Constructive dismissal in UK law

Constructive dismissal is acknowledged in section 95 (1)(c) of the Employment Rights Act 1996. Provided the employee can prove a sufficiently serious breach for which the employer could be held liable in light of the UK’s employment law, together with a causal connection between their resignation and that breach, the law will treat that resignation as a form of unfair dismissal.

Constructive dismissal compensation

An employee will be eligible to claim for ‘constructive unfair dismissal’ if they’ve worked for you continuously for at least two years.

Compensation for constructive unfair dismissal is made of two parts; a basic award and a compensatory award.

The basic award employees are eligible for is as follows:

  • One and a half weeks’ 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.

The compensatory awards employees are eligible for may be as a result of loss of wages (including benefits such as the company car, health insurance, gym subscriptions, etc.), future wages, statutory rights, and pensions.

Early Conciliation is the first step in making a claim to an Employment Tribunal and provides an opportunity for the situation to be resolved and an agreement to be reached, without the need to go before the tribunal. However, in most cases, constructive dismissal claims do not make it to the employment tribunal as they are generally resolved through a settlement agreement.

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What is the difference between constructive dismissal and unfair dismissal?

And why should employers care?

As leaders and HR practitioners, it is important to understand the difference between constructive dismissal and unfair dismissal, and to also be aware of how to avoid placing the business in a position where it is at risk of such claims.

This type of dismissal is when an employee resigns in response to the employer’s conduct which has made the position untenable. In practical terms this is a resignation, however, in law it could be known as dismissal. The resignation letter should clearly explain the employee’s reasons for leaving; however, they are not obliged to work their notice period if a constructive dismissal occurs, as it is due to the employer’s breach of contract that they are leaving.

It can be an action or a series of actions, and the behaviour of the employer, that leads to the employee’s resignation; it does not matter if the final act that makes the employee resign is minor. If the action substantiates a pattern of poor conduct by the employer or there is a breach of trust and confidence, there is a risk that such action could still form the basis of a successful constructive dismissal claim, especially where an employee has complained of such matters but the employer has failed to take all reasonable steps to resolve their complaint.

Some examples of behaviour and actions that could lead to constructive dismissal are:

  • A forced reduction of salary or threat of reduction
  • Being demoted without good reason or in breach of contract
  • Allegations of poor performance which are unfounded
  • Stress at work not properly addressed
  • Allowing bullying and harassment in the workplace

How can an employer avoid being accused of constructive dismissal?

The art of good employee relations is in communication. Employers need to be confident to have difficult conversations with employees. Employers may need to develop their emotional intelligence and approach employment matters in a planned and structured way.

What skills do employers need to avoid constructive dismissal claims?

Skills required to develop confidence in managing difficult situations and conversations are:

  • high-quality questioning skills
  • active listening
  • the ability to give structured feedback
  • the ability to explain the rationale behind any decision

With these skills in place, employers should be equipped to deal with poor performance and restructure conversations, ask key questions associated with employee wellbeing, address matters with employee groups, and more. It is all in the conversation – oh, and don’t forget the process. Process is all about keeping track of documentation so that employers have an audit trail of how they handled the difficult situation. Ultimately, the employer needs to be able to demonstrate that they have behaved reasonably and that there has been no deliberate intention to not abide by the contract of employment.

How to avoid a claim

Employers need to be vigilant. Stay on top of employment contracts, HR policies and terms and conditions; avoid small issues building up; have the conversation.

It is important to investigate complaints when they arise. Use your HR Partner to help you; put fair processes in place; include an equality, diversity and inclusion policy; and make sure you offer training to your managers in the art of good employee practice.

What is unfair dismissal?

This type of dismissal is when the employer terminates employment outside of the categories detailed below. Fair termination of employment can be made (subject to the correct process) for the following reasons:

  • Capability or qualifications
  • Conduct
  • Redundancy
  • Contravening a statute
  • Failing to make reasonable adjustments for a disability
  • Forcing employees to work in breach of health and safety rules
  • Some other substantial reason

Some examples of behaviour and treatment that would be classed as automatically unfair dismissal are:

  • The individual asked for flexible working
  • They refused to give up their working time rights – for example, to take rest breaks
  • They resigned and gave the correct notice period
  • They joined a trade union
  • They took part in legal industrial action that lasted 12 weeks or less
  • They needed time off for jury service
  • They applied for maternity, paternity and adoption leave
  • They were on maternity, paternity and adoption leave
  • They tried to enforce their right to receive Working Tax Credits
  • They exposed wrongdoing in the workplace (whistleblowing)
  • They were forced to retire (known as ‘compulsory retirement’)

To avoid claims of unfair dismissal, employers need to ensure their internal capability or disciplinary processes are followed. Are your processes up to date and fit for purpose? Employers and managers need to understand the difference between an informal and formal conversation – this is key. If employers are not sure at which point informal becomes formal, they should discuss this matter with their HR Partner; they will be able to help business owners and managers alike to understand their responsibilities.

What is fair process?

Following the basic process of investigation, hearing and appeal may be enough to demonstrate fair process. However, the quality of the questioning, listening and understanding within these processes are the real tests of fairness. Also, don’t forget that employers need to ensure that they understand when representation should be offered and what constitutes adequate notice of proceedings. Accurate documentation and, most importantly, an open mind are essential to avoid claims of unfair dismissal.

Do you and your managers have the skills to manage difficult situations? Is it time to review your policies and train your managers to build that confidence?

If you would like help with building capability within your business and reducing risks, please contact us today and speak to one of our HR experts on 01473 360160.