Constructive dismissal: Employer cannot "cure" fundamental breach to prevent constructive dismissal claim

Author: Darren Newman

Consultant editor Darren Newman outlines what recent case law rejecting the notion that an employer can "cure" a fundamental breach of contract before the employee resigns and claims constructive dismissal means for employers.

There has been something of a spurt in the case law considering constructive dismissal in recent months. This has largely been the result of a rather esoteric debate about whether or not an employer's actions have to be outside the band of reasonable responses in order to amount to a breach of the implied term of mutual trust and confidence. The answer, according to the Court of Appeal in the recent case of Buckland v Bournemouth University Higher Education Corporation [2010] EWCA Civ 121 CA, appears to be no. I'm sure this debate is important but I find it difficult to get excited about, because it ultimately comes down to how a case is presented to the tribunal - it doesn't tell us anything useful about how an employer should or should not behave.

However, the Buckland case also deals with what I think is a much more interesting point - whether or not it is possible for the employer to "cure" a fundamental breach of contract before the employee resigns in response to it. The Employment Appeal Tribunal (EAT) had held that this was possible and that, when the employer upheld Professor Buckland's grievance, it was no longer in repudiatory breach of contract and Professor Buckland's resignation did not, therefore, amount to a constructive dismissal.

This was a novel point and, if upheld, would have added a new dynamic to the consideration of employee grievances. An employer that had treated an employee badly would have had a clear incentive to make a frank admission of the fact and to seek to make amends to the offended employee, who would then have been unable to claim constructive dismissal. Of course, further case law would have been needed to answer the questions that would have arisen. How much in the way of amends would be enough to erase the original fundamental breach? Would it be enough for the employer to offer an apology, for example, or would some sort of actual restitution have to be made?

Unfortunately for employment lawyers, the Court of Appeal has rejected the whole notion. Once an employer has acted in fundamental breach of contract, the employee is entitled to resign and claim constructive dismissal. There is nothing that the employer can do to prevent this, short of persuading the employee to affirm the contract, at which point the right to resign without notice will be lost.

It is worthwhile reviewing just what we mean by affirmation. The innocent victim of a repudiatory breach of contract has a choice: either he or she can accept the repudiation and bring the contract to an end (constructive dismissal), or he or she can choose to keep the contract in place (affirmation) and potentially sue for damages. Once the choice is made, it cannot be unmade, so an employee who has affirmed the contract loses the right to resign and claim constructive dismissal.

As shorthand, we tend to say that an employee will be taken to have affirmed the contract and lost the right to claim constructive dismissal if he or she delays for too long before resigning. However, this is not quite the right analysis. Affirmation takes place when the employee does something that is inconsistent with an intention to accept the repudiation and resign. Usually a delay means that affirmation will take place after a time because the employee is continuing to work and receive payment in return. However, if the employee reserves his or her position in relation to the breach, even an extended period of further working will not amount to affirmation.

That is what happened in Professor Buckland's case. The conduct that led to his resignation took place in July 2006. He subsequently gave notice in February 2007, which did not expire until July of that year. However, he had clearly reserved his position pending the outcome of an internal inquiry, which reported just a few weeks before he gave notice.

An employee will therefore be able to pursue an internal grievance without running the risk of affirming the contract in the meantime. It is when the outcome of the internal grievance is known that the employee must make a decision. Whatever the outcome of the grievance, the Court of Appeal has made it clear that the employee will be entitled to resign and claim constructive dismissal based on the employer's original conduct. All the employer can do is seek to persuade the employee to accept the outcome of the grievance and choose to remain employed. If that works, the employee will continue with the contract and the threat of constructive dismissal lapses. If it does not work, we are off to the tribunal.

The important thing to be aware of is that it does not matter how thorough or fair the employer is in dealing with the grievance, how fulsome the apology is or how generous the offers of redress are. The fairness of a constructive dismissal depends not on how reasonable the employer is in dealing with the grievance, but on whether or not the employer acted reasonably in breaching the employee's contract in the first place. Where - as in Professor Buckland's case - it is the very unreasonableness of the employer's conduct that gives rise to the breach of the implied term, a fair dismissal will be impossible. This contrasts with, for example, the situation where an employer is forced to implement a unilateral cut in pay in order to preserve the business. That will be a breach of contract entitling the employee to resign and claim constructive dismissal. However, the employer may be able to show that its conduct was reasonable, given the urgency of the situation with which it was faced.