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Constructive dismissal is the non-voluntary resignation of an employee in response to an employer’s behaviour or conduct which brings an employment relationship to an end. Understanding constructive dismissal is critical for employers. This is because it can form part of an unfair dismissal claim with the Fair Work Commission (FWC). This article will discuss the circumstances in which constructive dismissal may arise.

Involuntary Resignation

It is not always evident that an employee has resigned involuntarily. Therefore, you need to review the events leading up to an employee’s resignation when making this assessment. For example, if an employee resigns in the heat of the moment, they may argue that they felt they had no other option but to resign.

You should hold an exit interview to determine why an employee has resigned and whether it was involuntary. If you find that the resignation was constructive and involuntary, you may be able to alleviate your employee’s concerns before they make an unfair dismissal claim.

Examples of Constructive Dismissal

The following example follows James (the employee) and Sophie (the employer) at a fictional business, Designer Designs. 

James receives his wage once a month. Sophie has hit a rough patch with Designer Designs, so she failed to pay James for his work that month. James lets it slide in the hope he will be paid soon. Two months pass, and Sophie has still not paid James.

He decides to bring this up with Sophie, who explains that the business is not financially able to pay his wage. Accordingly, James decides to seek work elsewhere and resigns from Designer Designs.

In this scenario, James is still likely to be able to make an unfair dismissal claim with the FWC, even though he resigned.

Preventing Constructive Dismissals

Ultimately, you want to take active measures to prevent constructive dismissals. To avoid situations in which constructive dismissal arises, you should assist your employees with any problems they experience. This means that whenever an employee comes to you with requests for flexibility or feedback on your management, you listen and take action based on what they have said.

It is also important that when an employee resigns, you listen to their reasons for deciding to resign. Likewise, provide them with an opportunity to retract their resignation.

For example, if it is the case that an employee is choosing to leave because you are being inflexible with their work schedule, you might choose to offer the employee the flexibility that they need. 

Further, you should ensure to keep your work environment free of any bullying and harassment. You must also communicate with your employees before making any significant changes to the workplace or their position. This is so that your employees do not feel as though you are failing to communicate with them. 

Constructive Dismissal and the FWC

When an employee resigns, they have 21 days to lodge an unfair dismissal claim with the FWC. You will receive a copy of their application. You then have seven days to file a written response to the application. At this stage, you can explain why you believe the dismissal is not unfair.

Where appropriate, you can also object to the application on the basis that the:

  • employee lodged the application after 21 days from their resignation;
  • employee is not covered by unfair dismissal laws or is not eligible; or
  • application has no prospects of success.

After you have responded to the application, the FWC will arrange a conciliation between you and the employee. A FWC conciliator will also be present. Conciliation is an informal process that takes place over the phone. It allows the employer and employee an opportunity to resolve the matter themselves. Most cases are resolved at conciliation.

If you do not resolve the matter at conciliation, you will proceed to a conference or hearing before a Commissioner at the FWC. The Commissioner will then decide whether the dismissal was unfair.

There are several issues a Commissioner has to consider when deciding whether there has been an unfair dismissal. These are:

  • whether you dismissed the employee;
  • whether the dismissal was harsh, unjust or unreasonable;
  • if you are a small business, whether the dismissal was consistent with the Small Business Fair Dismissal Code; and
  • whether the dismissal was a case of genuine redundancy.

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Key Takeaways

Constructive dismissal is the non-voluntary resignation of an employee in response to something their employer has done. As an employer, it is important that you:

  • understand what constructive dismissals are;
  • implement measures to prevent constructive dismissals; and
  • know the role of the Fair Work Commission in constructive dismissals.

If you need assistance understanding constructive dismissal, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is a constructive dismissal?

Constructive dismissal is the non-voluntary resignation of an employee in response to a course of conduct by the employer that intends to end the relationship.

How can I avoid constructive dismissals?

To avoid situations in which constructive dismissal arises, you should assist your employees with any problems they experience. You should listen to the reasons why employees resign. Likewise, keep your work environment free of bullying and harassment and foster a transparent and honest workplace culture.

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