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Constructive Dismissals

"To claim constructive dismissal an employee must have worked a minimum of one year with the employee and should have evidence that the employer has breached the contract of employment. The employee has to fill out form ET1 and send it to the Employment Tribunal. You can calculate the maximum compensation amount you owe by using our calculator. The maximum compensatory amount in UK is £14,370 and £15,000 in Northern Ireland."

Constructive Dismissal

Constructive dismissal is a method deployed by employer to force resignation out of an employee by using unfair means like changing work conditions or not fulfilling the employment contracts. If you resign because your employer's behaviour towards you is a fundamental breach of contract, you could claim constructive dismissal. A good example of constructive dismissal could be a failure by your employer to pay your wages.

Breaking-down constructive dismissals

Constructive dismissals are actually resignations. The law in this area was introduced alongside unfair dismissal law in 1971 in order to prevent employers from circumventing the new rights by treating their employees so badly that they resigned without needing to be dismissed; the test that is now used in contractual. This means that an employee resigns in response to (and soon after) their employer has breached their contract.

In such circumstances the tribunal treats the incident as if it was a dismissal and orders that appropriate compensation is paid. Importantly, relevant breaches of contract can involve either express or implied terms. Express terms are those that the parties agree at the time they first form their relationship. So, for example, if an employer was to cut someone’s contractual pay and the employee was to resign in protest, this would generally constitute a constructive dismissal. Implied terms are many varied, but are deemed to be present in every contract. The most significant is the ‘duty to maintain a relationship of mutual trust and confidence’. If that is broken by an employer, as happens for example in cases of serious bullying at work, the employee is entitled to resign and claim constructive dismissal.

Unfortunately, many employers still overlook the fact that the final straw can be quite minor. What matters is whether or not the employer’s actions amounted to a fundamental breach of the employment contract. Where this happens, the following six events must occur:

  • Unreasonably increases an employee’s workload
  • Change the location of their workplace at short notice
  • Breach the implied duty of trust and confidence, e.g. by allowing an employee to be bullied, harassed or discriminated against
  • Reduces their wages / salary without agreement
  • Makes them work in dangerous conditions
  • Demotes them unlawfully

The key point is that constructive dismissal is a situation that the employer will usually have prior warning of. Managers turning a blind eye will not be a defence. Therefore, any risk assessment should review any previous constructive dismissal cases that have been brought against the organisation in recent years.

How to claim constructive dismissal compensation?

Form ET1 for claiming constructive dismissal compensation

To claim compensation, the employee has to submit form ET1 to the employment tribunal to the following address –

If you are a resident of England or Wales-

Employment Tribunal Central Office

PO Box 10218

Leicester

LE1 8EG

If you are a resident of Scotland-

Employment Tribunal Central Office (Scotland)

PO Box 27105

Glasgow

G2 9JR

Download Form ET1

Calculate constructive dismissal compensation

Dismissal for any reason that cannot be justified under any one or more of the above grounds will be considered unlawful by the tribunal and will give rise to statutory compensation. The basic award is a legal award that entails multiplying the appropriate causes of the duration of continuous service (maximum of 20 years), your age and a week’s pay; as follows:

  • One and a half week's pay for each year of employment after age 41;
  • One week’s pay for each year of employment between ages 22 and 40;
  • Half a week’s pay for each year of employment under the age of 22.

Note: The maximum basic award payment you can receive for constructive dismissal is £14,670.

Example –

Let’s say that Jim (a resident of UK) started his work at XYZ consultants at the age of 20 in the year2000. After working for 19 years in the same firm, he felt that his employment contract was breached by XYZ consultants as he was not given the full wage which he was supposed to receive from them. He downloaded the form ET1, filled it up and posted it to Employment Tribunal’s office. His weekly pay was £600 after subtracting all taxes. Now the amount he is entitled to will be calculated as –

Maximum weekly pay allowed in UK is £489

Compensatory pay for the period (below 22 years) = (No of years worked from 20 to 22) x (Half-weeks’ pay)

= 2 x ½ x 489
= £489

Compensatory pay for the period (below 22 years) = (No of years worked from 39 to 22) x (One weeks’ pay)

= 17 x 489
= £8,313

Total compensatory payment = £489 + £8,313

= £8,802

So if Jim wins the case in Employment Tribunal, he will be entitled to £8,802 as constructive dismissal compensation.

Eligibility criteria

However the following employees have no right to bring a claim for unfair dismissal:

  • Employees employed for a probationary period
  • Employees over the normal age of retirement for the type of employment involved

Any claim against summary dismissal or unfair dismissal must be filed with the Tribunal within three months of the dismissal. However, the Tribunal may allow claims outside this period if it is satisfied that the interest of justice so demand.

Qualifying period for an employee to claim constructive dismissal compensation

An employee must have worked for a minimum of 2 years with the employer if he has to qualify for claiming compensation. However, if the employee started his job with the employer against whom he is seeking compensation before 6th April, 2010, then the minimum number of years gets reduced to 1 year.

Identifying trends

Apart from the outcome, the assessment should review the reasons behind any claims, which managers were involved and how the situation was dealt with. The purpose of this exercise is to identify trends. One trend could be that line managers are the weak link due to a lack of training in the type of behaviours and actions that can lead to constructive dismissal. Another is that the culture in a given department or site may be one of bullying, with staff leaving as a result. Depending on the findings, recommendations could be as follows:

  • Ensure that all managers know what constructive dismissal is, along with the dangers of ignoring employee complaints or formal grievances.
  • From tactical standpoint, ensure that managers understand the value in responding to grievances quickly. If they do so, and the employee rejects any reasonable attempt to resolve the issue, the organisation rejects any reasonable attempt to resolve the issue, the organisation can use that refusal to its advantage. This would work by arguing that it would have tried to rectify the alleged breach of contract, but this opportunity was denied. Therefore, there is no reasonable basis upon which the employee could resign.
  • Build a culture where employees are encouraged to raise matters informally and managers understand the need to act promptly.
  • Train line managers in conflict management. This should do much to reduce the likelihood of a constructive dismissal situation taking place.
  • Always check the terms of employment contracts before altering them. Anything other than a trivial change can only be made with employee consent. For example, a cosmetic change to a bonus scheme such as a name change is trivial. However, an attempt to unilaterally alter the terms of a contractual bonus scheme is an entirely different matter.
  • Ask an in-house employment law specialist (or external firm) to review employment contracts. The purpose is to see whether additional flexibility can be built-in, at least for new hires (existing employees will need to be consulted prior to any change being made to their contract). For example, to look at adding a new clause that retains the right to transfer an employee between different sites, provided that they are within a specified distance of each other.

Acceptable reasons for dismissals

Employers should take care at all times to avoid instances of constructive dismissal. Termination of an employee’s employment contract must be done in a way which follows correct procedure; otherwise a claim for unfair dismissal may follow.

Acceptable Reasons for Dismissal
Conduct Unacceptable conduct continuing after warning / counselling
Capability The employee is not capable of the role (after appropriate guidance, and training)
Breach of statutory duty If continuing the employment relationship would mean the employer breaching a statutory duty
Other substantial reason
  • Dishonesty
  • Loss of trust
Redundancy
  • Cessation of business
  • Relocation of business
  • Cessation of work employed for

Final thoughts

Constructive Dismissal of an employee with more than one year’s service can be both substantively and procedurally unfair, and the key test is that of whether the employer’s conduct and decision was reasonable (refer table above). The employer must first show that there is a fair reason for dismissal, either of a type falling within the above list or ‘some other substantial reason’ for dismissal. The Employment Tribunal must then decide whether the dismissal is fair or unfair as per the law.

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