When is a resignation a constructive dismissal?

When an employee resigns, most employers could be forgiven for assuming that they will not be bringing a claim about the termination of their employment. After all, the employee chose to leave, so the employer cannot be responsible for that decision… right?

Like so many things in the workplace relations space, the answer is not always that simple.

What does ‘dismissed’ mean?

The Fair Work Act 2009 (the Act) states that a person has been ‘dismissed’ if:

(a) the person’s employment with his or her employer has been terminated on the employer’s initiative; or

(b) the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer.

Since a resignation is not at the employer’s initiative, in most cases an employee who has resigned has not been ‘dismissed’ under the Act’s definition. This means the employee cannot bring a claim that requires an employee to have been dismissed, like an unfair dismissal claim.

While the idea that an employee who resigned has not been dismissed seems intuitive, the Act’s definition includes an important exception: where the employee has been forced to resign. This is called a ‘constructive dismissal.’

What is a forced resignation?

Before the Fair Work Commission or a court will find that an employee was forced to resign it will consider whether there is evidence that the employer engaged in conduct that was intended to make the employee resign or left the employee with no real choice but to resign.

This will depend on the particular circumstances of each case, so considering whether an employee has been constructively dismissed will be decided on a case-by-case basis.

Example 1: Shaun’s ultimatum

A straightforward example of a forced resignation is where an employer gives an ultimatum like the one to Shaun:

Shaun is facing investigation for a breach of company policy. Shaun admits he breached the policy, but believes the breach was only minor. Shaun’s manager tells him that she thinks that the breach is serious and warrants termination. During a disciplinary meeting, his manager tells him “You’re going anyway, how do you want to do it?” and gives Shaun the option of resigning rather than being dismissed for misconduct. Shaun agrees to resign.

If Shaun lodged an unfair dismissal claim, he is likely to claim that he was dismissed despite his resignation, because the resignation was forced.

That does not necessarily mean that his dismissal was unfair, and it would be left up to the Fair Work Commission to consider the merits of his dismissal, including whether the breach of the policy was significant enough to warrant termination and whether the investigation was undertaken fairly.

Example 2: Sofia’s performance improvement plan

A decision on whether an employee was forced to resign will look at whether there were other options were available to the employee.

Sofia has been placed on a performance improvement plan (PIP) because she is consistently not meeting her performance targets. Sofia objects to the PIP because she thinks that the goals are unachievable. Sofia’s manager points out that most other employees are meeting the same goals as contained in the PIP, outlines the supports that will be provided to help her achieve the goals, and encourages her to think about any other feedback to be discussed in a meeting the next day. Despite this, when Sofia gets home she decides to send an email telling her manager that she thinks the PIP is a sham and she is being set up to fail, so is instead resigning.

If Sofia later claims that she was forced to resign, she will have a more difficult time than Shaun. Her employer is likely to point out that it did not act with the intention of forcing Sofia resign, and that the PIP was a genuine attempt to improve performance with achievable goals. Sofia could have tried to improve her performance in line with the PIP rather than resign.

What should employers do?

A constructive dismissal will depend on the facts of the case, so it is hard to anticipate all the circumstances where an employee might resign and claim they were dismissed.

To help reduce the risk of a constructive dismissal claim, it is recommended that employers do the following:

Give employees way to deal with issues other than resigning

Where an employee has an alternative to resigning, it is less likely that they can argue that they have no other choice but to resign.

Processes like for lodging a grievance under a Grievance & Complaints Policy or requesting a flexible working arrangement under a Flexible Working Arrangements Policy should be available to employees and their use should be encouraged where an employee has issues.

Where a grievance is lodged, this will allow the employer to properly investigate whether the grievance has merits and take appropriate action if so. In the case of a flexible work request, it will allow the employer to consider whether the request can be accommodated, and where necessary, reject the request on reasonable business grounds.

Have fair and robust disciplinary processes

An employee facing disciplinary action might choose to resign rather than seeing the process through. A good investigation or performance improvement process should let the employee know where they stand throughout the process, and be clear that employment remains on foot while the process is underway.

Another advantage of a good process is that even if the employee successfully claims that they have been constructively dismissed in an unfair dismissal or general protections claim, a properly run and documented process can be used to show that the dismissal was not unfair or for a prohibited reason.

Give employees the opportunity to retract a resignation

In most cases it will be clear that an employee is under no pressure to resign, and a resignation can be taken at face value.

However, in situations where there is a risk that the employee feels that their hand is being forced, it might be better to give the employee a chance to reconsider and suggest alternatives to dealing with the issue.

Seek advice when needed

Termination of employment is a complicated issue that always carries some risk. For assistance with dismissals and other workplace matters, Members of Ai Group can contact us or call our Workplace Advice Line on 1300 55 66 77.