8. Constructive dismissal

A constructive dismissal occurs where an employee terminates their employment in response to conduct by their employer which amounts to a breach of contract.

The leading case setting out the nature of a constructive dismissal claim is Western Excavating (ECC) Ltd v Sharp [1978] All ER 713, in which the Court of Appeal ruled that the employer must be guilty of conduct that amounts to a significant breach that goes to the root of the contract, or shows that they no longer intend to be bound by one or more of the essential terms of the contract.

An employee must have been continuously employed for a period of one year in order to bring a claim of constructive dismissal.

To succeed in a claim of constructive dismissal, the employee must show that:

• there was a fundamental breach of a contractual term by the employer;

• they resigned as a result of that breach; and

• they did not delay too long before resigning, thus affirming the contract.

If an employee can establish that there was a constructive dismissal by establishing all of the above, it does not necessarily make the dismissal unfair: the employment tribunal will then go on to consider whether the employer can establish that the breach constituted a fair reason for dismissal and that they acted reasonably. A common reason relied upon by employers in these cases is that of “some other substantial reason” (SOSR), a catch-all reason that is often used when an employer wants to change terms and conditions of employment as a result of a business reorganisation.

For further information see the LRD booklet Unfair dismissal — a legal guide.

Fundamental breach

A fundamental breach can be either actual or anticipatory. A reduction in pay without notice is an actual breach; notice by an employer that pay will be reduced at the end of the month is an anticipatory breach.

An employee can terminate their contract in response to an anticipatory breach as long as the change is clear. If an employer’s proposal to change terms is vague or conditional upon something else happening first, then this will not amount to a fundamental breach. A dispute over a contractual term is not a breach of contract.

If an employer withdraws the proposal to change the contract the employee is unlikely to be able to then resign and claim constructive dismissal. A fundamental breach can relate to an express term of the contract or an implied term (see Chapter 4 for definitions of express and implied terms).

The following are examples of a fundamental breach of an express term:

• putting employees onto short-time working without their agreement (International Packaging Corporation v Balfour [2003] IRLR 11);

• transferring employees to new posts at a lower grade (LB Camden v Collins & Clements EAT/1436/01); and

• moving an employee to a new place of work that was another hour away from where she previously worked (Strachan St George v Williams EAT/969/94).

If there is a mobility or flexibility clause in the contract allowing the employer to move the employee then there will not be a breach of contract as long as the employer has shown a genuine reason for implementing it (see page 39).

In the case of Cantor Fitzgerald International v Callaghan and others [1999] IRLR 234, the Court of Appeal held that if an employer deliberately withholds or reduces the employee’s pay it is a fundamental breach of contract regardless of the amount involved.

A significant number of cases of constructive dismissal rely on a breach of the implied term of mutual trust and confidence as defined in the case of Malik v BCCI (see pages 29 and 53). Employees have successfully established a breach of trust and confidence in the following cases:

• issuing two formal written warnings in quick succession when the employee had outstanding grievances (Marshall v BCM Group UKEAT/0401/03);

• suspending an employee where the facts did not show there was a basis for allegations made against the employee (Gogay v Hertfordshire County Council [2000] IRLR 703); and

• proposing new pay arrangements in an aggressive and unreasonable manner along with a misleading explanation of the effect of the change and the use of swearing and obscenities (Cantor Fitzgerald International v Bird [2002] IRLR 867).

In many cases the fundamental breach relied on by the employee is a one-off incident. But there are circumstances in which an employer consistently undermines an employee in a number of incidents, none of which by itself amounts to a fundamental breach. When that happens, a final incident, when taken together with all the previous ones, can amount to a fundamental breach of the implied term. This is known as a last straw case.

A breach of trust and confidence in a last straw case was explained by the Court of Appeal in the following case as “a series of actions on the part of the employer which cumulatively amount to a breach of the term”:

The earlier incidents must relate to the term of trust and confidence to establish a course of conduct that amounts to a cumulative breach of that term but each incident does not have to be a breach of contract. The last straw incident that triggers the dismissal does not have to be a breach of contract either, but if the employer’s behaviour is reasonable it is unlikely to justify constructive dismissal:

Resignation as a result of the breach

It is essential that the employee can show that it was the fundamental breach (whether a single incident or a “last straw”) that caused them to resign. Any discussions or correspondence with the employer should help make this clear.

If an employee finds alternative work before they resign this may be evidence that the real reason they have resigned is because they have found a new job. But that is not always the case - a lot may depend on the timing of events, as in the following case:

Delay after resignation

When an employer commits a fundamental breach of contract the employee can choose to waive the breach or to accept it and end the employment contract. Waiving a breach of contract has the effect of affirming the contract which means that the employment relationship continues and the employee cannot at a later stage resign as a result of that breach and claim constructive dismissal.

The employee can affirm the contract explicitly (such as by signing a letter accepting revised pay and conditions) or by their conduct — continuing to work under new conditions will amount to an affirmation by conduct. This applies as much to breaches of the implied terms such as trust and confidence — if an employee has suffered a campaign of harassment but does nothing about it they will not be able to rely on this as a breach of contract six months later. In those circumstances, there would have to be further conduct by the employer amounting to a breach of trust and confidence and the employee could then rely on the earlier events as evidence of a cumulative breach — a “last straw” case.

This means that an employee must act quickly in response to a breach of contract. Putting in a written objection to the employer’s conduct and continuing to work while trying to get the matter resolved can make it clear that the contract has not been affirmed, but only as a short term measure. Continuing to work for any significant length of time will still be an affirmation of contract.

Unfortunately, it is not possible to give a universally applicable definitive answer to the question “how long is too long” — it will depend on the particular circumstances, as the case law demonstrates:

Note that in accordance with the 2009 version of the Acas Code of Practice on Disciplinary Procedures, an employee who wishes to pursue a claim in an employment tribunal is generally encouraged to first raise a grievance with their employer. These procedures are set out in the LRD booklet Disciplinary and grievance procedures.