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CONSTRUCTIVE DISMISSAL (Page 1)

Updated: 01 September 2008

The law: s.95(1)(c); s.98(4), Employment Rights Act 1996.

Leading case: Western Excavating (ECC) Ltd v Sharp (1978) 1 QB 761, (1978) 1 ALL ER
713, (1978) 2 WLR 344, (1978) ICR 221, (1978) IRLR 27, 121 Sol Jo 814.
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Definition: (1) a constructive wrongful dismissal occurs when an employer's conduct is
such that it constitutes an actual or anticipatory breach of contract that amounts to a fundamental breach and the employee accepts the employer's breach. But if the employee has been continuously employed by the employer for less than one year, he or she can only make a common law claim for damages for breach of contract which consists of the contractual notice period plus any other contractual benefits and any outstanding statutory holiday entitlement (unless the dismissal is automatically unfair in which case (2) below applies) whereas;

(2) a constructive unfair dismissal occurs when an employer's conduct is such
that it constitutes an actual or anticipatory breach of contract that, as above, amounts to a fundamental breach and the employee accepts the employer's breach. But, unlike in (1) above, if the employee has been continuously employed by the employer for at least one year, then he or she comes within the fairness of employment legislation and therefore can make a statutory claim for compensation for being dismissed unfairly.

Note: an actual breach of contract (or express breach) is one that occurs immediately whereas an anticipatory breach means that the employer has indicated by words or conduct that it does not intend to honour future obligations under the contract. Both an actual breach and an anticipatory breach are repudiatory breaches of contract.

Note: as mentioned, an anticipatory breach of contract is also a repudiatory breach. The term 'repudiatory' breach has been used to describe the situation that arises whereby a party intimates by words or conduct that it does not intend to honour its obligations when they fall due in the future: Heyman v Darwins Ltd (1942) AC 356. The term 'anticipatory' breach has been used where the breach of contract is caused by the repudiation of obligations not yet ripe for performance: Dawson (1981) CLJ 83, Carter 47 MLR 422.

A judge of the Employment Appeal Tribunal summarised what constitutes a constructive dismissal by saying:

'In relation to constructive dismissal, in broad terms, there have to be four elements. There has to be a breach of contract by the employer which can be either an actual breach or an anticipatory breach, and the breach must be sufficiently important to justify the employee resigning; or it can be one of the last of a series of incidents which justifies leaving. The two other conditions normally are that the employee must leave in response to the breach and not for some other unconnected reason, and, finally, the employee must not take too long about it:' France v Westminster City Council (2003) EAT, 09 May 2003.

Note: an employee, likewise, can commit either an actual or anticipatory breach of contract. When this happens, the employer, like an employee in the same position, can accept the breach and terminated the contract of employment, thereby summarily dismissing the employee without paying the employee her or his period of contractual and statutory notice. This can occur if the employee commits an act of gross misconduct or indicates to the employer that he or she is not going to honour his or her future obligations under the contract by working out the period of contractual notice. However, although such an employee has repudiated the contract of employment, the employer might not be able to show it has suffered any financial loss as a result of the employee's breach. In this circumstance, the employer may feel tempted to withhold pay owing to the employee. But any pay owing to the employee must be paid by the employer, otherwise the employee may make an unlawful deduction from wages claim to an employment tribunal: s.13, Employment Rights Act 1996. As mentioned, the employee may have committed a fundamental breach of contract in which her or his conduct has seriously damage or destroyed the trust and confidence of the employment relationship. If this has happened, the employer may accept the breach and terminate legally the contract of employment summarily without giving or paying the employee her or his period of contractual or statutory notice: s.86(6), ERA 1996.

Test: 'Did the employer's conduct amount to a fundamental breach of contract that entitled the
employee to resign?' - Western Excavating (ECC) Ltd v Sharp (1978), 1QB 761,
Court of Appeal.

Note: whether such a dismissal is a fundamental breach of contract is to be determined by the common law contract test and not by asking whether or not the employer acted reasonably or unreasonably (the latter being the fairness of employment statutory test under s.98(4), Employment Rights Act 1996): Western Excavating (ECC) Ltd v Sharp (1978).

Note: the steps which an employment tribunal will take when determining a claim of constructive dismissal are: firstly, to decide whether the employer's conduct was such that it constituted an actual or anticipatory fundamental breach of contract; secondly, if the tribunal decides that the employer did commit a fundamental breach of contract, the tribunal will then go on to decide whether the employee accepted the breach and, by so doing, terminated the contract of employment that existed between the employer and employee.

Note: a constructive dismissal can be a statutorily fair dismissal: Savoia v Chiltern Herb Farms Ltd (1981) IRLR 65, EAT; (1982) IRLR 166, CA. Even when a tribunal decides that there has been a constructive unfair dismissal, compensation may be reduced if there was adverse contributory conduct by the claimant that was a factor that provoked the dismissal.

Note: in legal terms, a constructive dismissal is the same as the common law concept of 'repudiatory breach.' In other words, an employee must be contractually entitled to leave because of the employer's breach of a fundamental term or because the employer has indicated clearly beyond reasonable doubt an intention no longer to be bound by the contract of employment. Conduct of the latter kind is known as an 'anticipatory breach.' Both kinds of breaches constitute breach of contract, whether the breach is (i) an immediate breach or (ii) a breach of the existing contract that occurs because the employer has intimated that it will not perform future contractual obligations.

Before resigning, an employee must establish that the employer has committed a fundamental breach of contract. A 'fundamental breach of contract' is a breach of an express or implied term or condition of the contract that 'goes to the root' of the contract, i.e. a serious breach - see below for examples. In law, an employee does not resign. Instead, when faced with a fundamental breach of contract by the employer, the employee has the choice of: (1) affirming the contract, i.e. taking no notice of the breach and thereby carrying on with the contract or (2) accepting the employer's breach by terminating the contract and seeking statutory compensation or common law damages for any loss he or she can show and is claimable.

Constructive unfair dismissal: section 95(1)(c), ERA 1996 is the statutory provision that states that an employee is entitled to terminate the contract of employment, with or without notice, in circumstances that s/he is entitled to terminate it without notice by reason of the employer's conduct - this is known as 'constructive dismissal.' Although the employee is said to 'resign,' it is the employer's conduct - that must amount to a fundamental breach of contract - that constitutes a repudiation of the contract and the employee accepts that repudiation by 'resigning.' The employee must clearly indicate that s/he is treating the contract as having been repudiated by the employer: Logabax Ltd v Titherley (1977) IRLR 97, EAT. If s/he fails to do so, by word or by conduct, s/he is not entitled to claim that s/he has been constructively dismissed: Holland v Glendale Industries Ltd (1998) ICR 493, EAT. An employee who is claiming constructive dismissal must 'resign' promptly: Hunt v British Railways Board (1979) IRLR 379, EAT. The exception to this rule is a 'last straw' resignation whereby an employee terminates the contract as a result of the latest incident in a series of incidences by the employer: Lewis v Motorworld Garages Ltd (1986) IRLR 465, CA.

Note: in Bishop v Financial Times (2003) ALL ER (D), 359, His Honour Judge Burke said: 'A constructive dismissal claim requires a fundamental breach of the contract of employment; but it is not a claim for breach of contract; it is a claim for breach of a statutory right; …' (i.e. being a breach of s.95(1)(c), Employment Rights Act 1996.) Nonetheless, a common law breach of contract claim can arise from a constructive dismissal claim that, if proved, is a breach of a statutory right. For example, upon terminating the contract of employment, the employee may have one or more contractual claims outstanding against the employer to which the employee is entitled but which may have been withheld by the employer.

'Last straw' cases:
usually, in these kinds of cases of constructive dismissal, what happens is that there are a series of acts in breach of contract by the employer which culminates in a 'last straw' incident that leads the employee to terminate the contract of employment. However, a 'last straw' constructive dismissal can occur when none of the series of acts in itself by the employer necessarily constitute a fundamental breach of contract but which, taken cumulatively, have that effect, thereby allowing the employee to terminate lawfully the contract of employment and claim compensation for unfair dismissal: London Borough of Waltham Forest v Omilaju (2004), EWCA Civ 1493, CA; (2005) IRLR 35, CA. In Omilaju (2004), the Court of Appeal held that a 'last straw' act that leads to the employee terminating the contract of employment because of the employer's conduct does not have to be of the same character as the earlier acts, nor does it have to constitute unreasonable or blameworthy conduct, although in most cases it will do so. That said, the 'last straw' act must contribute, however slightly, to the breach of the implied term of trust and confidence.

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