Constructive Dismissal

Most unfair dismissal claims arise when an employer terminates a worker’s employment in contravention of the Fair Work Act 2009. Many people assume that they cannot bring a case for unfair dismissal against an employer if they resign from their position. On the contrary, if an employee is forced to resign, they can still claim unfair dismissal. This is called a constructive dismissal because the resignation is involuntary. This article defines constructive dismissal and an employee’s rights under the Fair Work Act to bring an unfair dismissal claim against their former employer.

What Is Constructive Dismissal?

Constructive dismissal is a common law concept (that is, originated from a court case, not legislation). It describes when an employee resigns (apparently voluntarily) because their employer created a hostile work environment. Typically, the employer has not made any move to terminate the employee, but their actions (or inactions) force them to leave. In this circumstance, the employee effectively leaves the employment against their will as they feel they have no real alternative.

An employee may need to resign because their employer behaves in a way that is a significant breach of the employment contract or law. For instance, the employee may face:

• Workplace bullying or sexual harassment;
• Poor treatment (unreasonable demotion);
• Underpayment of entitlements (including a reduction in pay or work hours); or
• Serious safety concerns.

When an employer displays unacceptable or illegal conduct towards an employee or fails to stop co-workers from harassing the employee, the employee may have no choice but to resign.

Resign Or Be Terminated

In addition, a court may find a constructive dismissal has occurred if the employer threatens to fire the employee if they do not resign. A leading case on constructive dismissal is Mohazab v Dick Smith Electronics (1995). Mr Mohazab was an employee of Dick Smith Electronics when he was questioned over missing store stock. The employee was told that he could either resign or face a police investigation, and he was presented with a resignation letter to sign. When Mr Mohazab brought a wrongful termination claim, Dick Smith Electronics argued that the employee had voluntarily resigned to avoid a criminal investigation. The Industrial Relations Court of Australia decided that the ultimatum to resign or face a police investigation was an instance of termination by the employer or constructive dismissal. The court found that the employer initiated the termination, and Mr Mohazab had no choice other than resign.

Removal of Access or Tools

It is also a constructive dismissal if an employer takes away the equipment, access or materials that an employee needs to do their job. Again, an employee must demonstrate that they had no choice but to resign because their employer withheld essential equipment. A recent decision from the Fair Work Commission in McKean v Red Energy Pty Ltd (2020) underscored the difficulty of proving constructive dismissal on this basis. The employee argued that he had to resign because his employer forced him to work from home without the necessary equipment, namely a desk. The Commission rejected the argument that the company should have provided the employee with a desk, granted him leave or allowed him to work from the office.

The Commission noted that the employee’s resignation letter made no reference to compulsion, and he had options other than resigning. He could have contacted WorkSafe about his concerns or even borrowed a desk from a friend. In fact, the employee had subsequently purchased a desk after his resignation.

Assessment Of Constructive Dismissal Case

During a constructive dismissal proceeding, the Commission determines whether the employee did, in fact, voluntarily resign or was left with no choice but to leave their employment. The onus is on the employee to prove that the employer’s conduct was the principal contributing factor in leaving the employment. The employee must have exhausted all other options and resigned as a last resort. Case law suggests that the Commission will ask whether it was unreasonable for the employer to ask the employee to endure the conduct. There is a high bar to establish that the conditions forced the resignation. For example, while a failure to pay wages or superannuation contributions may justify resignation, a late wage payment does not establish constructive dismissal.

The case of Kylie Bruce v Fingal Glen Pty Ltd T/A Comfort Inn Adelaide Riviera (Fingal Glen) (2013) concerned an employee who worked as a receptionist for a year but often received her wages late and was not paid superannuation during her employment. She had taken steps to address the issue, including complaining to interstate senior management. Her resignation letter specified that she could no longer deal with the stress of her basic entitlements being neglected. While the court acknowledged that the employer’s failure to pay was effectively a termination initiated by the employer, it held that wages were paid (albeit late), and the employee had other options. Further, the employee had other choices apart from resigning, as she could have reported the dispute to her union or the Fair Work Ombudsman.  The decision was upheld on appeal.

In a more recent decision, the Fair Work Commission found that a resignation was a constructive dismissal in Bupa Aged Care Australia Pty Ltd T/A Bupa Aged Care Mosman v Shahin Tavassoli (2018). The employee successfully demonstrated that it was a forced resignation caused by the employer’s egregious non-compliance with their obligation to pay employees over six months. The employee had no choice but to resign because he was consistently paid late, and he could not trust the revised payment date that his employer set out. The employee had reported his concern over late wages to upper management multiple times without resolution, and the employee had raised the matter with the Fair Work Ombudsman.

If you were forced to resign because of your employer’s passive or active conduct, you might have a case for unfair dismissal. Please contact our specialist commercial law team for advice on 1300 038 223.