In employment law, constructive dismissal occurs when an employee resigns due to the employer creating a hostile work environment. This often serves as a tactic for employers to avoid payment of statutory or contractual severance pay and benefits. In essence, although the employee resigns, the resignation is not truly voluntary but rather a response to intolerable working conditions imposed by the employer. These conditions can include unreasonable work demands, harassment, or significant changes to the employment terms without the employee’s consent.
The legal implications of constructive dismissal vary across jurisdictions, but generally, it results in the termination of the employee's obligations and grants them the right to pursue claims against the employer. Claims can arise from a single serious incident or a pattern of behaviour, and employees typically need to resign shortly after the intolerable conditions are imposed.
Guillermo Cabanellas explains that disguised dismissal occurs when the employer’s actions violate duties, forcing the employee to resign. This act, while not an explicit declaration of termination, effectively constitutes a dismissal.
Overview In the United States, there is no single federal or state law against constructive dismissal. However, it is recognized when intolerable working conditions violate employment legislation, such as the Family and Medical Leave Act, the Equal Pay Act, the Americans with Disabilities Act, and others. The burden of proof lies with the employee, who must demonstrate that the working conditions were so intolerable that a reasonable person in their position would feel compelled to resign. Canadian law also acknowledges constructive dismissal when an employer unilaterally changes the terms and conditions of employment to such an extent that the employee can consider the contract breached. This may include demotions, significant changes in job duties, or a hostile work environment. Employees must file a complaint within a specified period and may need to seek legal advice to pursue claims of constructive dismissal.
In all cases, the concept hinges on the employer's failure to meet contractual obligations, leading the employee to resign. The resignation is treated as a termination by the employer, allowing the employee to seek legal remedies for wrongful dismissal.
United States law In the United States, constructive discharge is a general term describing the involuntary resignation of an employee. There is no single federal or state law against constructive dismissal in general. From a legal standpoint, it occurs when an employee is forced to resign because of intolerable working conditions which violate employment legislation, such as: Family and Medical Leave Act of 1993 (FMLA) Equal Pay Act of 1963 (EPA) Change in schedules in order to force employee to quit (title 12) Americans with Disabilities Act of 1990 (ADA) Genetic Information Nondiscrimination Act of 2008 (GINA) Age Discrimination in Employment Act of 1967 (ADEA) Title VII of the Civil Rights Act of 1964 (Title VII) Any state employment law An employer showing favoritism to another employee without reason or explanation
The burden of proof in constructive dismissal cases lies with the employee.
The Equal Employment Opportunity Commission has provided a 3-part test to determine whether or not a constructive discharge has occurred: (1) a reasonable person in the complainant's position would have found the working conditions intolerable; (2) conduct that constituted discrimination against the complainant created the intolerable working conditions; and (3) the complainant's involuntary resignation resulted from the intolerable working conditions.
In California, the California Supreme Court defines constructive discharge as follows: "in order to establish a constructive discharge, an employee must plead and prove, by the usual preponderance of the evidence standard, that the employer either intentionally created or knowingly permitted working conditions that were so intolerable or aggravated at the time of the employee's resignation that a reasonable employer would realize that a reasonable person in the employee's position would be compelled to resign."Turner v. Anheuser-Busch, Inc., 7 Cal. 4th 1238, 1251, 876 P.2d 1022 (1994)
Canadian law Canadian courts recognize there are circumstances in which the employer, although not acting explicitly to terminate an individual's employment, alters the employment relationship's terms and conditions to such a degree that an employee is entitled to regard the employer's conduct as a termination, and claim wrongful dismissal, just as if they had been let go without any notice or termination pay in lieu of notice.
Constructive dismissal arises from the failure of the employer to live up to the essential obligations of the employment relationship, regardless of whether the employee signed a written employment contract. Employment law implies into employment relationships a common-law set of terms and conditions applicable to all employees. For example, once agreed upon, wages are implicitly locked in by the common-law of contract as an essential term of the employment relationship. In this regard, it is a constructive dismissal if an employer fails to pay an employee.
An employer's breach of the employment contract releases the employee from their obligation to perform under the contract, and thus allows them to treat themselves as dismissed without notice.
Hong Kong case The Hong Kong Court of First Instance has confirmed in Caidao Capital Ltd v Harmen Christiaan Overdijk & Ors HKCFI 1326 that the definition of “wages” under the Employment Ordinance is broad enough to cover commission-only payments under a profit share remuneration structure and that withholding those payments can amount to constructive dismissal. Employers who impose new conditions on commission payments, suspend them unilaterally or rely on ambiguous audit clauses to withhold remuneration face significant legal exposure.
Subject Applying the following provisions in Part III of the Canada Labour Code to cases of constructive dismissal: unjust dismissal severance pay and individual terminations of employment
Interpretation Constructive dismissals are covered under Part III of the Code The unjust dismissal provisions in section 240 of the Code cover unjust constructive dismissals. They also cover unjust dismissals made by the open unambiguous action of the employer.
This issue was resolved conclusively in the Federal Court of Appeal decision in Srougi v. Lufthansa German Airlines, F.C.J. Nº 539. According to the Srougi decision, once it has been established that a constructive dismissal has occurred, there is no question that the unjust dismissal provisions apply.
The individual terminations of employment provisions may also apply in cases of constructive dismissal. This includes provisions in sections 230 to 234 of the Code, and the severance pay provisions in sections 235 to 237.
Unfortunately, the characterization of a constructive dismissal is not always straightforward.
Definition The phrase "constructive dismissal" describes situations where the employer has not directly fired the employee. Rather the employer has:
failed to comply with the contract of employment in a major respect unilaterally changed the terms of employment, or expressed a settled intention to do either thus forcing the employee to quit
Constructive dismissal is sometimes called "disguised dismissal" or "quitting with cause". This is because it often occurs in situations where the employer offers the employee the alternative of:
leaving, or submitting to a unilateral and substantial alteration of a fundamental term or condition of their employment
Whether or not there has been a constructive dismissal is based on an objective view of the employer's conduct. It is not merely on how the employee perceives the situation.
It is the employer's failure to meet its contractual obligations that distinguishes a constructive dismissal from an ordinary resignation. The seriousness of the employer's failure as well as the amount of deliberation apparent in its actions are also important factors.
The employer's action must be unilateral, which means the employer must do it without the consent of the employee. If it is not unilateral, the variation is not a constructive dismissal but merely an agreed change to the contract of employment.
If the employee clearly indicates non-acceptance of the new conditions of employment to the employer, there has been a constructive dismissal. However, this is only if the employee leaves within a reasonable period (usually short). By not resigning, the employee indicates he accepts the new conditions of employment.
There have been cases where courts have held that there has been a constructive dismissal even though the complainant remains in the employ of the employer. This includes, for example, cases where the employee:
continues to work under the new conditions in order to mitigate damages, and either protests the new conditions explicitly or makes it clear that he still reserves the right to take legal action
In such cases, the employee cannot be said to have condoned or accepted the change in working conditions if the employee:
formally commences legal proceedings in respect of the change while remaining in the employ of the employer, or does not formally initiate proceedings but simply attempts to negotiate the matter while remaining at work
A constructive dismissal takes place at the time the employer changes the terms and conditions of employment. In order to be admissible, the complainant must file the complaint within 90 days of that time as required by subsection 240(2) of the Code.
Exception: This does not apply if the complainant qualifies for extending their time to file under subsection 240(3) of the Code.
In cases of alleged unjust dismissal, a doubt may exist as to whether the complainant has been constructively dismissed. In these cases, the Labour Program shall proceed to assist the parties in reaching a settlement. If the parties do not reach a settlement within a reasonable time, the Labour Program, on the request of the complainant, will refer the complaint to the Canada Industrial Relations Board.
Complainants alleging constructive dismissal should be advised that they may wish to seek independent legal advice.
Examples The following examples are of cases in which the courts have found that an employee has been constructively dismissed. The examples are not exhaustive and the results will vary with the facts of each case and with the terms of each employment contract.
Changes to the employment relationship Typically, the first way to claim constructive dismissal involves an employer making substantial changes to the employment contract, such as: a demotion; altering the employee's reporting structure, job description or working conditions; lowering an employee's compensation; changing hours of work; imposing a suspension or leave of absence; and relocating the employee's workplace.
In addition, failure on the part of an employer to provide employment standards (e.g. overtime pay, vacation pay, etc.), can result in a constructive dismissal.
Nevertheless, for an employee to have a successful case for constructive dismissal, the employer's breach must be fundamental. What is "fundamental" depends on the circumstances, and not all changes to the employment relationship give rise to a constructive dismissal. For example, administrative, i.e. non-disciplinary, suspensions might not amount to a constructive dismissal if imposed in good faith and justified by legitimate business reasons (i.e. lack of work). As well, a small reduction in salary, in tough times, and administered rationally, might not be a constructive dismissal.
Toxic work environments