Dismissal

by Kate Russell

Constructive dismissal

Constructive dismissal arises in cases where the employer either does or fails to do something that fundamentally breaches the contract of employment. The employee then resigns and claims unfair dismissal by virtue of constructive dismissal.

The leading case on this subject is Western Excavating (ECC) Ltd v Sharp [1978] in which the Court of Appeal ruled that the employer’s breach must involve a repudiatory breach of contract, that is one which is so serious that it goes to the heart of the contract. The decision was summed up by Lord Denning.

If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from further performance. If he does so, then he terminates the contract by reason of the employer’s conduct. He is constructively dismissed.

Lord Denning

An employee can resign over one serious incident or as a consequence of a series of incidents. However, the employee must resign soon after the incident in order to be able to rely upon it. Generally, the actions of the employer must be a serious breach of contract.

To establish constructive dismissal, the employee must show that four conditions have been met.

  1. The employer has fundamentally breached the contract, or there is an intention on the employer’s part no longer to be bound by an essential term of the contract.
  2. The employer’s breach caused the employee to leave.
  3. The employee did not act too soon by leaving before the breach took place.
  4. The employee did not waive the right to terminate the contract after the breach took place by delaying too long before resigning.

There are no specific rules about what constitutes a fundamental breach of contract. It is for the court or employment tribunal to determine whether such a breach has occurred, depending on the facts of the situation and the impact on the individual.

Examples

The courts have considered constructive dismissal to have taken place when employers have behaved in the following ways:

  • Not supporting managers in difficult work situations
  • Harassing or humiliating staff, particularly in front of other less senior staff
  • Victimising or targeting particular members of staff
  • Changing the employee’s job content or terms without consultation
  • Making a significant change in the employee’s job location at short notice
  • Falsely accusing an employee of misconduct, such as theft, or of being incapable of carrying out their job
  • Excessive demotion or disciplining of employees
  • Refusal of a pay rise to one employee when everyone else got one.

Both employer and employee are under a duty to behave reasonably. Seriously unreasonable behaviour in an employer can constitute constructive dismissal.

Example

A was employed by UB in Leeds. His employment contract contained a written clause allowing the employer to move employees to any branch within the UK. The employer ordered A to move from the Leeds branch to a branch in Birmingham, giving A six days’ notice. He requested more time to sort out his personal circumstances. The employer refused. A resigned and claimed constructive dismissal.

A won his case because an employer is under an implied duty to act reasonably. Requiring someone to move in the space of six days is completely unreasonable.

An employee being constructively dismissed only proves that he was dismissed; this does not automatically prove that the dismissal was unfair. The employee has to go on and prove that the dismissal was also unfair.

Example

G plc is a large mail order company. Because of large-scale internal theft, the company already operated a random stop-and-search policy at all of their sites, with the exception of their headquarters. They then decided to introduce the random stop-and-search policy to all staff at headquarters. The policy included random body searches and random searches of mobile phones.

The introduction of the policy at headquarters was the subject of consultation and was agreed with the employees’ unions, who accepted it readily because it meant that all employees at the sites across the country would be treated equally. T objected to the implementation of the stop-and-search policy at headquarters on grounds of principle and made his objections plain to his line manager.

When stopped, T refused to be searched. He was briefly suspended, but the company listened to what he said and made a change to their policy. T’s grievance went through all stages of the company grievance procedure and concluded without agreement. He then claimed he was constructively dismissed.

The initial tribunal followed the standard approach in these cases. If there was a fundamental breach of contract and a constructive dismissal, they would have to consider the reason for the dismissal. In the case of a constructive dismissal, this means the reason for the fundamental breach which the employee treats as ending the contract of employment. They also considered whether the dismissal – the constructive dismissal – for that reason was fair or unfair.

The tribunal considered that the company’s reasons for introducing the policy were justified, given its consultation procedure and the information supplied to staff outlining its reasons. In particular, it concluded that such policies are common throughout industry and, provided they are introduced reasonably, have reasonable provisions and are not used arbitrarily against individual persons, then their introduction is within the band of reasonable responses or actions open to an employer.

What the tribunal had to consider was the reasonableness of the company’s actions in the face of T’s objections and not the reasonableness of T’s objections. The company could not have been expected to have differentiated between T and any other employee in their introduction of the policy; the same policy had to be introduced for all.

One common problem area, where employers may inadvertently cause a constructive dismissal claim, concerns what happens when matters are not going well at work. Rather than discipline the employee for poor performance, the employer might suggest he resigns. This is a breach of the implied contractual term of trust and confidence.

Example

B had been given a disciplinary warning. She was subsequently summoned to another meeting to review her performance. MHS said that, if there were any further incidents of misconduct or poor performance, she would be dismissed. The employer pointed out that it would not be in her interests to have a dismissal on her CV and offered her the opportunity to resign on favourable terms. The employee subsequently resigned and brought a claim of constructive unfair dismissal in the employment tribunal. The EAT upheld the employee’s appeal and found that, in the circumstances, the suggestion that the employee resign was clearly a ‘vote of no confidence’ in the employee.

Affirmation of the contract

If an employee waits too long after the employer’s breach of contract before resigning, he will be deemed to have accepted the contract and will lose the right to claim constructive dismissal.

Affirmation can be implied by prolonged delay to affirm or accept the breach. However, if the employee performs the contract to a limited extent, but at the same time makes it clear that he is reserving his right to accept the repudiation at a later date, or is only continuing so as to allow the guilty party to remedy the breach, his behaviour doesn’t prevent him from accepting the breach at a later stage.

Example

Q became pregnant during a trial period as a Duty Station Manager. After a risk assessment was carried out, her employer decided she could no longer carry out her duties and returned her to her former job at her former, lower, salary. After seven months on reduced pay, she resigned and claimed constructive dismissal.

The tribunal concluded that the risk assessment had not been properly considered by the employer and that Q had been moved back to her former post because of her employer’s personal feelings about the risk to her if she continued in the post of Deputy Station Manager. They had simply attached to that conclusion the label of a health and safety concern. As regards constructive dismissal the EAT concluded that Q’s reasons for not resigning (not to lose maternity pay and the right to maternity leave) were consistent with affirmation of a contract rather than acceptance of a repudiatory breach.

Despite this, the EAT did not regard the breach by reason of demotion as being a once and for all breach. The fact that the NSR had continued to pay the reduced salary each month constituted a continuing breach of contract and, for that reason alone, Q was entitled to treat her contract of employment as having been repudiated in June 2004. This would, in addition, have been a continued breach of the implied term of trust and confidence without there having been a waiver of her right to do so or an affirmation of a contract.

The ‘without prejudice’ rule

Where this rule applies, communications between parties are privileged and cannot be admitted in evidence in subsequent proceedings. The idea is that this allows the parties to discuss possible compromises without the threat of any concessions which they may make during such discussions being used in court against them, if they fail to settle.

If there is no dispute between the parties (because, for example, poor performance issues have not been put to, and not accepted by, the employee) then there can be no ‘without prejudice’ discussion. Even if the employer has started the poor performance procedure and so could argue that there was a dispute between the parties and the discussion was therefore properly ‘without prejudice’, if the employer makes any discriminatory comment during such a discussion, the employee will be able to rely on that in any subsequent claim of discrimination.

Example

M raised a grievance about how she was being treated prior to and on her return from maternity leave. She claimed she had been singled out for demotion and publicly humiliated. She was then called into a meeting which her employer told her, as she entered the room, was to be ‘without prejudice’.

The employer said the meeting was independent of her grievance and then explained it was not possible for her to return to her old job, that there was no alternative employment and that it was best for both parties if her employment was terminated. She was told her departure would be regarded as a redundancy and she was offered a redundancy package. The employee declined the offer and subsequently brought a claim of victimisation under the sex discrimination legislation, relying on what was said at the ‘without prejudice’ meeting.

The tribunal found that the ‘without prejudice’ meeting had not been genuinely aimed at settling the grievance but was intended to result in the termination of the employee’s employment. In the circumstances, it would be an abuse of the ‘without prejudice’ rule to exclude details of the meeting. The employer appealed.

The EAT dismissed their appeal and repeated that, for the ‘without prejudice’ rule to apply, there must be a dispute between the parties when the ‘without prejudice’ discussion takes place and that the communications to which the rule is said to attach must be a genuine attempt to settle that dispute.

Given the unequal relationship of the parties, the vulnerable position of the employee at the meeting and the fact that the employer had only suggested that the meeting be ‘without prejudice’ at the start of the meeting, it was unrealistic to take the view that they had agreed to talk ‘without prejudice’.

Finally, the EAT held that, even if there had been a dispute between the parties which the meeting had attempted to settle, this case would have fallen within the exception to the ‘without prejudice’ rule for cases of unambiguous impropriety. This exception prevents the rule from applying where the exclusion of the evidence would cover up ‘perjury, blackmail or other unambiguous impropriety’. The EAT commented that the sex and race discrimination legislation sought to prevent discrimination and it was therefore in the public interest that all allegations of unlawful discrimination be heard and properly adjudicated upon. Remarks which were alleged to be discriminatory could not therefore be excluded from the admissible evidence by the ‘without prejudice’ rule.

Warning

Be very wary of any ‘without prejudice’ discussions.

Complete the poor performance or disciplinary procedure and only then embark on any ‘without prejudice’ discussion.

Protected conversations

The term ‘protected conversation’ was first mentioned by the Coalition Government in November 2011. Both David Cameron and Nick Clegg said they wanted to make it easier for employers to have frank conversations with employees. The idea seemed to be that ‘protected conversations’ could take place at any time in the employment relationship, about issues such as underperformance or retirement, allowing employers to speak freely, without fear of the conversation being used in an employment tribunal.

The idea is that an offer made or discussion held with an employee with a view to terminating employment on terms to be agreed cannot be taken into account as evidence in a subsequent unfair dismissal case. Some exceptions are proposed.

  1. ‘Protected conversations’ will only be eligible to be withheld as evidence in a tribunal in ‘ordinary’ unfair dismissal cases. In claims where the dismissal is automatically unfair (such as a dismissal for asserting a statutory right) or in claims for unlawful discrimination or public interest disclosure detriment, the conversation would be disclosed. This means that protected conversations cannot be relied upon to have ‘frank discussions’ about retirement for example, as (depending on the degree of frankness on the employer’s part) these might involve direct age discrimination or age-related harassment, thus losing protection.

Any conversation which has the potential to include discriminatory material, such as a conversation with a woman on maternity leave suggesting that she should not return to work, or a discussion about ending the employment of a disabled employee, would similarly not be guaranteed to be ‘protected’ under these new proposals.

  1. The current proposals do not prevent a tribunal taking account of a conversation in which, in the tribunal’s view, something was said or done that was improper or was ‘connected with improper behaviour’. In such a case the tribunal can take account of the conversation if it considers it just to do so. The scope of what a tribunal might consider ‘improper’ is plainly very wide, but this limitation might apply if the employer threatened or bullied the employee during the conversation.

Proposals

How these protected conversations will work in practice is yet to be fully clarified. In its original consultation ‘Ending the employment relationship’, the Government proposed a set of model letters to sit alongside its proposed model ‘Settlement agreement’. The proposals were as follows:

  • the protection in legislation (inadmissibility of the offer in evidence to employment tribunals) only applies in unfair dismissal cases
  • either party may propose settlement
  • the reason for being offered the settlement should be made clear
  • settlement offers should be made in writing and set out clearly what is being offered (for example settlement sum and if appropriate agreed reference) as well as what the next steps are if the individual chooses not to accept the offer
  • it would not be necessary for an employer to have followed any particular procedure prior to offering settlement
  • the Code will make clear that if an employer handles settlement in the wrong way (ie not as explained in the Code) there is a risk that this will give rise to a breach of the implied term of trust and confidence and allow the employee to resign and claim constructive dismissal
  • where an individual refuses settlement, the employer must go through a fair process before deciding whether to terminate the relationship
  • individuals should be given a clear, reasonable period of time to respond
  • the Code should give specific examples of what may constitute ‘improper’ behaviour
  • no undue pressure should be put on a party to accept the offer of settlement
  • as closely as possible, the approach should reflect current practice in without prejudice negotiations which many employers and legal professionals are already familiar with, and
  • the employer should not make discriminatory comments or act in a discriminatory way when making an offer of settlement.

So how will protected conversations be different from those conducted ‘without prejudice’? In one respect protected conversations will have wider application that those conducted without prejudice as a protected conversation can take place even where there is no actual dispute with the employee. The need for an existing dispute causes uncertainty about whether a conversation can properly take place without prejudice and protected conversations, in a limited number of cases, may be able to fill the gap.

The proposals (expected to come into force in Summer 2013) will mean in certain circumstances a conversation about ending the employment relationship cannot be used in an unfair dismissal claim. If there’s improper conduct, or the reason for dismissal would make the dismissal automatically unfair, for example if it was connected to pregnancy, the employment tribunal will be able to take it into account. The conversation can still be used in support of other claims, such as discrimination.

Risks

Protected conversations are supposed to lessen the risks to the employer and allow him to have a frank, no-holds-barred (within reason) conversation without fear of a claim. They may reduce risk, but are not risk-free.

  1. Employers may be lulled into a false sense of security. ‘Protection’ means generally speaking the conversation is inadmissible in relation to an unfair dismissal claim, but there will be circumstances where it will be admissible.
  2. Protection does not extend to discrimination claims. If the employee believes the fact, timing and/or content of the conversation is evidence of discrimination, he has a right to rely on it at an employment tribunal, in support of a discrimination claim.
  3. Protection does not extend to breach of contract claims.
  4. If the reason for dismissal would make the dismissal automatically unfair, an employment tribunal can take the conversation into account, to decide whether the dismissal was fair.
  5. If an employee successfully argues the employer behaved improperly, the conversation is admissible (in other words, it can be used in an unfair dismissal claim).
  6. What does ‘improper conduct’ mean? When the ACAS code of practice is introduced this might help but it will still come down to a case-by-case assessment.
  7. Disputes of fact about what was said and done in disciplinary, redundancy meetings are commonplace. Currently, many employers sensibly ensure a note-taker/witness is present to take a note. If the idea of Protected Conversations is to reduce the administrative burden on the employer, it seems it will be of only limited success. A degree of formality will still be necessary to protect the employer against the possibility that the conversation may used against it in a subsequent employment tribunal.
  8. Model letters are also a good idea in principle but how you complete (and use them) may create problems.

In February 2013 ACAS published a draft code of practice on settlement agreements, setting out the standards of behaviour (and procedure) employers and employees are expected to meet. A failure to follow the code may result in the discussions about the settlement being admissible, such that the employment tribunal can take them into account. The consultation on the draft code closed in April 2013. At the time of writing the final Code has not been issued.