Constructive Dismissal: is it a real thing?

What is constructive dismissal?

Constructive dismissal occurs when an employee is forced to resign because of the conduct of their employer. Constructive dismissal is also known as “forced resignation”.

Key takeaways:

Here’s what you can expect to learn from this article:

• Constructive dismissal occurs when an employee resigns because of their employer’s conduct, meaning the resignation was not genuinely voluntary.
• It is often described as a “forced resignation”, where the employee feels they had no real choice but to leave their job.
• Under the Fair Work Act 2009, a resignation may still be treated as a dismissal if it was caused by the employer’s actions or behaviour.
• Common triggers include ultimatums to resign, failure to pay wages, unsafe working conditions, or major unilateral changes to employment terms.
• Constructive dismissal is not a separate legal claim but may form the basis of an unfair dismissal or general protections application.
• The burden of proof is on the employee, who must show that the employer’s conduct effectively forced them to resign.
• Employers can reduce the risk of constructive dismissal claims by maintaining clear HR processes, addressing workplace issues promptly, and consulting with employees about significant changes.

Examples of constructive dismissal

Under the Fair Work Act, a constructive dismissal occurs when an employee resigns – but only as a result of their employer’s conduct, meaning the employee had no real choice but to lodge their resignation. This situation can occur if the employer:

• provides an ultimatum to the employee such as: “resign or be terminated”.
• fails to pay the employee’s wages
• creates intolerable working conditions (such as workplace bullying or harassment that the employer fails to address)
• fails to address safety issues
• makes major changes to the role without the employee’s agreement (such as unilateral cuts to pay or hours of work).

In such cases, the law may treat the resignation as a dismissal, giving the employee potential access to unfair dismissal or general protections claims.

What is not constructive dismissal?

• Being subject to a fair but constructive performance review
• Not being paid a discretionary bonus
• Being asked to perform work not strictly within your position description
• Interpersonal issues with work colleagues (e.g. personality clashes)

Constructive dismissal and the Fair Work Act

While the term “constructive dismissal” does not appear in the Fair Work Act, the wording in the Unfair Dismissal provisions of the Act (Part 3-2) concentrates whether or not the circumstances of the termination of employment occur at the initiative of the employer. Section 386 of the Act notes:

386 Meaning of dismissed

(1) A person has been dismissed if:

(a) the person’s employment with his or her employer has been terminated on the employer’s initiative; or

(b) the person has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer.

Test for Constructive Dismissal

Constructive dismissal is an often misunderstood concept in employment disputes. It does not relate to an employee facing challenging circumstances in the workplace, having personal issues impacting on their work, or simply wanting to leave their current employer. Constructive dismissal refers to a situation where, as a result of an employer’s action or inaction, an employee’s job or workplace becomes untenable, and the employee has no other option but to resign.

In establishing whether an employee has been forced to resign, it must be proven the employer acted with intent to bring the relationship to an end. In other words, the employee did not leave their employment voluntarily; and that had the employer not acted in the manner that it did, it is probable the employee would have remained in the employment relationship.

Constructive dismissal and unfair dismissal: the link

If an employee believes they have been constructively dismissed and this dismissal was harsh, unjust or unreasonable, the employee has the right to lodge an application for unfair dismissal with the Fair Work Commission.

While an unfair dismissal application must be lodged with the Commission within 21 days after the unfair dismissal takes effect, the Commission may allow a further period for lodgement in exceptional circumstances such as serious illness, genuine confusion relating to the official date of the dismissal or representative error; whereby an employee’s representative (such as a solicitor and union official) fails to lodge the unfair dismissal application within the 21 day timeframe.

Lodging an application for Constructive Dismissal

Constructive dismissal is not a separate legal claim of its own category. A constructive dismissal application may be lodged as part of an unfair dismissal application, or general protections dispute relating to discrimination, termination of employment or non- payment of final entitlements.

Burden of proof: it’s on the employee

A successful constructive dismissal claim can be challenging to prove for an employee. The legal threshold for a constructive dismissal claim is significantly higher than other dismissal claims, simply as a result of the burden of proof: the employee has the evidential burden to convince the Fair Work Commission that it was the employer’s actions that brought the employment relationship to a close.

Essentially, the employee is required to convince the Fair Work Commission that on the balance of probabilities, they did not leave their employment voluntarily but that they were forced to leave as a result of the employer’s conduct.

Compensation for constructive dismissal: can be uncapped

While compensation for unfair dismissal is capped at 26 weeks’ pay or half the high-income threshold – whichever is lower, there are some additional remedies  for general protections that differ from unfair dismissals:

• Compensation is not capped at 26 weeks’ pay: there is no limit to how much compensation the employee can claim.
• The employee is also available to claim for non-economic loss such as pain and suffering due to the loss of employment.

Avoiding constructive dismissal: an employer’s guide

The basis of any constructive dismissal claim is the employee’s assertation that as a result of their employer’s actions (or inactions) they had no real choice but to resign. The majority of constructive dismissal disputes can therefore be avoided when employees are confident they work in an environment inclusive of clear communication on the employer’s expectations of them, that all employees are held equally to account, that fair and consistent HR processes are in place and that their managers are trained to address performance concerns in a fair and reasonable manner.

Employers should:

• ensure all employees are aware of expectations around performance and conduct at work
• hold a Performance Management policy: defining the process associated with managing employee underperformance or conduct concerns
• address performance concerns equally, consistently and in a timely manner
• keep records of performance discussions with employees
• consult on workplace change
• provide training to frontline managers on addressing employee underperformance/conduct concerns

Constructive dismissal: the bottom line

While proving constructive dismissal can be a high bar for a disgruntled ex-employee, claims do occur. And with the rise in employees using AI to invent unfair dismissal and other workplace complaints blamed for a 70 per cent surge in workplace claims, there’s little reason to think constructive dismissal applications will decline.

An awareness of constructive dismissal and a few simple, proactive steps can make the difference between avoiding a constructive dismissal claim, and facing the time and expense associated with defending your business from an unfair dismissal or general protections application.

Frequently Asked Questions

What is constructive dismissal?

Constructive dismissal occurs when an employee is forced to resign due to an employer’s conduct

Is constructive dismissal illegal in Australia?

Constructive dismissal is generally unlawful in Australia if it results in an unfair dismissal or unlawful termination under the Fair Work Act 2009

What is an example of constructive dismissal?

Changes to employment without the agreement of the employee: reduction in remuneration, changing job duties to a lower level (demotion), or changing work hours without consultation

Is constructive dismissal the same as unfair dismissal?

A constructive dismissal – depending on the circumstances of the matter – can be deemed by the Fair Work Commission to be an unfair dismissal. Constructive dismissal differs from most unfair dismissals situations in that the employee was not dismissed by their employer and rather, they were forced to resign from their job due to actions of their employer.

What should employers do to avoid a forced resignation claim?

• Communicate expectations of employee performance and conduct
• Act promptly to address concerns raised by employees
• Hold employees equally to account
• Maintain records of discussions with employees
• Consult with workers on proposed changes to employment terms and conditions

Contact an HR Consultant 

Constructive dismissal claims often arise when workplace issues are poorly managed or when decisions affecting an employee’s role are made without clear communication, consultation, or proper process. While proving constructive dismissal can be difficult for employees, claims do occur, and defending them can be time-consuming, costly, and disruptive for employers.

The best protection is a proactive approach to people management. Clear performance expectations, consistent HR processes, proper documentation, and well-trained managers all play an important role in reducing the risk of disputes. When significant workplace changes or performance issues arise, handling them transparently and fairly can help prevent situations where an employee may later argue they had no real choice but to resign.

If you are unsure how to manage a difficult employee situation, address workplace complaints, or navigate termination decisions under the Fair Work Act, seeking advice early can make all the difference.

Bare Bones Consulting works with employers to manage performance concerns, workplace disputes, and termination processes with confidence and compliance. If you would like practical advice tailored to your situation, contact Bare Bones Consulting on 0401 279 065 for a confidential discussion.