Making Sense of Constructive Dismissal

Making Sense of Constructive dismissal – Chief of NZ Defence Force v Darnley

The words “Constructive dismissal” can often be thrown around by outgoing employees in the employment sphere. However, few understand that the legal threshold for succeeding in a constructive dismissal claim is a high one.

The Employment Court recently made a decision regarding constructive dismissal in Chief of New Zealand Defence Force v Darnley (NZEmpC). This case is a helpful walkthrough of the law surrounding constructive dismissal.

Facts:

Ms Darnley worked in HR at the New Zealand Defence Force (NZDF.) She had recently settled an employment claim with a large settlement that the NZDF believed was in contravention of their policy. The NZDF undertook an investigation into Ms Darnley’s conduct.

The NZDF concluded in a letter sent in April that Ms Darnley’s actions amounted to serious misconduct. Another letter was then sent in May, setting out a preliminary decision to terminate her employment without notice for serious misconduct. The NZDF ultimately did not act on this decision.

What is constructive dismissal?

There are 3 ‘categories’ of constructive dismissal:

1.  The employer has given an employee the option of resigning or being dismissed;
2.  The employer has followed a course of conduct with the deliberate and dominant purpose of coercing the employee to resign; and
3.  The employer has breached one of their duties, and it has led the employee to resign.

For Ms Darnley’s claim, it was the third category that was relevant – a breach of duty.

The Court notes that this category requires an objective 3-stage test:

A.  There must be a breach of duty by NZDF;
B.  The breach/es must have caused Ms Darnley to resign; and
C.  The breach/es must have been of sufficient seriousness to make it reasonably foreseeable that Ms Darnley would resign.

Breaches of duty

Ms Darnley alleged several breaches of duty:

1.  Commencing the investigation

Ms Darnley argued that the commencement of the investigation was unjustified and, therefore, a breach of the employer’s obligation to be active and constructive in establishing and maintaining a productive employment relationship.

The Court held that NZDF commenced the investigation based on a serious allegation that was made on a “worst-case scenario basis” rather than what the facts suggested. The allegation was that Ms Darnley had knowingly acted in contravention of the NZDF’s policy, whereas evidence suggested Ms Darnley did not think the policy applied.

The Court held that this was a breach of duty.

2.  Letter 1 – Conclusion of serious misconduct

Ms Darnley claimed that the letter sent to her confirming a conclusion of serious misconduct was a breach of duty. The letter stated that the NZDF had “concluded” that the conduct amounted to serious misconduct. There was no invitation for Ms Darnley to provide comments or feedback on this conclusion.

The Court held that the failure to seek such comment from Ms Darnley on the conclusion was a breach of duty.

3.  Letter 2 – Preliminary decision to terminate without notice

Finally, Ms Darnley alleged that the second letter setting out the NZDF’s preliminary decision to terminate her employment without notice for serious misconduct was a breach of duty.

The Court examined the NZDF’s actions following the letter and noted that no further action was taken to indicate that NZDF intended to proceed with this preliminary decision. The letter itself was therefore not a breach of duty.

4.  Other breaches

Ms Darnley also alleged that the NZDF’s refusal to grant her additional special leave (following the conclusion of two weeks of special leave) was a breach of NZDF’s policy and that she was being treated less favourably than other staff. The Court held that this was not inconsistent with NZDF’s policy and that there was no evidence of disparity of treatment.

Resignation

The Court then looked at the next part of the test, whether the breaches caused Ms Darnley to resign; noting that: “In order to establish a constructive dismissal, an unbroken causal nexus must be established between a breach of duty by the employer, and the employee’s resignation”. The Court noted that this posed “significant difficulty” for Ms Darnley’s claim.

The Court found that Ms Darnley’s new employment broke the chain of causation – she had ample opportunity to resign based on the breaches of duty, but she did not. The Court, therefore, concluded that she had not been constructively dismissed.

Sufficient Seriousness

The court also noted that the breaches were not sufficiently serious to amount to constructive dismissal, even if the breach of duty had caused the resignation.

Remedies

Although the Court found no constructive dismissal had occurred, it did find that Ms Darnley had a successful claim for unjustified disadvantage. They awarded her a low compensation award of $6,000, which was reduced by 10% for her contributing actions.

During the investigation, Ms Darnley sought and commenced new employment while still working at the NZDF. She only notified some of her colleagues 2 weeks after her new employment had begun.

Ms Darnley was ordered to pay a penalty of $1,500 for breaching her employment agreement and breaching good faith by failing to notify NZDF of new employment.

Conclusion

This case reiterates the high legal threshold that is in place to bring a claim for constructive dismissal.

 

If you have any questions or queries in relation to this topic, please get in touch with the Watermark team directly. We are happy to advise you.

Erin Drew

Senior Solicitor