Settlement Agreements and Constructive Dismissal

A constructive dismissal occurs where the employer does not dismiss the employee, but the employee resigns and can show that they were entitled to do so by virtue of the employer's conduct. The entitlement to resign arises from circumstances where the employer has fundamentally breached the employment contract.

The breach of the employment contract by the employer must be fundamental going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract. In these circumstances the employee is entitled to treat him/herself as discharged from any further performance.

Any employee who seeks to pursue a constructive unfair dismissal claim runs a risk as they terminate their own employment without payment or an exit package which would often accompany a settlement agreement. The employee must then seek to claim damages via the Employment Tribunal with no guarantee of winning and a duty to mitigate their losses (i.e. find another job). It is possible for an employee to decide to resign citing constructive dismissal and still work their notice period. In doing so an employee must not take any action which ‘affirms’ the breach of the employment contract and treats the contract as continuing.

In Cockram v Air Products plc, the employee inadvertently affirmed the contract by working beyond his contractual notice period to a mutually convenient final date seven months after the alleged repudiatory breach of the employment contract took place. Mr Cockram stated that he had no other work and needed to "work for a reasonable period of time and it is for this reason only that [he] was giving notice”. An employment judge decided that the reason he worked the notice was solely for his own financial gain and the employment judge struck out the claim on the ground that Mr Cockram had affirmed the contract thus had no reasonable prospect of success in pursuing a claim for constructive dismissal.

The Employment Appeals Tribunal upheld the employment judge’s decision due to the fact of Mr Cockram gave notice that exceeded his contractual notice period by four months, solely for his own financial reasons which had the effect of affirming the contract. By working for seven months after his resignation, Mr Cockram provided services and received substantial remuneration in accordance with the contract, treating the employment contract as continuing.

Constructive dismissal claims are difficult to win because the claimant faces a high hurdle to prove that the employer was in fundamental breach of contract. Even where the repudiatory breach by the employer is established, the employee could still scupper their ability to bring a claim as a result of their conduct affirming any breach.

If you believe your employer has committed a fundamental breach of your employment contract, please do contact one of the team to review your possible options.

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