If an employee resigns due to the actions of their employer, and successfully claims constructive dismissal, they may be entitled to a financial award. We examine examples of constructive dismissal pay outs, and outline the maximum amount you could receive, as well as what may cause a reduction.
What is constructive dismissal?
Constructive dismissal occurs when an employer has done something (or failed to do something), and as a result it’s impossible for the employee to carry on working for them. This means they haven’t actually been dismissed but they are left feeling as though they have no choice other than to resign.
What sort of things can result in constructive dismissal?
In order to amount to constructive dismissal, there needs to have been a serious breach of one of the terms of your employment. However, not all breaches of the terms of your contract will be enough for you to treat them as constructive dismissal. The breach has to be very serious – whether it is serious enough will depend on the particular circumstances surrounding your situation.
Examples of what might amount to constructive dismissal
As we’ve said, what amounts to constructive dismissal will depend on your circumstances, but common examples include:
- Demoting you or cutting your pay without reason, notice or right of appeal
- Acting unlawfully or expecting an employee to
- Bullying or harassing employees
- Changing place of work without consultation to somewhere where it is unreasonable to expect you to travel to
What happens if you resign in circumstances of constructive dismissal?
We would always recommend you take professional advice before resigning. However, if your circumstances are serious enough to warrant your resignation, you are entitled to claim compensation for constructive dismissal. If you can’t agree a figure with your former employer, you may have to take your claim to an Employment Tribunal.
How will a constructive dismissal payment be calculated?
The first thing to remember is that an employee normally needs to have worked for their employer for at least two years before they can claim constructive dismissal. However, if you have worked for less than two years, you may still be able to make a claim of wrongful dismissal.
A compensation award for unfair dismissal is calculated differently to one for constructive dismissal and will only include pay and commission you would have received during a notice period, and other financial benefits such as holiday pay.
However, if an employee claims constructive dismissal and the claim is successful, the tribunal will then have to calculate how much said employee should be paid.
Calculating a constructive dismissal pay out
A constructive dismissal pay out is made up of two parts: the basic award and the compensatory award. These are calculated as follows:
i) The basic award
This is based on your age, weekly pay and number of years in the job. You should note that your rate of pay is capped at £525 (£547 in Northern Ireland) per week (as at April 2019) and your number of years of service are capped at 20 years. You get:
- 5 week’s pay for each full year worked when you’re under 22
- 1 week’s pay for each full year worked when you’re between 22 and 41
- 5 week’s pay for each full year worked when you’re 41 or older
So if, for example, you were constructively dismissed in September 2019 at which time you had worked for your employer for four years, you were 45 and your weekly pay was £700, then your basic award would be £3,150 (£3,282 in Northern Ireland) or in other words £525 x 6. This is because you are entitled to six weeks’ pay because you’re over 41.
The maximum basic award is currently £15,750 (£16,410 in Northern Ireland).
ii) A compensatory award element
The calculation of this is based on the money you have lost as a result of the constructive dismissal and should be “just and equitable in all the circumstances having regard to the loss sustained by the complainant”. Any loss for which you want to claim must be as a result of both your employer’s actions and your resignation.
That means it’s not always possible to predict exactly what you will receive. The tribunal will have to decide, for example, what period of time is reasonable for you to find another job in.
In calculating your salary, it’s also not always clear what you can claim. You may include contractual benefits (such as a company car), future wages, loss of statutory rights (the rights that come with two years continuous employment), employer’s pension contributions and in some circumstances any commission you might have expected to receive. You usually cannot, however, include discretionary bonuses.
You must also give credit if you got a new job and received a for salary which has mitigated your loss. In other words, if you claimed for salary to include your two-month notice period but you got a new job within one month, you can’t then claim two months.
The compensatory element is also capped at a maximum of one year’s salary or £88,44 (as at April 2019), whichever is the lower.
Taking our example above, let’s assume our employee had an eight-week notice period but it took them 12 weeks to find a new job. Their compensatory payment would be £8,400 (£700 x 12) and the total payment would be £11,850 (the combination of the basic and compensatory award).
There are a couple of exceptions to the limits placed on the compensatory award. These include where the breach of contract related to unlawful discrimination, whistleblowing, health and safety breaches and dismissed after trying to assert a statutory right.
Another example of a constructive dismissal reward
Let’s imagine you are 55, and your annual pay is £28,000 (roughly £540 / week) and you’ve worked for your employer for 25 years. In these circumstances, your basic award will be £14,175. This is because your pay will be capped at £525 / week and your length of service will be capped at 20 years, but you had 14 years’ service whilst you were 41 or older.
You estimate it will take you 6 weeks to find comparable employment which means your compensatory award would be £3,240 (which is your weekly pay of £540 x 6). However, in the end you found a new job within two weeks, so your compensatory element is reduced to £1,080.
That means your total award will be £15,255, the combination of your basic and compensatory awards.
Reductions in your award
In some cases, an Employment Tribunal is able to reduce the amount of your basic award and/or compensatory award if they think that you in some way contributed to the situation.
Alternatively, if your employer had followed the correct procedure and the dismissal decision would have been the same in any event, the tribunal may reduce your award accordingly.
The hardest parts of a claim for constructive dismissal are often knowing whether the breach of contract was serious enough to warrant your resignation and knowing what amounts you can include as salary. If you’re in any doubt, we recommend seeking the help of an employment law specialist.