News and Insights
28 September 2016
Constructive dismissal is arguably the most contentious kind of dismissal, as there is no express act of dismissal by the employer. The employee may resign with or without giving notice to the employer, but what matters is that the employee should be entitled to terminate the contract without notice because of the employer’s conduct.
The employer’s conduct must amount to a fundamental breach of the contract of employment, going to the root of the contract. It is therefore a contractual test, rather than the unfair dismissal test, of whether the employer’s actions in dismissing an employee were within the “band of reasonable responses of a reasonable employer”.
The question is, what type of conduct on the part of an employer would amount to a fundamental breach of contract?
The breach may be of an express term of the contract, such as failure to pay wages, as in the recent Jersey Employment Tribunal case of Carratu v United Fashions Limited, or for example an unauthorised unilateral variation of a significant term of the contract of employment. Alternatively (or in addition as in the Carratu case) it may be a breach of an implied term of the contract of employment, the most commonly cited implied term being that of mutual trust and confidence. Examples include severely reprimanding an employee in front of colleagues in a manner that is not merited by the employee’s conduct, allowing an employee to be bullied and harassed at work, or making impossible demands on an employee. In the English case of Horkulak v Cantor Fitzgerald, the court refused to accept that the frequent use of foul and abusive language could sanitise its effect or remove its power to offend and declined to accept that a different standard of conduct applies to an employer who is paying a substantial salary. The employee may also resign in response to a series of actions by the employer, the last of which need not be particularly serious but acts as the ‘last straw’ entitling the employee to resign.
Acceptance of the breach and delay
It is not enough that the employer has fundamentally breached the employee’s contract of employment; the employee must accept the breach. The acceptance must be clear. In cases where an employee resigns in the heat of the moment, good practice is for the employer to allow a ‘cooling off’ period and then ask the employee if they really intended to resign. The employee’s resignation must be in response to the breach by the employer and must not delay too long before doing so. Otherwise, the employee may be deemed to have affirmed the contract by their delay in resigning and insistence upon further performance of the contract. However, where the breach of contract on the part of the employer reoccurs, the employee may accept the later breach and, in addition to relying on the most recent breach of contract, may rely on the employer’s previous breaches as a course of conduct amounting to a fundamental breach of contract.
Notice (wrongful dismissal)
Whilst the disgruntled employee may leave immediately in response to the employer’s breach, there is also the possibility that the employee may work their notice. An employee who works their notice following a fundamental breach of their contract of employment by the employer may encounter difficulty at the Employment Tribunal, as the employer is bound to argue that its conduct cannot have amounted to a fundamental breach, as if it had, the employee would have left immediately.
In a recent case in the Jersey Employment Tribunal McGarry v Milan Limited, Milan Limited admitted that it had constructively unfairly dismissed Mr McGarry, and did so to avoid the cost of proceeding to a full hearing. Mr McGarry had resigned without notice in response to his employer’s conduct and he was claiming 12 weeks’ contractual notice. The Tribunal decided that as Mr McGarry was claiming what is called wrongful dismissal, a breach of contract claim, in accordance with contractual principles a duty to mitigate his loss arose. Mr McGarry had secured alternative employment shortly after he resigned in what would have been the notice period. It was held that, by securing during what would have been the notice period, he had mitigated his loss, and his earnings during this period would be deducted from the 12 weeks’ notice to which he was entitled.
Wrongful dismissal and restrictive covenants
Where a claim for wrongful dismissal is upheld, the employee is freed from any restrictive covenants in their contract of employment. The idea is that as the employer has committed a fundamental breach of contract by dismissing the employee without notice, the employee is entitled to treat himself as discharged from any further performance of his obligations under the contract. This is a factor for the employer to take into account when deciding whether or not to pay the employee the notice to which they are entitled under their contract of employment.
It is not unusual for contracts to provide that restrictive covenants apply, regardless of the circumstances in which termination of employment takes place. However, it is questionable as to whether such clauses are enforceable when the employer is in breach of contract. The best option for employers who wish to ensure that restrictive covenants are enforceable is to ensure that the contract is terminated on notice.
For more advice on employment law, contact our employment team today on: +44 (0)1534 632255