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.
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:
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.
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.
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:
For more advice, read our article on reducing your chances of personal grievances.