The end of an employment contract is not always as apparent as Lord Sugar presents it to be on television. This is especially the case when an employee argues they have been forced to resign in relation to what they deem improper behaviour by the employer. This is known as constructive dismissal.
The implications of constructive dismissal for employers can be severe. Primarily, the employee may be able to make out a claim of wrongful and unfair dismissal (for more on the history of unfair dismissal, see Kathleen Heycock’s blog here). More significantly for some businesses, post-termination contractual restrictions, such as non-compete or non-solicitation clauses, may become unenforceable.
Constructive dismissal occurs when there is a “repudiatory breach” (ie a serious breach) of the contract by the employer which, if the employee “accepts”, brings about the end of the employment relationship. Assessing what exactly constitutes a “repudiatory breach” is not always a straightforward question. Case law tells us that it is something that has to demonstrate an intention to no longer be bound by the contract, fundamentally undermining an express or an implied term. Previous examples have included:
- Failure to pay wages or commission:
- Improper handling of a grievance or disciplinary investigation; or
- Undermining the implied term of mutual trust and confidence (for more on the implied term, see David Hunt’s blog here).
A repudiatory breach need not occur as a single event. The “last straw” principle applies where a single act, often a minor or trivial one (but not completely trivial or innocuous), turns a chain of conduct into a repudiatory breach of contract or resurrects previously ignored repudiatory breaches. This allows the employee to resign and claim constructive dismissal. The assessment of whether the “last straw” was sufficient to constitute constructive dismissal is assessed objectively on the facts.
The recent Employment Appeals Tribunal (EAT) case of Craig v Abellio brings an illustration of the “last straw” doctrine operating.
The Claimant, Mr Craig, was a bus driver for Abellio. Due to an improper application of unclear sick and holiday pay policies to his unique working arrangement, Mr Craig was underpaid. He raised a grievance with his employer which initially held he owed Abellio £2,000. Mr Craig appealed the outcome which decided in his favour and held that Abellio actually owed him £6,144. Abellio promised to pay Mr Craig on the 19 July.
The payment was not made. It subsequently transpired that was because a member of the department wanted to query the payment. Having not received the payment on 19 July, Mr Craig resigned on 20 July, citing a loss of trust and confidence. He referred to the underpayment of wages, the failure of the grievance process, the failure to pay him on the promised date and a litany of previous errors. He brought claims for constructive dismissal.
The Employment Tribunal found that by agreeing to the back pay, the employer had redressed the dispute, the failure to pay on time was a simple mistake and was not a repudiatory breach.
The EAT remitted the case back to the Employment Tribunal finding it had failed to properly apply the last straw doctrine adequately, and failed to make findings on grounds that the Claimant raised which would support the last straw. The EAT noted:
- The Claimant was not aware that the failure to pay on 19 July was a mistake, nor was it obvious, assessed objectively, this would not constitute a repudiatory breach given the background of the claim. Even if not a repudiatory breach of itself, given he was owed a large sum of money over a long period of time, this meant that the failure to pay on the date could have been further evidence of mistreatment constituting the “last straw”.
- Abellio argued that this was a genuine dispute about properly applying unclear terms rather than a concerted attempt to undermine the contract. This was rejected on the facts. While the EAT accepted in principle an attempt to resolve the dispute is relevant to whether the employer has undermined trust and confidence, a failure to pay what is due under the contract will always be a breach irrespective of the motivation.
Key lessons for employers
While establishing no radical principles of law, this case serves as a useful reminder to employers not to let the straws pile up on their employees’ backs.
- Treat grievances with appropriate gravity. Independent research published last year held that resolving conflict early will aid employers in keeping out of tribunals and avoiding dismissals. (for more information see Sophia Coles’ blog here). While, as the judgment highlighted, the resolving of a repudiatory breach after the fact will not entirely resolve the issue (it is not possible for the employer to “cure” a repudiatory breach), it may help ensure trust and confidence in the employment relationship, resulting in them waiving the breach and preventing the employee from going to a tribunal.
- The fact the grievance appeal overturned the original findings by such a degree indicates it is likely something went wrong in the process. Ensure those carrying out investigations have appropriate training and experience. You may wish to consider using an expert independent investigator for the most complex or contentious matters.
- Communicate with your team. It was likely sensible for payroll team member to seek clarification on such a large payment being made – but, as the judgment highlighted, the reasonable action did not stop the perception of the Claimant being objectively reasonable as undermining the employment relationship. More effective communication might have ensured the payment went through on time, or the Claimant knew about the reasons for the short delay.
- Regularly review your policies. The dispute here originated in poorly-applied and unclear policies – make sure that you keep your policies under review and that relevant team members are trained on their operation.
With special thanks to Alex Evans, a current paralegal in our Employment team, for his help in preparing this blog.
If you require further information about anything covered in this blog, please contact Alice Yandle, or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, May 2022