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Constructive Dismissal and how to avoid it

Constructive dismissal is when an employee resigns at the initiative of the employer, also known as forced resignation and the employee has a right to lodge a claim under the Unfair Dismissal provisions of the Fair Work Act.

Sometimes, after an employee resigns and have a chance to think about it they may feel that they had no choice but to leave their employment because of bullying, poor treatment, underpayment of entitlements, serious safety concerns or because they have been offered a resignation rather than termination and decided it was the best option for them for them to take.

In order for an employee to take action in response to the termination of employment, the employment must have come to an end at the initiative of the employer. The Fair Work Act 2009 stipulates that for the purposes of an unfair dismissal claim a person has been dismissed if:

1)    the person’s employment with his or her employer has been terminated on the employer’s initiative; or

2)    the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer.

The second part of the definition refers to what is known as a ‘constructive dismissal’.  A constructive dismissal occurs when an employee resigns from their position, but the termination of employment at the initiative of the employer.

The Fair Work Commission will assess whether the employment relationship was brought to an end by the employer’s conduct, even though it was the employee who in fact resigned. If the decision to resign was brought about by the initiative of the employer, then the employee has a case for Unfair Dismissal. Whether or not Fair Work will rule that a case is constructive dismissal, always depends on the facts of the case.

A leading case on constructive dismissal is Mohazab v Dick Smith Electronics. Mohazab was an employee of Dick Smith Electronics. During questioning about the disappearance of stock in the store the employee was told that he was to either resign or face a police investigation. A letter of resignation was prepared by the employer and given to Mohazab to sign. The employee then brought an unfair dismissal claim, and Dick Smith argued that the employee had voluntarily resigned because he was worried about the police. The court decided that the decision to resign or face police investigation was termination at the initiative of the employer. The determination was made because the employee had no other choice but to resign, and it was due to his employer’s conduct that termination had occurred.

Another recent case this year shows that constructive dismissal cases can swing the other way too. In the case of Carter v MSS Security P/L, the employee, Carter, was demoted from his position as the site manager for the Commonwealth Bank Branch at Olympic Park in Sydney. The demotion followed a complaint from another employee where the applicant was accused of failure to follow company policies, failure to communicate, and an inability to fulfil the requirements of site manager. The applicant was provided with a new employment contract. The applicant refused to accept the demotion and alleged that the demotion was a termination of his contract of employment because there was a substantial change to his remuneration (from $75,000 to $41,797 per annum), duties and location of work.

Carter stated he was forced to resign due to the actions of his Employer. MSS Security argued that the demotion did not result in dismissal because the employment contract permitted demotion, and argued that the employee had in fact resigned voluntarily.

The Commission ruled that in this case the demotion of the employee did not constitute a dismissal and found that there was no intention to dismiss the employee by MSS Security. The employer did not end the employment relationship as it demoted the applicant in line with the employment contract, which provided for demotion from the specific position and location named in the contract because of ‘performance’ or client request. The Commission was satisfied that the allegations against the employee were substantiated and MSS Security’s investigation process was satisfactory. The unfair dismissal application was dismissed by the Commission.

Here are some of our tips to avoid the risks constructive dismissal:

  • DO follow a fair process when conducting investigations, without a predetermined outcome
  • DON’T write a resignation letter on behalf of your employee and get them to sign it
  • DON’T make the workplace so uncomfortable for someone they have no choice but to leave
  • DON’T give your employee an ultimatum (resign or be terminated)

Ask yourself, are you actually terminating the employee? If you are, be clear and sure about your reasons for terminating the employee and follow a procedurally fair process. If an employee is resigning, is it because you want them to leave and have actually “pushed them out?” If the answer is yes, you are at risk of a constructive dismissal case.

Written by Resident Guru Jessy Warn.

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