Constructive dismissal, also referred to as forced resignation, occurs when an employee resigns but is found to have been compelled to do so due to the conduct or a course of conduct engaged in by their employer. Under section 386(1)(b) of the Fair Work Act 2009 (Cth) (FW Act), an employee will be considered dismissed if they were forced to resign because of the employer’s actions. This can include both acts and omissions by the employer, and may arise from a single incident or a cumulative course of conduct that makes continued employment intolerable or insufferable.
Constructive dismissal is established where the employer’s conduct either demonstrates an intention to bring the employment to an end or has the probable result that the employee has no effective or real choice but to resign. The test is objective and considers whether the employer’s actions would, on any reasonable view, likely bring the employment relationship to an end. While a breach or repudiation of contract by the employer is often relevant, it is not a necessary or sufficient condition for a finding of constructive dismissal under the FW Act.
Key Risks of Constructive Dismissal
Managing employees can be challenging. Employers should keep in mind some of the key risks that can give rise to constructive dismissal claims when dealing with employees, including:
- Unilaterally changing essential terms of employment (such as duties, remuneration, or status) without consultation or a contractual basis, which may be considered repudiatory conduct and give rise to constructive dismissal claims.
- Engaging in a course of conduct (including omissions) that cumulatively makes the employment relationship intolerable.
- Failing to follow reasonable management action in a reasonable manner during performance management or disciplinary processes, which may lead to claims that the employee was forced to resign.
Practical Tips
Some practical tips for employers to mitigate the risk of constructive dismissal claims include:
- Ensuring any changes to an employee’s role, duties, or conditions are made in accordance with the contract of employment and after appropriate consultation.
- Conducting performance management and disciplinary processes fairly, transparently, and in accordance with workplace policies and contractual obligations.
- Avoiding conduct or omissions that could be perceived as intended to force an employee out, such as isolating, demoting, or otherwise disadvantaging the employee without proper cause or process.
- Documenting all communications and steps taken during performance management or workplace changes to demonstrate reasonable and lawful behaviour.
- Exercising caution in treating resignations as voluntary where the employer’s conduct could be seen as ambiguous or coercive, and seeking clarification from the employee where appropriate.
These points are non-exhaustive and employers should be aware that each case will turn on its specific facts and circumstances.
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Disclosure statement: This information is general in nature and does not take into account any individual’s or business’ specific circumstances. You should obtain independent legal advice before making any decisions based on this information. Liability limited by a scheme approved under Professional Standards Legislation.