Constructive dismissal settlement agreements: A guide for employees

Constructive dismissal is a type of unfair dismissal where the employee feels forced to resign, rather than being dismissed.

This guide outlines some of the pitfalls which commonly hinder employees who want to negotiate a fair constructive dismissal exit payout.  Drawing on our extensive experience as successful constructive dismissal claims solicitors, we also give you practical advice on how to overcome these problems so as to get the settlement agreement deal that you deserve.

What is constructive dismissal?

The term ‘constructive dismissal’ is actually short for constructive unfair dismissal and is a certain type of unfair dismissal.  The main difference between the two is that with constructive dismissal you feel forced to resign, or leave voluntarily, whereas with unfair dismissal you are formally dismissed by your employer.

It can be very difficult to prove constructive dismissal in court because employment tribunals believe that it is only in extreme circumstances that someone feels forced to leave their employment.  The classic extreme example is not being paid your wages, or being physically assaulted.

There are many permutations of what could constitute constructive dismissal, but they all involve having your working life made so difficult by your employer – or by other colleagues – that you feel you have no option but to leave.

Examples of reasons leading to a constructive dismissal claim

Here are just some of many reasons why you might feel obliged to resign because your situation at work was intolerable and which could be regarded as constructive dismissal:

Working conditions

  • Changing your working conditions, such as your job description, hours, or location, without your agreement.
  • Failure on the part of your employer to adequately deal with/investigate your grievance.
  • Failure on the part of your employer to provide a safe working environment.

Pay and related

  • Not paying you, cutting your pay, failing to pay a contractually due bonus or otherwise failing to pay you according to the terms of your employment contract.

Employment Status 

  • Demoting you for no apparent reason, taking disciplinary action against you without justification.

Behaviours by your employer

  • Seeking every opportunity to disparage/humiliate/belittle you or otherwise to undermine your authority in front of colleagues.
  • Permitting, or at least turning a ‘blind eye’ to harassment, bullying, disparagement or similar behaviour against you by one or more of your colleagues.
  • Giving you an excessive workload so you are likely to fail to cope with it, or become ill from the stress of trying to cope.
  • Setting targets that are almost impossible, if not impossible, for you to achieve.

What evidence is needed for constructive dismissal claims?

Only around 5% of claims of constructive dismissal succeed in winning compensation in the employment tribunal. The main reason is that tribunals decide that there is insufficient evidence to show that the employer’s conduct was so bad that leaving was the only option (instead of, for example, submitting a grievance).

So, if your employer puts you on a performance improvement plan, for example, this is unlikely to be a justification to resign. A tribunal would expect you to stick it out!

Another big ‘killer’ of constructive dismissal claims in tribunals is when the judge deems the employee to have affirmed or accepted the employer’s misconduct.  In practice this means that you left it too late to resign, and by so doing you tacitly accepted the mistreatment.

What is the minimum qualifying period for constructive dismissal?

As with normal unfair dismissal, and in order to make a claim for constructive unfair dismissal compensation in the employment tribunal, you need to have worked continuously for your employer for at least 2 years.

If you have less than 2 years under your belt, then unfortunately it means that it is very easy for your employer to dismiss you or constructively dismiss you (even if it feels blatantly unfair) and face no legal consequences.

In some cases there is no requirement for a two year qualifying period:

For example, if the circumstances relate to whistleblowing (if you have revealed malpractice and they have victimised you for that), discrimination (for example sex, disability, race, pregnancy and other types) and breach of contract (whereby your contract has been breached, for example commission structure changed).

Who usually makes the first move in constructive dismissal settlement claims?

In a constructive dismissal settlement claim scenario, it is normally the employee who needs to make the first move.

Your employer might not be aware of the situation, or, if they are aware, they probably aren’t going to have a protected conversation with you; rather, they will try and keep the situation calm and hope the passage of time means that any claim you may have will fall away.

Employers often try to ‘manage out’ employees in constructive dismissal cases, to avoid having to give them a payout with a settlement agreement. Managers are told to put an employee on performance review or to discipline them over a trivial matter.

It is surprising how even big corporations employ these kinds of underhand tactics to avoid their responsibilities towards their employees. The difficulty however, is proving it.

How do I start a case for constructive dismissal compensation?

You will have to put together a without prejudice letter.  For how to do this, have a look at our article on how to write without prejudice letters.    You can also find a range of without prejudice letter examples – suitably anonymised and derived from ‘real life’ cases – in our without prejudice templates.

In that letter you will have to set out the fundamental breaches of contract that you consider your employer to have committed.  There may be one big breach – such as the failure to pay a contractually due bonus – or lots of separate breaches that together make up a breach of trust and confidence – such as being constantly and seriously demeaned by your boss in front of colleagues.

Remember, you are trying to prove your employer has breached your contract to the extent that they have effectively dismissed you, so you need to show how they have done that by using careful and precise wording in your letter and making reference to any evidence that you have collected.

 

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How should I negotiate in a constructive dismissal case?

Technically, a case for constructive dismissal does not crystallise until you have resigned: it is only then that you actually have the legal right to sue for constructive dismissal.

Therefore, in the without prejudice letter that you write whilst you are still in employment,  you will be explaining to your employer that you have ‘a case of constructive dismissal should you choose to act upon it’. What you are effectively saying is ‘If you do not resolve this to my satisfaction, then I will resign and sue you’.

Because of this delicate balance, negotiating in a constructive dismissal case can be a bit of a roller coaster ride: if your employer ‘calls your bluff’ and refuses to negotiate, then you will be put in the position of having to resign or to continue with your employment.

It is essential, therefore, that you time your letter correctly to coincide with the worst breach of contract, or at the end of a long chain of breaches. There is no point in firing early in this particular duel.

Remember, you also cannot leave it too long after the last breach of contract to write to your employer, or to resign; so timing really is important here.

How should I time negotiations for constructive dismissal?

As experienced constructive dismissal solicitors, our advice would differ depending upon the type of constructive dismissal case. In a case where your employer has committed a sole and fundamental breach of your contract – for example, they have failed to pay you according to your terms of contract – then the time to act is as soon as possible as there is no merit in waiting. You have your fundamental breach and now is the time to commence negotiations.

Whereas in the case of lots of smaller-type breaches which when taken together add up to a fundamental breach of trust and confidence, for example, you have to use your judgement a little more.

There is no point in starting to negotiate after the first minor breach as you don’t have a potential claim, nor do you have sufficient facts to negotiate with; so when is the correct time?

Our view is that once there is a pattern in the minor breaches that, when taken together, appear to be serious and that an outside observer would categorise as extremely bad behaviour by an employer: that is the time to start negotiating for a decent payout.

If you think your employer will commit more breaches, and therefore strengthen your case, then you can wait for this to happen if you like; however, we would recommend waiting no more than two months from the latest incident before starting negotiations.

After three months, there is a real risk that – if you haven’t resigned – a judge could decide that you have affirmed (ie accepted) the breach and you would lose any case you brought. Which means, of course, that any negotiating position you have would be weakened.

 

Constructive dismissal compensation payouts

How much you could get in a constructive dismissal claim compensation payout depends upon the exact circumstances of the case.  Compensation for successful claims is worked out in the same way as compensation for unfair dismissal claims, which are detailed in our unfair dismissal guide.

In brief, if you were to win a constructive dismissal case at an employment tribunal, you would get an award comprising two separate parts, the Basic award and the Compensatory award, as follows:

The basic award

This is worked out according to your age, your weekly gross pay (up to a maximum of £538) and the number of years you have been employed with your employer, with a maximum total payout of £16,140 (as from April 2020).

The compensatory award

This is usually the larger element and is essentially the amount of money you lost because you were out of work after you had to leave your job. There is (as at April 2020) a cap on the compensatory award of one year’s salary, or £88,519 – whichever is lower.

 

You will need to provide detailed records of your efforts to find a job since leaving your role. Read our article on how much you should get to get further insight into this area, and try our calculator below.

 

 

Next Steps

If you would like further help with any aspect of your constructive dismissal case – whether it’s advising you on the strength of your case, negotiating a settlement agreement on your behalf, or working with you on your employment tribunal case, please do get in touch.

As an established firm of employment law solicitors representing employees only, Monaco Solicitors are experts in helping employees to make successful constructive dismissal claims.  We would be pleased to hear from you and can tell you very quickly – usually within an hour – if we can oblige, and our terms are flexible and fair.

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