An employer’s coercive tactics pressuring an employee to resign may amount to constructive dismissal. In such cases the employer may be held liable to compensate the employee for lost wages and hurt and humiliation.

A recent determination of the Employment Relations Authority highlights this risk. The Authority upheld the employee’s personal grievance claim of unjustified dismissal where the employer attempted to encourage the employee to resign by emphasising their expectation of resignation.

The employer then issued a unilateral “notice of resignation” to the employee, while refusing to give a formal notice of dismissal as requested. The Authority held that the employer’s action was to disguise an attempt to dismiss the employee as a resignation.

As the employee continued to work the employer further gave the employee a choice to resign or to be dismissed by sending a letter threatening him with disciplinary action. Shortly after receiving the letter the employee resigned.

The Authority found that the employee’s resignation was not voluntary but rather the result of sustained pressure from the employer. The employer’s actions, including issuing a resignation notice, and a warning of disciplinary action if a “suitable outcome” was not reached, breached the employment agreement and procedural fairness.

These actions were not what a fair and reasonable employer could have done in the circumstances. The employee was awarded $15,000 in compensation, plus over $13,000 in lost wages and holiday pay.

Key Takeaways for Employers

To act as a fair and reasonable employer, you need to consider the following:

Act in good faith

Employers must consult employees on decisions that may impact their employment, genuinely considering employees’ input before making decisions. Coercing or expecting an employee to resign, especially under threat of dismissal, may amount to constructive dismissal.

Follow proper performance management processes

If there are performance concerns, employers must clearly communicate their expectations, set measurable targets for the employee, offer support and provide reasonable opportunities for improvement, and follow contractual and legal procedures before considering termination.

Comply with the employment agreement

Termination clauses must be followed precisely. An employer cannot issue a resignation notice on behalf of the employee or bypass agreed dismissal procedures.

Use formal dismissal notices

If a dismissal is appropriate, it must be supported by documented reasons and a formal written notice. The notice must comply with legal and contractual requirements.

Keep records and communicate properly

Employers should avoid informal or ambiguous communications in serious employment matters. Keeping records of the communications is important for resolving any future disputes.

It is important to understand the legal and financial risks of mismanaging dismissal processes.

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