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Whats Up with Constructive Dismissal

Written by Jim Roberts & Michael O'Brien on October 26th, 2012.

In a matter of months the Minister of Labour has stated that she intends to review the law regarding constructive dismissal, a couple of constructive dismissal cases were reported in the media, and Chief Judge Colgan raised constructive dismissal during an address to lawyers at a recent forum.  So what’s up with constructive dismissal? 
 
As you will recall, constructive dismissal is where a person ‘resigns’ but their resignation is prompted by either an ultimatum from the employer (“resign or be fired”), a very significant breach of terms and conditions (e.g. not being paid), or where the employee is treated so badly that they have no real alternative but to resign. 
 
In the recent determination of Priest v Johnston’s Coachlines Limited, the Employment Relations Authority considered whether a Johnston’s Coachlines driver had been constructively dismissed.
 
Johnston’s operate three areas of operations: tour coaches, the Air Bus service to and from Auckland Airport, and the Park and Ride Shuttle between Auckland Airport terminals and car parks a short distance from the Airport.
 
Mr Priest had been employed since October 2006.  In December 2009 he underwent surgery and was unable to carry out driver duties following the operations.  He then experienced an emotional breakdown on Christmas Day 2009 when his wife became aware of his affair with a work colleague.  He visited his GP on 29 December 2009 who diagnosed him as suffering from a serious depressive illness. 
 
In January 2010 Mr Priest advised the Managing Director of Johnston’s of his depressive illness and the reasons for it.  Johnston’s Managing Director told Mr Priest not to worry and that he would remain on pay and would agree on some options for the future to be discussed later that week.
 
Mr Priest provided a medical certificate from his GP on 31 March 2010 stating that he was fit to return to work on 6 April 2010.
 
At some stage around this time Mr Priest became aware from another employee that he may be entitled to “serious illness leave” under the provisions of the collective agreement.  As a full time employee Mr Priest was potentially entitled to up to 12 weeks paid leave.
 
Mr Priest returned to work and applied for the leave.  Johnston’s rejected his application.  Johnston’s relied on a clause where it could request Mr Priest undergo a second medical examination and, if he refused to do so, it was entitled to refuse the entitlement. 
 
Things then seemed to go from bad to worse.  There was then a dispute about when Mr Priest was available for full time duties on his April 2010 return.  Johnston’s paid Mr Priest for 65 hours in the fortnight and he claimed the 80 hours guaranteed under the collective agreement. 
 
Mr Priest had previously worked park and ride duties on at least 12 occasions after his return to work in April 2010 until 28 October 2010.  On that day Mr Priest rang the Operations Manager to find out what work he was scheduled to do.  When Mr Priest was informed that he was scheduled to carry out park and ride the following day he informed the Operations Manager that he would take the day off without pay.  Mr Priest claimed that he found the park and ride duties extremely stressful because it required him to complete a circuit involving the domestic and international terminals at the car parks on a 15-minute schedule. 
 
While Johnston’s claimed not to have suspended Mr Priest, it sent him a letter on 29 October 2010 (the day that he said he would take a day off without pay rather than do park and ride duties) informing him that he was not required to work until further notice and threatening disciplinary consequences for his refusal to work, including “dismissal”.  Mr Priest claimed this was a suspension. 
 
Mr Priest then sent a letter to Johnston’s explaining the stress problems with park and ride, but indicating that he was prepared to do a 4-hour duty with park and ride on a temporary basis until he was off his current medication.  He offered to produce a medical certificate if necessary and then raised a personal grievance claiming that he had been unlawfully suspended.
 
There was then a stand-off with Johnston’s wanting to reduce Mr Priest’s guaranteed hours to 60 because he was unable to carry out park and ride duties, and Mr Priest steadfastly refusing to do so and wanting to maintain his minimum of 80.  On 8 November 2010 Johnston’s told Mr Priest that he would have to vary his agreement or he could no longer be employed. 
 
On that day Mr Priest then handed back some work items that had been provided to him at the commencement of his employment.  Johnston’s interpreted that as Mr Priest resigning.  There was then various correspondence from Mr Priest through November asking to return to work, and requesting annual leave in December.  In late December 2010 Mr Priest. telephoned Johnston’s.  Johnston’s then advised Mr Priest that he had resigned on 9 November.  Mr Priest emailed Johnston’s the next day, explaining that he had not resigned. 
 
After not receiving any driving work since 29 October 2010, and not being paid since 22 November 2010 Mr Priest eventually resigned by letter dated 14 April 2011. 
 
The Employment Relations Authority concluded that:
 
  1. Johnston’s insistence that Mr Priest vary his employment agreement or his employment could not continue was a breach of duty;
  2. Johnston’s actions after 8 November 2010 (the date the company claimed that Mr Priest had resigned from his employment) showed that it could not reasonably have believed that Mr Priest’s actions on 8 November constituted a resignation.
  3. Mr Priest advised Johnston’s that he considered he was still employed. However, Johnston’s did not provide driving work after 29 October 2010, and it ceased to pay wages.  These represented a breach of duty which caused Mr Priest’s actual resignation on 14 April 2011.
4.   The two breaches – insisting that Mr Priest sign the variation or his employment could not continue; and refusing Mr Priest’s continued request to return to work – were sufficiently serious for it to be reasonably foreseeable that Mr Priest would resign. 
5.   Mr Priest’s suspension was also unjustified as he had not been given any opportunity to           provide comment before he was suspended.
 
Mr Priest was awarded over $35,000 in lost wages, $8,000 compensation for hurt and humiliation for his dismissal, and $3,000 compensation for hurt and humiliation from the unjustified suspension. 
 
However, the Authority considered that Mr Priest contributed to the situation by not providing suitable access to his doctor and medical information.  Further, there was no evidence that his depressive illness was in any way caused by or connected to his park and ride duties.  The Employment Relations Authority therefore reduced the lost wages awarded by 65%.
 
In Our View
 
This case highlights how not to manage an ongoing claimed illness. 
 
Managing Mr Priest obviously became frustrating.  However, attempts to obtain medical information would have provided Johnston’s with a better platform to manage Mr Priest’s various claims.   There is a duty to accommodate, including mental illness, under the Human Rights Act.  Whether Johnston’s were obliged to accommodate depended on Mr Priest’s illness and the impact on his ability to carry out his work.  That was never ascertained; instead Johnston’s appeared to rely on Mr Priest not being prepared or claiming to be unable to carry out some duties and then returning some company property as his resignation.  As the Authority found, there was no legitimate basis for Johnston’s position.   
 
This also follows a series of successful constructive dismissal claims in 2012.  In May 2012, the Authority considered Irvine v Wallace & Cooper Limited.  The managing director of Wallace & Cooper abused an employee, the employee then took the next day off as sick leave and abruptly resigned.  The managing director’s abuse was of such a level that the Authority found a constructive dismissal. 
 
In June 2012 Chief Judge Colgan released an extensive judgment in Strachan v Moodie & Others.  In that case a profit share agreement was repeatedly breached by Mr Moodie and amounted to constructive dismissal of Ms Strachan.  In addition, other actions of Mr Moodie amounted to breaches of trust and confidence and "certainly exacerbated the fundamentality of the remuneration payment of breaches".  The Chief Judge found that Ms Strachan was constructively dismissed. 
 
These cases highlight the types of circumstances that may give rise to a constructive dismissal.  The types of breaches can be a single event, such as in Irving v Wallace & Cooper Limited,  or cumulative, continuing, or escalating, such as in Strachan v Moodie and Priest v Johnston’s Coachlines Limited. 
 
The first point is that a breach of contract must be established by the employee.  Unlike an actual dismissal by an employer, where the onus rests on an employer to justify the dismissal, in a constructive dismissal the employee must prove the breach of duty.  What is clear is that it must be a sufficiently significant breach for an employee to essentially cancel an employment agreement. 
 
The second element required in New Zealand, which may simply be a means of explaining how serious or "fundamental" the breach, is that the breach must be sufficiently serious to make it reasonably foreseeable there is a substantial risk of resignation.
 
That is the litmus test for constructive dismissal.  As the test is one of reasonableness it is not whether the employer thought the employee would resign but whether the Authority or Court, putting itself in the shoes of the employer, could foresee a substantial risk of resignation.
 
Once an employee has established that he or she has been constructively dismissed, all is not lost.  An employer can possibly justify that dismissal.  However, justification has been extremely rare and may be rarer still given the compulsory requirements of section 103A of the Employment Relations Act.
 
These cases highlight the need for caution and careful management of long running disputes, as in the Priest and Moodie cases.  Establishing a sound factual basis and narrowing the dispute will provide for a more principled basis for employer decision making.  In Irving v Wallace, offering an olive branch would have mitigated the risk. 
 
If you have any questions regarding these issues email us on employmentnews@heskethhenry.co.nz or call us on (09) 375 8699. 
 
Topics: Employment Law
 
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