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16th June 2022

Call 1300 789 302

16th June 2022

Select an article
  • Responding to Unlawful Termination – A cautionary tale for would-be litigants
  • Constructive Dismissal
  • Repudiation: employee’s position advertised behind her back
  • Employers may be liable for providing negligent references on behalf of former employees
  • Demotion as a repudiation, not a variation, of an employment contract
  • Constructive Dismissal: employer varies contract, requiring unreasonable goals be met
  • Legal expenses incurred in enforcing period of notice held to be tax-deductible
  • An employee’s refusal to relocate may justify their termination
  • Microsoft executive terminated before he could exercise $14m share options
  • A managing director is an employee as well as a director

Constructive Dismissal

Western Excavating (ECC) Ltd. v Sharp [1978] ICR 221


The facts:

What are the legal consequences if you are forced into resigning? Will you lose the legal rights you would have had if you were dismissed?

This was the question considered by the English decision of Western Excavating v Sharp. Sharp was an employee whose contract included a “flexi-time” arrangement. He wanted to take an afternoon off to play for his team in a cards competition but the foreman refused on the grounds that there was too much work to be done. Sharp took the time off anyway and the foreman terminated his employment with two weeks’ notice. Sharp appealed to an in-house review which reduced the penalty to five days’ suspension without pay but Sharp found it impossible to meet his financial commitments. He was not allowed to access his holiday pay and was refused when he applied for a loan from the company’s welfare fund. He then went to his manager and said, “I don’t want to leave, but circumstances force me to do so. I am leaving and want my holiday pay now”. Sharp then claimed compensation from the Industrial Tribunal, which found the employer’s behaviour unreasonable and, on their reading of the prevailing legislation, held that Sharp had been dismissed.

What the Court decided:

The Court that first heard the matter upheld the decision of the Industrial Tribunal. The Employer appealed to the High Court of Justice (Queen’s Bench Division). The Court, taking the opportunity to clarify the law of constructive dismissal, held that to trigger the doctrine, the employer must by its conduct act in a way that is inconsistent with a continuation of the contract of employment and thereby terminate the contract of employment.

The company had no obligation to provide financial help and had taken no further action which could be construed as a repudiation of the contract. The contract had, in fact, been terminated by the employee. For constructive dismissal to occur, an employer must indicate, explicitly or by its conduct that it no longer intends to abide by the contract.

Notable quotes from the judgment:

Lord Denham found the essential question was, “who has terminated the employment contract?” He stated:

“If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment; or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract; then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer’s conduct. He is constructively dismissed..”

The law in Australia:

The decision of Western Excavating has been followed in Australia.  The behaviour by employers which has been taken by Australian courts to amount to constructive dismissal includes reduction in pay, demotion, and harassment. The doctrine of constructive dismissal has also been recognised in Federal legislation.

Take-away message:

If an employer attempts, without your agreement, to significantly change the conditions under which you are employed, or places you under such pressure that you have no choice but to resign, the circumstances may be sufficiently serious to justify an argument of “constructive dismissal”.

However, you should never resign without taking prior legal advice. Even if you resign in a highly emotional moment, it could be binding. A court is unlikely to find constructive dismissal if an employee resigns prematurely or while other options are still open.

By continuing in employment under changed conditions an employee may be taken to have accepted a new or varied contract. You may continue to work for the employer, but make it clear that you have not accepted the changed conditions, and you may still be able to sue for breach of the original contract.

Resignation is usually not an option recommended by employment lawyers. It has the effect of putting the executive on the back foot requiring him/her to justify to the Court that the circumstances were so bad that they were left with no other choice but to resign.  This is not a position you should be in.  It is far better that the contract of employment is brought to an end clearly by the act of the employer.

However, there may nonetheless be circumstances where for reasons of emotional health etc. you cannot stay on any longer and feel that you must resign. In these circumstances, the letter of resignation should be carefully crafted.  It should chronicle the harassment, pressure or other objectionable behaviour of the employer and make it clear that your decision is being forced upon you and it is not one that you have willingly taken and that you fully reserve your legal rights.