Repudiatory breach of contract and settlement agreements

When an employee may be constructively dismissed?

When an employer commits a ‘repudiatory breach of contract’ – this means a breach of a contractual term whether express (e.g. contained in the actual contract of employment such as to contractual benefits or a bonus) or implied (e.g. terms implied by law such as trust and confidence – more detail below) which goes to the heart of the employment relationship and contract.

The employee must accept the employers’ breach of contract and must resign as a result of their breach.

The ‘Last Straw’ doctrine – an employee could be entitled to resign as a result of a series of breaches which, cumulatively amounts to a breach of the implied terms of trust and confidence. The relevant test in these cases is whether, when objectively viewed, an employer has behaved in such a way as to, over time, suggest that they no longer intend to be bound by the employment contract.

  • An employee must not delay accepting the breach and therefore resigning as it could be deemed that they have waived the employer’s breach by continuing to work.

  • An employee who is constructively dismissed can challenge any such dismissal as unfair in the Employment Tribunal and seek compensation if they qualify for such protection.

Examples of where constructive dismissal may arise.

Breach of Express Terms

  • Reduction in pay – a unilateral reduction in pay, including fringe benefits or refusal to pay overtime at standard rates, if viewed as a deliberate act rather than an honest mistake, may be construed as a repudiatory breach.

  • Change to an employee’s job description – if this is not permitted by the employee’s contract of employment then a fundamental change to the employee’s job role (especially demotion) could amount to a breach entitling an employee to resign claiming they have been constructively dismissed.

Breach of implied terms

  • Case law has resulted in a very important implied term for every employment contract. Employers must not ‘without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee’ which is commonly known as the duty of trust and confidence. The duty is very widely construed. Case law has confirmed that the ‘range of reasonable responses’ test which is relevant in cases of unfair dismissal, has no relevance in deciding whether or not an employee is in breach of this duty. Essentially, if the employer has acted unreasonably, they are likely to be in breach of this implied duty.

  • Remember that constructive dismissal could arise from several smaller instances under the last straw doctrine.

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