News & Insights

The constructive dismissal trap

When an employer treats an employee particularly badly there is always a risk that such treatment might amount to constructive dismissal. To establish constructive dismissal, an employee must show that there was a repudiatory breach of contract by their employer, that they resigned in response to that breach and that they did not affirm their contract in the meantime.

An employee who has been constructively dismissed will normally be well placed to pursue claims for wrongful and (subject to length of service) unfair dismissal. However, as highlighted in a recent case before the Employment Appeal Tribunal (EAT), these legal claims are not the only potential problems when an employee is constructively dismissed.

The case concerned Miss Holmes and her employer Tellemachus Ltd. Miss Holmes was employed for less than three months when she resigned from her employment in response to Tellemachus’ conduct. Tellemachus, relying on a clause in Miss Holmes’ contract, made a reduction from her final pay in respect of some agency recruitment fees it had incurred. Miss Holmes responded by bringing a claim for unlawful deductions from wages.

Miss Holmes’ claim was initially dismissed by the Employment Tribunal. However, the EAT held that the Tribunal had failed to consider properly whether Miss Holmes had been constructively dismissed. The EAT noted that if Miss Holmes was constructively dismissed then Tellemachus’ breach of contract would prevent it from relying on the contractual provision for recovery of the recruitment fees.

The EAT remarked that the employment judge in the Tribunal had fallen into a ‘constructive dismissal trap’ by failing to grasp from the wording of the claim form that Miss Holmes, an unrepresented litigant, had argued she was constructively dismissed. The case was remitted to the same Tribunal judge for reconsideration.

For employers, there is a different type of ‘constructive dismissal trap’ to be avoided. When disputes with employees arise it’s natural that potential legal claims will be the headline concerns, but it’s easy to overlook the fact that constructive dismissal means an employee is no longer bound by those terms in their contract which are expressed to survive termination of employment.

In addition to clauses (as in the case of Miss Holmes) which require the repayment of recruitment fees, terms related to repayment of training costs, course fees, visa fees, season ticket loans and reclaiming overpayments will not be enforceable. Any post-termination restrictive covenants (for example, to prevent the employee joining a competitor or soliciting customers) and confidentiality obligations will also fall away. The employee will also have no obligation to give notice before leaving as they can treat themselves as dismissed by their employer with immediate effect.

The catalogue of negative repercussions flowing from constructive dismissals is worth bearing in mind when it comes to the treatment of staff and handling of disputes, especially since many of the issues which arise will cause concern regardless of an employee’s seniority or length of service. If you would like advice on a matter which has the potential to result in alleged constructive dismissal, please contact us at [email protected] and we will be happy to assist.