When will an employee’s resignation amount to a constructive dismissal?

A constructive dismissal can occur when an employee has resigned in circumstances where they felt they had no choice but to resign, or were induced into resigning as a result of the employer’s conduct. The question of whether a resignation amounted to a constructive dismissal was recently considered by the Employment Relations Authority in Irvine v Wallace & Cooper Limited, with the employee being awarded $94,000 as a result.

The facts of this case are relatively straightforward.  Mr Irvine resigned after being employed by Wallace & Cooper Limited for only 6 days. Prior to this he had been the managing director of another company, which had recently been sold and transferred to Wallace & Cooper. He resigned after a telephone call to the Managing Director to ask why his pay had not come through, during which a ‘verbal explosion’ occurred, with the Managing Director addressing him in an ‘obscene, demeaning and degrading manner’ (including: “You are a piece of sh*t and you do exactly what I tell you! If I tell you to sh*t in a corner you sh*t in a f**king corner!”).

The Authority was satisfied that Mr Irvine found the words to be totally unacceptable and reasonably felt that he had to resign as a result. The Authority considered that although there were other factors involved, the abuse received during the phone call was the substantial reason for, and the proximate cause of, his decision to resign.

The Authority considered the test applied by the Court of Appeal in the leading Auckland Electric Power Board case (1994). In a nutshell, a constructive dismissal occurs where the resignation was caused by a breach of duty on the part of the employer. To determine a breach, all the relevant circumstances of the resignation are considered. If the answer to the causation question is ‘yes’, then the next question is whether a substantial risk of resignation was reasonably foreseeable, having regard to the seriousness of the breach.

In this case the resignation was clearly caused by the Managing Director’s breach of the implied duty not to act in a manner calculated to destroy or seriously damage the employment relationship. The Authority noted that while the Managing Director had behaved with some spontaneity over the phone and without contriving to dismiss Mr Irvine, he must be taken to have intended that Mr Irvine would not be prepared to tolerate the high level of abuse directed at him personally.  The Authority also considered that the breach was sufficient to make it reasonably foreseeable that Mr Irvine would not be prepared to work under those conditions. The dismissal was therefore constructive, and considering all the circumstances, it was not justifiable.

Mr Irvine was awarded $19,000 compensation for his significant humiliation, loss of dignity and injury to feelings. He had also claimed $300,000 (2 years’ salary) for lost earnings. The Authority considered it unlikely that the employment relationship would have continued for more than 6 months, so awarded him $75,000 instead.

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2 Comments

  1. According to media reports, the employer in the above case has filed a challenge to the Authority’s determination in the Employment Court.

    Reply

  2. Interesting case Karen because the employer’s actions seemed fairly extreme and I thought the $19k humiliation payment set an interesting benchmark for more moderate cases.

    Reply

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