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employment

What is constructive dismissal?

Key Takeaway

Constructive dismissal occurs when an employee resigns because their employer's conduct or actions leave them with no reasonable choice but to leave. It is not a direct dismissal but can be treated as an unjustifiable dismissal under New Zealand law, allowing the employee to raise a personal grievance.

Constructive dismissal is a concept in New Zealand employment law where an employee's resignation is treated as a dismissal by the employer, because the employer's conduct or actions forced the employee to resign. It is considered a form of unjustifiable dismissal (a termination of employment that is not fair or reasonable) [Source: Employment Relations Act 2000, s 103(1)(a)]. An employee who believes they have been constructively dismissed may raise a personal grievance (a claim by an employee against their employer for an alleged breach of an employment right) [Source: Employment Relations Act 2000, s 103].

What Constitutes Constructive Dismissal?

For an employee's resignation to be considered a constructive dismissal, certain elements generally need to be established:

  • Employer's Breach of Duty: The employer must have breached a duty owed to the employee. This duty can arise from the employment agreement (express or implied terms), or from statutory obligations, such as health and safety laws [Source: Health and Safety at Work Act 2015, s 36]. Examples include fundamental changes to job roles or conditions without agreement, or a failure to provide a safe working environment [Source: Employment Relations Act 2000, s 69].
  • Significance of the Breach: The employer's breach must be serious or significant. Minor grievances or disagreements are generally insufficient to constitute constructive dismissal.
  • Causation: The employee's resignation must be a direct result of the employer's breach or conduct. There must be a clear link between the employer's actions and the employee's decision to resign.
  • No Reasonable Alternative: The employee must have had no reasonable alternative but to resign. Generally, an employee is expected to try and resolve the issue with their employer, for example, by raising their concerns, unless the circumstances make such an attempt unreasonable or futile.

The Test for Unjustifiable Dismissal

When assessing a claim of constructive dismissal (as an unjustifiable dismissal), the Employment Relations Authority (ERA) or Employment Court will determine whether the employer's actions, and how the employer responded to the employee's concerns, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred [Source: Employment Relations Act 2000, s 103A]. This is an objective test, considering the process followed by the employer and the substantive reasons for their actions.

Common Situations Leading to Constructive Dismissal Claims

Situations that might lead to an employee claiming constructive dismissal include, but are not limited to:

  • Unilateral Changes to Employment Terms: Significant changes to an employee's job description, hours, location, or remuneration without their agreement [Source: Employment Relations Act 2000, s 69].
  • Unsafe Work Environment: A failure by the employer to address serious health and safety risks, bullying, or harassment, making the workplace intolerable for the employee [Source: Health and Safety at Work Act 2015, s 36].
  • Demotion or Reduction in Status: A significant and unjustified demotion, or removal of key responsibilities, making the employee's position substantially different or demeaning.
  • Breach of Trust and Confidence: Actions by the employer that fundamentally undermine the employment relationship, such as unfair disciplinary processes or targeted harassment.

Raising a Personal Grievance

An employee who believes they have been constructively dismissed must generally raise a personal grievance within 90 days beginning on the date on which the action alleged to amount to a personal grievance occurred or came to the notice of the employee, whichever is the later [Source: Employment Relations Act 2000, s 114]. The remedies for a successful personal grievance for unjustifiable dismissal can include reinstatement to their former position, reimbursement of lost wages, and compensation for humiliation, loss of dignity, and injury to feelings [Source: Employment Relations Act 2000, s 123].

When to Seek Independent Legal Advice

If an individual believes they have been constructively dismissed or are an employer facing such a claim, they should seek independent legal advice. Information regarding employment rights and obligations can be obtained from the Ministry of Business, Innovation and Employment (MBIE) or via free services such as Community Law Centres.

Key Resources