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Constructive dismissal occurs when an employee’s actions or lack of action causes an employee to resign, and it was foreseeable that those actions would lead to a resignation. There are a range of examples of when it occurs in New Zealand, particularly when there is malicious or purposeful intent on the part of the employer. This article will set out: 

  • how constructive dismissal claims work; and
  • some of the most common examples in New Zealand, including what your business needs to know to avoid claims by employees.

How Do Constructive Dismissal Claims Work?

Constructive dismissal covers situations where an employee resigns but arguably was put in a position by an employer where they would have no other option but to resign. This is often due to their employer’s particular actions or lack of action. This dynamic is why constructive dismissal is also known as forced or unwilling dismissal. An employee who has been dismissed in this way can raise a personal grievance against their employer. 

There are three major categories of constructive dismissal claims for your business to know about. These include scenarios where an employer:

  • explicitly or implicitly gives an employee a choice between resigning or being dismissed;
  • acts in a way that puts undue pressure on an employee to resign; or
  • acts so badly or in such bad faith that the employee feels they can no longer remain in their job.

With all claims, the key thing to consider is whether: 

  • an employer’s actions or inactions caused the employee to resign; and 
  • that resignation was then foreseeable. 

Common Examples of Constructive Dismissal

While there are many different examples where constructive dismissal can occur, some circumstances are much more common than others. The most common examples of an employer constructively dismissing an employee include:

  • where an employer gives an employee no room for doubt that they would like them to resign. Sometimes employers are not willing to go through a process for poor performance, misconduct or medical incapacity. Instead, they imply or hint to the employee that they are not welcome at the business. This might be made clear via veiled hints or even direct insinuations. This is not a wise thing for a business to do, as it opens them up to a claim of constructive dismissal, particularly when the hints or insinuations are so clear that there can be little doubt that the intent is to make the employee leave; 
  • failing to pay wages repeatedly to an employee. Again, this can often be when an employer would like an employee to leave but is unwilling to go through an actual process of poor performance or otherwise. However, withholding pay is a serious issue and cannot be done except in rare and exceptional circumstances, generally where the employee has agreed; and
  • reducing an employee’s hours without getting their agreement. While there can be legitimate ways of reducing an employee’s hours, these generally require steps like consulting with the employee or going through a proper restructuring process. Avoiding these steps and unilaterally reducing an employee’s hours can easily lead to them feeling like they have no option but to resign.

Key Takeaways

Constructive dismissal is an important legal concept for businesses to be aware of. It is important to follow proper processes and act in good faith towards employees. If an employer’s actions or lack of action leads to an employee feeling like they have to resign, and this was foreseeable, the employee can raise a personal grievance against the employer in question. Common examples of this are: 

  • when an employer hints strongly that the employee should resign or otherwise leave the business; 
  • failing to pay the employee their wages or salary repeatedly; and 
  • reducing their hours without agreement. 

Employers sometimes use these as stop-gap measures to encourage a difficult or poor-performing employee to leave a business. However, this raises the risk of litigation for a business through a claim of constructive dismissal. If you want to know more about constructive dismissal and lowering the risk from your business’ perspective, contact LegalVision’s employment lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is constructive dismissal?

It occurs when an employee’s actions or lack of action causes an employee to resign, and it was foreseeable that those actions would lead to a resignation. 

Can it be constructive dismissal to reduce someone’s hours without agreement?

Yes, reducing an employee’s hours without speaking to them or getting their consent can constitute constructive dismissal. 

Can it be constructive dismissal for an employee to be given lots of work they do not like?

This depends on the circumstances. It can occur if an employer gives an employee unpleasant work or work they do not like purposefully or maliciously. However, if there is a genuine reason or need for the work, it is unlikely to amount to constructive dismissal.

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