice but to resign, they can claim constructive dismissal by raising a personal grievance for unjustified dismissal (within 90 days of becoming aware of the issues of their dismissal). They could claim damages for lost salary or wages, loss of dignity, humiliation or injury to feelings.
The ERA or Employment Court will consider constructive dismissal claims on a case-by-case basis, and the onus is on the employee to establish that the employer's action or inaction left them with no other option but to resign. If the employee can do so, then the onus shifts to the employer, who must establish that their actions were justified or reasonable.
The legal threshold for winning a constructive dismissal claim is higher than other dismissal claims, because the burden of proof is on the employee in the first instance.
Avoiding constructive dismissal cases
It is not uncommon for an employee facing disciplinary action or a misconduct investigation to resign instead of going through the process. They may then claim constructive dismissal.
To best avoid claims an employee was constructively dismissed (or put yourself in a strong position to defend any that arise), here are some key tips:
- Be aware that your conduct or attitude could put employees in a position where they feel they have no choice but to resign.
- Be open and clear with your people at all times.
- Establish a solid basis for the employment relationship so employees understand what the business expects and you know what they expect from you.
- Tackle issues when they arise rather than leaving them to deteriorate.
- Have a robust performance review and management process for all employees.
- Have a clear, legally-sound process for handling disputes and disciplinary action, and make sure you follow it.
- Always follow the correct procedure when ending employment, whether that is led by the employee or by the employer, and conduct exit interviews that give employees a chance to ask questions.
- Be consistent in disciplinary and termination procedures (focus on the issue, not the person), and avoid spur-of-the-moment decisions when emotions are running high. This includes giving employees a period to “cool off” if they resign in the heat of the moment.
For more advice, read our article on reducing your chances of personal grievances.
