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How to Avoid the Risks of Constructive Dismissal

Discrimination, Sexual Harassment and Bullying In The Workplace

Because of the COVID-19 pandemic, many employers have been forced to either temporarily suspend or reduce the hours of their operations. Other employers experience significant reductions in revenues, and in most circumstances, consider reducing the salaries or force resignation among employees.

However, before putting such plans into action, employers need to understand the employment law implications of such measures and the potential risk for constructive dismissal claims.

What is Constructive Dismissal?

Also known as forced resignation, constructive dismissal refers to a modified claim of wrongful termination of an employee. It occurs when, instead of firing the employee, the employer wrongfully makes working conditions so intolerable that the employee is forced to resign.

The risk of constructive dismissal claims starts when an employer unilaterally changes an employment relationship condition or term. An unfair dismissal claim can be time consuming to lodge for those who have not done it before. Valuable time and the claim itself can go to waste if it is not done the right way within the given timeframe of 21 days.

Employees who successfully manage to prove that a constructive dismissal has occurred will trigger a claim for termination entitlements under the provision of their valid employment contract or agreement.

Types of constructive dismissal

Two types of constructive dismissal can occur in the workplace: forced resignation and legitimate reason for resignation. Employees who experience either one can claim constructive dismissal from the Fair Work Commission of Australia.

Also read: Forced or voluntary resignation

Forced resignation

Forced resignation happens when an employer firmly insists that an employee resigns. This is different from a typical resignation, firing, or other types of separation of employment, as the employee is leaving because of change in working conditions. In simpler terms, it is when an employee has no real choice but to resign.

The distinction between a voluntary resignation and a forced resignation causes challenges in practice when a tribunal is faced with different versions of events from both parties. Having clear notes of any meetings, emails or verbal communications about the variation that was made at the time of the meetings can be proven useful.

Legitimate reason for resignation

Constructive dismissal may also occur when an employee has chosen to resign because of their employer's unacceptable conduct such as a demotion, change of working hours, cutting of salary, or relocation. It may also be the improper personal treatment of the employee, such as harassment by co-workers that the employer has unreasonably failed to prevent.

Whether an employer's conduct constitutes a valid reason for termination can be hard to prove. Having clear notes outlining the circumstances of the resignation is useful.

Tips to avoid the risks of constructive dismissal

Employers can reduce the likelihood of a constructive dismissal claim by following these tips:

1. Employers should ensure their employment agreement allows for flexibility to change specific terms unilaterally.

Employment agreements can discuss situations that could give rise to constructive dismissal claims. From the very beginning, the contract should include terms that allow the employer the flexibility to change the employee's title, compensation and benefits, work location, duties, position, and reporting structure.

2. If an employer needs to make a fundamental change, he or she must give the employee reasonable notice of the change.

If you need to make a unilateral and substantial change, give your employee with reasonable notice of the change. The reasonable notice would be the same notice that you would provide if you were terminating their employment.

3. Develop channels for effective communication

Having complete and honest communication in your workplace ensures that employees feel engaged in their work. As an employer, you should make sure that expectations are communicated well by providing employees with access to workplace policies. If one of your employees’ voices matters of constructive dismissal, deal with these concerns immediately.

Many employers do not realise that an employee does not have to quit to claim constructive dismissal. Through effective communication, you can address your employees’ concerns before a claim for constructive dismissal arises.

4. Start a new employment agreement based on the revised terms.

Starting a new contract agreement that reflects fundamental changes to the employment relationship ensures that you have the employee's consent to the revised terms. To constitute a new employment contract, an employer must provide further consideration such as benefits, bonuses, salary raise, job security, or a promotion in exchange for the changes.

5. Offer employment on revised terms as mitigation employment

Every employee who claims that they have been constructively dismissed is required to take reasonable steps to mitigate their losses. The duty to mitigate can require an employee to consider a valid offer of re-employment. By offering re-employment on the revised terms, employers can protect themselves in the event of litigation by preparing a mitigation defense.

Making fundamental changes to your employee's employment situation can be quite complicated, so it is highly recommended that you consult with a lawyer to ensure your legal obligations are met, before effecting the change to the employment relationship to avoid a possible constructive dismissal claim.

Consult Adams Wilson Lawyers

There are always ways to avoid the risks of constructive dismissal. But before you proceed with any business decisions that might affect your employees, make sure to seek legal advice to avoid getting on the wrong side of the law.

If your business is near Sydney or the Gold Coast, Adams Wilson Lawyers can help ensure that you’ll not be facing any constructive dismissal claims alone. We have a team of Employment Contract Lawyers that provides employment law services to businesses across Australia.

Call Adams Wilson Lawyers today at 1 300 253 203 or book an appointment online.