Can an employee lose the right to claim constructive dismissal by working out a 6 month notice period?
Potentially, yes, according to a recent case in the High Court.
Constructive dismissal arises where an employer commits a fundamental breach of contract entitling the employee to treat his/her contract as being terminated. The breach can be of an express or an implied term of the employment contract.
An example of an implied term that is often cited in constructive unfair dismissal claims is that of the implied term of trust and confidence because it is regarded to be an essential component of an employment relationship. Accordingly, a breach of this term will, in most case, be a fundamental breach.
There are three elements to a constructive dismissal claim. The employee has to show:
1. A fundamental breach (also known as a repudiatory breach);
2. That he/she resigned in response to that breach; and
3. That he/she did not delay in resigning (and effectively accept the breach).
The breach may be a one-off act, or it can be continuing series of acts which, taken together, amount to a repudiation of the employment contract.
An employee who resigns immediately in response to a repudiatory breach will have a claim for wrongful dismissal which is essentially a breach of contract claim for their notice period. An employee with more than 2 years’ continuous employment can bring a statutory claim of constructive unfair dismissal.
This case concerned three claimants, Mr Brown, Ms Bhoma and Mrs O’Reilly, who brought complaints of constructive dismissal and breach of contract against their employer, Neon Management Services Ltd (“Neon”) in the High Court.
The three employees had collectively resigned from their employment after complaining that Neon had breached their contracts of employment by allegedly
• failing to pay salary increases and discretionary bonuses that they had been awarded;
• making salary increases and bonuses conditional on acceptance of detrimental new contractual terms and
• the removal of profit commission that was agreed when they were recruited.
The employees said that these breaches amounted to a repudiatory breach of contract entitling them to resign. In response, they resigned on 16 March 2018 giving notice.
Ms Bhoma’s and Mrs O’Reilly’s notice period was 6 months and Mr Brown’s was a year.
Mr Brown and Ms Bhoma then claimed that the employer committed further repudiatory breaches of contract while they were working out their notice. They alleged that their employer had, amongst other things, made unfounded accusations of misconduct against them, reported them to their regulator without proper cause and alleged breach of trust and confidence, all without giving them the opportunity to defend themselves. In response to these further alleged breaches, they resigned with immediate effect on 1 May 2018. Mrs O’Reilly, on the other hand, continued to work out her notice period.
The employee’s bright claims in the High Court seeking damages for breach of contract and a declaration that they had been wrongfully dismissed. Ms Bhoma and Mr Brown also sought to be released from the post-termination restrictive covenants in their contracts.
Neon defended the claims and one of their arguments was that by resigning on full notice, the employees had affirmed the alleged repudiations i.e. they had kept their contracts alive.
The High Court decided that if the employees had worked out their notice periods of 6 months (Ms Bhoma and Mrs O’Reilly’s case) and 1 year (in Mr Brown’s case) respectively, they would have “affirmed” their contracts.
In other words, by the action of working their notice and remaining an employee for so long, they would have consented to their employer’s breach. However, in the case of Mr Brown and Ms Bhoma, further breaches of contract arose after they resigned on notice which the Court held individually and/or cumulatively amounted to a fundamental breach of contract entitling the employees to resign. The Court held that they resigned promptly in response to the breach(es) and had not affirmed the contract.
The Court ruled that Ms Bhoma and Mr Brown were wrongfully dismissed and therefore were entitled to damages. They were also released from their restrictive covenants.
In relation to Mrs O’Reilly, the Court ruled that she had accepted the employer’s breach of contract by working out her full 6-month notice period. Her claim for breach of contract therefore failed.
Points to note
An employee who resigns on notice does not necessarily lose the right to bring a constructive dismissal claim but what is interesting about this case is that the High Court ruled that working out a 6-month period of notice after resigning in response to a repudiatory breach can amount to affirmation of the contract in a wrongful dismissal claim.
It is worth noting that this case was a breach of contract claim heard in the civil court. It remains to be seen whether this case will be referred to in the Employment Tribunals in the context of a statutory claim for constructive unfair dismissal where the law allows for constructive dismissal “with or without” notice.
Action to take
1. Take care in how you respond to an employee’s resignation as actions taken after an employee has resigned can still constitute a repudiatory breach.
2. Be wary of the risk that a fundamental breach of contract may release an employee from their post termination restrictions.
3. If you need help or advice in dealing with an employee’s resignation, please contact us.
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