Constructive dismissal is a term used in UK employment law to describe situations where an employee feels they have no choice but to resign due to their employer’s conduct. When an employee successfully proves this in a tribunal, they may be awarded a constructive dismissal payout.
This post explores what constructive dismissal is, how payouts are calculated, and also minimising the risks by improving workplace practices.
What is Constructive Dismissal?
Constructive dismissal occurs when an employee resigns because their employer has significantly breached the terms of their employment contract. For an employee to claim constructive dismissal, they must demonstrate that the employer’s actions fundamentally altered the conditions of their employment to the point that they could not reasonably continue working there.
Common reasons for constructive dismissal claims include:
- Sudden Pay Cuts: If an employer reduces an employee’s salary without proper consultation or contractual allowance, it may be considered a breach of contract.
- Unexplained or Unfair Changes to Job Role: Major changes in duties or responsibilities without agreement can lead to a claim, particularly if the role shifts drastically from what was initially agreed. Similar cases have led to a constructive dismissal payout in the past.
- Failure to Address Bullying or Harassment: If an employee experiences harassment or bullying and the employer fails to respond adequately, the employee may feel forced to leave.
- Unsafe Working Conditions: Failing to provide a safe and healthy workplace environment can be grounds for constructive dismissal.
How Constructive Dismissal Payout is Calculated
If a tribunal rules in favour of the employee, they may receive compensation. The payout can vary depending on several factors, such as length of employment, financial loss, and emotional impact. Constructive dismissal payouts in the UK generally consist of two types of compensation:
- Basic Award: This is similar to a redundancy payment and is calculated based on the employee’s age, years of service, and weekly pay. The weekly pay rate is capped at £700, and years of service. The maximum basic award for unfair dismissal is £21,000. The calculation typically uses a formula that takes into account:
- How long the employee has worked for you when they were dismissed
- Their age when they were dismissed
- The employees gross weekly pay
To get an idea of this, you can use the calculator on the Government website.
- Compensatory Award: This aims to cover the actual financial losses the employee experienced due to the dismissal. This can include:
- Loss of Earnings: Calculated from the time the employee left their job until they find new employment or up to the tribunal’s cap for compensatory awards, which is currently set at £115,115 or 52 weeks’ gross pay, whichever is lower.
- Benefits and Pension Loss: Any additional perks, like pension contributions or company benefits, may be factored into the award.
It’s not always possible to predict exactly what the constructive dismissal payout will be, as the tribunal will need to determine, for instance, a reasonable timeframe for the employee to find another job.
Factors Influencing the Outcome of a Constructive Dismissal Claim
Winning a constructive dismissal claim requires the employee to prove their case, which is often challenging. The tribunal will examine several factors, including:
- Nature and Severity of the Breach: Was the employer’s conduct severe enough to justify the employee’s resignation?
- Employee’s Response: Did the employee act promptly upon the employer’s breach, or did they delay taking action?
- Evidence of Attempts to Resolve the Issue: The tribunal will consider if the employee made efforts to address the issue internally before resigning.
The Financial Impact of a Constructive Dismissal Claim
The costs associated with constructive dismissal claims can be substantial. Not only could the employer face a constructive dismissal payout, but there are also potential legal fees, tribunal costs, and the wider impacts of staff turnover and a damaged reputation to consider. These costs can be avoided or at least minimised if employers take preventative steps to create a positive work environment and ensure good communication with employees.
Strategies for Employers to Avoid Constructive Dismissal Claims
The best way for employers to avoid the financial and operational impact of constructive dismissal payout and claims is to focus on proactive management practices. Here are key steps employers can take:
A. Maintain Clear Employment Contracts and Policies
Ensuring that all employees have clear, detailed employment contracts and that company policies are up-to-date and accessible is crucial. Contracts should include job roles, expectations, and any procedures for amending terms of employment. To avoid a constructive dismissal payout in the future, regularly review these documents to confirm that they align with current legal requirements and are well-understood by employees.
B. Establish a Culture of Open Communication
Creating an open line of communication is essential. Regular one-to-one meetings and feedback sessions can help address any potential concerns early. By fostering a culture where employees feel safe to express concerns, employers can resolve issues before they escalate.
C. Offer Training for Managers
Managers play a crucial role in an employee’s day-to-day experience. Ensuring managers are trained in handling grievances, managing conflict, and maintaining fairness can go a long way in preventing misunderstandings and potential constructive dismissal payout. Providing training on employment law basics can help managers understand the boundaries and implications of their actions.
D. Have a Fair and Transparent Grievance Procedure
Implementing a transparent grievance procedure and making it known to employees can show that the organisation is committed to resolving conflicts. A fair process should be easy to navigate, respect confidentiality, and allow employees to have their concerns addressed objectively and promptly.
E. Keep Documentation and Monitor Issues
Whenever an issue arises, keeping detailed records of communication, actions taken, and outcomes can protect the business if a claim is made. Consistent documentation provides evidence of the employer’s attempts to resolve any concerns and demonstrates a fair approach to managing employee relations. It also helps you to reduce the risk of facing a constructive dismissal payout.
F. Ensure Any Workplace Changes Are Reasonable and Discussed
Changes in job role, location, or pay should be approached cautiously and reasonably. Discuss any potential changes with employees first, explaining the reasoning and giving them a chance to provide feedback. Making changes without consulting employees could be viewed as a breach of contract, which can lead to a claim.
G. Maintain a Zero-Tolerance Policy on Harassment and Bullying
A safe, respectful work environment is critical for preventing constructive dismissal claims. Employers should enforce a zero-tolerance approach to bullying and harassment and provide training to all employees on expected behaviours. Any reports of harassment should be thoroughly investigated and handled according to company policy.
Responding to a Constructive Dismissal Claim
If an employee does make a constructive dismissal claim, it is essential to seek legal advice immediately. Employers should conduct a thorough internal investigation to gather facts and ensure that any response is based on documented evidence. A strong initial response, focused on transparency and adherence to company policies, can sometimes lead to an early resolution. It may also help you avoid a constructive dismissal payout in the future.
Proactive Steps for Prevention
For employers, avoiding constructive dismissal claims requires a commitment to fairness, transparency, and proactive management practices. By implementing robust policies, maintaining open lines of communication, and prioritising a respectful workplace culture, employers can significantly reduce the risk of constructive dismissal claims and the financial burden that comes with them. Taking these preventative measures will not only protect the business but also contribute to a more positive and engaged workforce.
Employers who proactively address potential issues before they escalate may avoid a constructive dismissal payout and demonstrate a commitment to creating a supportive work environment that benefits both the business and its employees.
