Constructive dismissal (1): general principles and specific terms

Satisfying these two conditions gives rise to what is known as a "repudiatory" or fundamental breach of contract by the employer. This entitles the employee to consider himself or herself discharged from further performance of the contract, which would, in effect, bring the contract to an end. However, the employee is not obliged to accept the breach and terminate his or her employment. Instead, the employee may affirm the contract, entitling him or her to damages for the breach but allowing the contract, and, hence, the employment relationship, to continue. In this situation, there is no dismissal.

So, in order to establish a constructive dismissal, two further conditions must be satisfied:

Where an employee resigns and all four of the above conditions have not been met, there will be no dismissal under s.95(1)(c) of the ERA.

Is reasonableness still a factor?

The contract test is now well established in law. On the face of it, its emphasis on the need for a breach of contract, rather than a nebulous concept of unreasonableness, has narrowed the circumstances in which an employee can claim constructive dismissal. However, the impact of the contract test has been lessened by the development of terms implied into all contracts of employment as a class, such as the implied term of trust and confidence.

An express dismissal?

In some circumstances, where an employer unilaterally imposes radically different terms and conditions of employment upon an employee, this may amount to an express dismissal by the employer and re-engagement of the employee on a new contract, rather than a repudiatory breach which may, if accepted, lead to a constructive dismissal (Alcan Extrusions v Yates and others). Thus, an employee may have an unfair dismissal claim even though he or she remains in employment under the terms of the new contract. This concept will be explored in more depth in part 2 of this Guidance Note (see also London Borough of Southwark v Mungul).

Roles of the employment tribunal and EAT

Before moving on to a detailed examination of the contract test, it is worth mentioning the role of both the employment tribunal and the EAT in determining whether or not there has been a constructive dismissal. While determining the terms of the contract is a matter of law (Pedersen v The Mayor and Burgesses of the London Borough of Camden), determining whether there has been a breach of one of those terms and, if so, whether such a breach is fundamental, are questions of mixed fact and law. This means that unless the employment tribunal reaches a decision on either question that no reasonable tribunal could have reached on the evidence before it, the EAT will be unable to interfere with the tribunal's finding of fact ( Woods v WM Car Services (Peterborough) Ltd (CA), confirming Pedersen).

HAS THERE BEEN A BREACH OF CONTRACT?

In establishing whether or not there has been a breach of the contract of employment, normal principles of contract law apply. The breach may be of an express or implied term of the contract and may be actual (eg an immediate demotion) or anticipatory (eg a communicated decision that an employee will be demoted on a certain future date). Lawful conduct within the terms of the contract of employment cannot amount to a breach (Spafax Ltd v Harrison) but it is important for tribunals to consider whether conduct broadly within the express terms of the contract is in fact in breach of an implied term (see below).

The need for a breach of contract means that there can be no constructive dismissal where there is no contract in existence. So, where a new contract on less favourable terms was offered to an employee on the expiry of a fixed-term contract, the employee failed in the attempt to prove constructive dismissal because there was no contract in existence that could be broken (Pfaffinger v City of Liverpool Community College).

Terms of the contract

A contract of employment is made up of the terms and conditions upon which the employment relationship is based. It sets out the various obligations of the employer and the employee, at its most basic recording what the employee will do and how much he or she will be paid for doing it. The terms of the contract may be written or oral and either expressly agreed between the parties or implied as a matter of fact or law. In certain cases, statute prescribes that certain terms will be deemed to form part of the contract (see, for example, the "equality clause" inserted by s.1(1) of the Equal Pay Act 1970).

Express terms

Express terms are those formally agreed between the parties, whether or not this agreement is reduced to writing (ie there may be an express oral agreement). Such terms normally cover the basic conditions of employment, including: commencement date; pay rates and overtime premia; hours and place of work; job description/duties; and holiday and sickness entitlement.

Express written terms may be found in a formal contract, a letter of appointment or other correspondence. Strong evidence of express terms will be found in the written statement of terms and conditions which employers are obliged to give to employees no later than two months after the beginning of employment (s.1(2) of the ERA). All or part of an employee handbook may also be found to contain express contractual terms, depending on whether or not such provisions have been incorporated into the contract.

Implied terms

In many cases, the parties to an employment relationship will not deal expressly with all of their relevant obligations. Where there is no express term dealing with a particular matter, terms may be implied into contracts, but only where (as the EAT reminded us in United Bank Ltd v Akhtar):

A term may also be implied into a contract of employment on the basis of custom and practice in a particular trade or industry or in a particular area, if the term is reasonable or fair, notorious or well-known, and certain or precise.

Place of work

It has been held that where there is no express term relating to the place of work, it is necessary to imply such a term in order to give the contract business efficacy (Courtaulds Northern Spinning Ltd v Sibson and another). The term should be one that the parties, acting reasonably, would probably have agreed upon at the outset.

In Courtaulds itself, a term was implied giving the employer the power to require the employee to work at any place within reasonable daily reach of the employee's home. There was no requirement for the transfer request itself to be reasonable. A further example can be seen in Star Newspapers Ltd v Jordan, where the EAT found that there was an implied term that the employer should consider the employee's remuneration if it made changes to the area on which her commission was based, the contract itself being silent on mobility and place of work.

Terms specific to the employment relationship

Contracts of employment have come to be recognised as a specific class of contract, and courts and tribunals have become more willing to imply certain terms as "a necessary incident of a definable category of contractual relationship" (Scally v Southern Health and Social Services Board). Thus, certain terms have been implied almost as a matter of law into all contracts of employment. It is this category of implied term that has fuelled a significant development in the law on constructive dismissal. Examples relating to the duties of an employer include:

As we suggested in The Human Rights Act 1998, now that the Human Rights Act 1998 ("the HRA") is in force, it may be argued that there is an implied term not to act incompatibly with Convention rights or, alternatively, that this is now an element to be considered within the ambit of the implied duty of trust and confidence. For an in-depth discussion of the impact of the HRA on employment law, see Human rights and employment law.

Relationship between express and implied terms

As a matter of general contractual principle, express terms take precedence over implied terms, on the basis that the parties have actively agreed to them. However, in Johnstone v Bloomsbury Health Authority, the Court of Appeal held that the employing health authority could not lawfully require its employee doctor to work so much overtime in any week as it was reasonably foreseeable would damage his health, notwithstanding the fact that an express term of the contract of employment required him to be available for up to 48 hours of overtime per week. Concurring in the decision, the two majority judges differed in their approach. Lord Browne-Wilkinson held that an employer must exercise a discretionary power subject to the implied obligation to safeguard an employee's health; if, on the other hand, the express power was absolute, there could be no breach of the implied term. Lord Justice Stuart-Smith decided more broadly that the express term could not limit the scope of the implied term and was, in effect, subject to it.

Further decisions in the employment field have utilised both approaches depending on the implied term in question but, in general, contractual orthodoxy has been maintained. So, while in United Bank Ltd v Akhtar it was held that an express discretionary power had to be exercised in line with an implied requirement of reasonableness, in White v Reflecting Roadstuds Ltd, the EAT held that an express transfer or mobility clause without discretionary elements was not subject to that requirement. Otherwise, the reasonableness test would be reintroduced by the back door.

On the other hand, in White, the EAT identified as "overriding" (our emphasis) the implied term as to the relationship of confidence and trust between employer and employee; actions strictly within the expressed terms of the contract may, nevertheless, be in breach of this term.

Although a general requirement of reasonableness cannot be implied into an absolute express term, the EAT in White approved the decision in United Bank Ltd v Akhtar, where a term was implied to the effect that an employer must not act in such a way as to render it impossible for an employee to comply with his or her contractual obligations. The EAT in Whitbread plc t/a Thresher v Gullyes doubted that this term should be subjected to a literal interpretation so that it could only be breached in cases of true impossibility; however, it commented that "there must be conduct on the part of the employers, the effect of which is to make performance of the contract by the employee difficult".

The EAT in White also stated that purely capricious decisions would not fall within the ambit of an express term. It may be, however, that such decisions are best seen as examples of conduct that may breach the implied term of trust and confidence.

The duty of mutual trust and confidence

The most significant term implied into all contracts of employment is what has become known as the mutual duty of trust and confidence between employer and employee. This concept has been developed over the years by the courts and tribunals and was finally recognised by the House of Lords in Malik v Bank of Credit and Commerce International SA, where the duty was described in the following terms: "An employer shall not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee."

In the course of their judgment, their Lordships rejected three limitations on the implied term, establishing that:

For the purposes of establishing a constructive dismissal, of course, it is necessary for the employee to be aware of the breach before his or her employment ends. If this is not the case, he or she will not be able to establish the necessary causal link between the breach and the subsequent resignation (see below at pp.9-11).

Whether the term has been breached in an individual case is a question of fact. As the Court of Appeal stated in Woods v WM Car Services (Peterborough) Ltd, "the circumstances are so infinitely various that there can be, and is, no rule of law saying what circumstances justify and what do not". What is clear, however, is that the test is objective, the employer's motive and intentions being wholly irrelevant (Lord Steyn in Malik).

A single incident of verbal abuse is capable of destroying the mutual trust and confidence between the parties; whether or not this in fact occurs depends on the surrounding circumstances of each case. Relevant factors to consider include: whether the speaker had, or seemed to have, the authority of the employer behind him or her; whether an apology was offered and, if so, whether the employee was being hypersensitive, too thin-skinned or inflexible in persisting in a view that trust and confidence had been irredeemably wounded; and how far a given incident could reasonably have been foreseen and avoided (Moores v Bude-Stratton Town Council).

The term can also be breached by an employer's course of conduct over a period of time (see below at p.9 and the box on p.10). For examples of other situations in which the implied term has been held to have been breached, see the box on p.6.

Finally, Lord Steyn in Malik suggested that terms implied into contracts of employment as a matter of law could be excluded or modified by the parties to the contract. This suggests that it is open to an employer to expressly exclude the implied duty of trust and confidence in the contract of employment, which term is itself described as a necessary incident thereto. It is submitted that this view is, at the very least, open to question.

The relevance of reasonableness

As already mentioned, the development of the implied duty of trust and confidence has ameliorated the potential harshness of the contract test of constructive dismissal. This was explicitly recognised by the EAT in Woods v WM Car Services (Peterborough) Ltd, where it was observed that one of the consequences of Western Excavating was that employers who wished to get rid of an employee or alter the terms of his or her employment may resort to methods of "squeezing out" the employee. Without the existence of the implied duty of trust and confidence, such conduct would stop short of a major breach of contract and the employee, if forced to resign, would be unable to establish that he or she had been dismissed.

But although "the implied obligation as formulated is apt to cover the great diversity of situations in which a balance has to be struck between an employer's interest in managing his business as he sees fit and the employee's interest in not being unfairly and improperly exploited" (Lord Steyn in Malik), the term is not so wide as to oblige an employer to treat an employee in a reasonable manner (The Post Office v Roberts). Any such term would be a return to the reasonableness test rejected in Western Excavating, although the distinction between this and the reasonableness element of determining whether or not there has been a breach of the implied duty of trust and confidence is becoming increasingly difficult to identify.

Indeed, in Devoy v World Duty Free (Europe) Ltd, the EAT has recently upheld a tribunal decision in which the reasonableness test in Iceland Frozen Foods Ltd v Jones was overtly applied to the issue of whether the implied term of trust and confidence had been breached. This test asks whether what the employer did was objectively within the range of reasonable responses of a reasonable employer in the particular circumstances of the case and is used to determine the fairness of a dismissal in an unfair dismissal claim under s.98(4) of the ERA. As noted above, it was the distinction between fairness and the test used to establish the existence of a constructive dismissal in itself that the Court of Appeal was at pains to maintain in Western Excavating.

Actual breach

As mentioned above, lawful conduct within the terms of the contract cannot amount to a breach of contract (Spafax), although employers should be alive to the fact that their conduct, while strictly within the express terms, may be in breach of an implied term. However, even in the context of the implied duty of trust and confidence, employers will only find themselves in breach where they act "without reasonable or proper cause".

In Dryden v Greater Glasgow Health Board, the employee sought to argue, amongst other things, that the imposition of a smoking ban by her employers breached the implied term of trust and confidence. The EAT held that employers are entitled to impose lawful rules and the fact that any such imposition bears heavily on a particular employee does not in itself justify an inference that the employer has acted in such a way as to repudiate the contract with that employee.

However, in TSB Bank plc v Harris, it did not avail the employer to rely on regulations governing the financial services industry as evidence that it had not breached the implied duty of trust and confidence by referring in a reference to complaints of which the employee was unaware. Although the regulations obliged the employer to disclose the complaints to prospective employers, they did not prevent disclosure to the employee, which would have allowed her to provide an explanation.

Anticipatory breach

A party to any contract can be in breach if he or she expresses an intention not to abide by a term of the contract in advance of the date or time stipulated for performance. This is known as an anticipatory breach of contract and an example can be seen in Harrison v Norwest Holst Group Administration Ltd. In that case, the employer informed the employee of its intention to remove his directorship from a specific future date. In these circumstances, the Court of Appeal identified that the employer was in anticipatory breach of contract, enabling the employee to accept that breach and bring the contract to an end. However, in that case there was found to have been no such acceptance (see below at p.10).

In Nelson v Kingston Cables Distributors Ltd, the EAT held that an employer could be in anticipatory breach by informing a woman on maternity leave that certain of the pre-existing conditions of her job would not be available to her upon her return to work. Although certain contractual obligations were suspended while the woman was on leave, the contract itself was subsisting. In these circumstances, it was open to the employee to accept the anticipatory breach while she was still absent from work on leave.

Jumping the gun

It almost goes without saying that while a breach of contract may be actual or anticipatory, if no such breach has occurred, an employee who jumps the gun and resigns will not be able to show that he or she has been constructively dismissed (Forester v Charcon Products Ltd).

In Sangarapillai v Scottish Homes, for example, there was found to be no breach, whether actual or anticipatory, where the employer had reacted immediately to discontent over a job-evaluation exercise and carried out a complete review of that process, preserving existing grades and salaries while it did so. The EAT agreed that until that review had taken place, and it had become clear whether or not the employee was going to be placed in a grade commanding a lower salary, there was no breach of contract for the employee to accept.

Conversely, the EAT found that there was a breach in Greenaway Harrison Ltd v Wiles. Two employees resigned in response to a threat of lawful dismissal if they did not accept changes to their working hours. In response to a formidable argument that the threat of carrying out a lawful act could not amount to a breach of contract, the EAT commented that, if accepted, that submission would create an "unfortunate anomaly" in that an employee who waited until the threat was carried out and he or she was dismissed would have an unfair dismissal claim, while an employee who left in face of that threat would not. On those grounds, the EAT found that the lawful threat was in fact an anticipatory breach of contract.

It is submitted that this decision does not sit well with the contract test. Indeed, in Beeley v London Sailplanes Ltd, the EAT doubted whether Greenaway "could possibly be correct", not only in contractual terms but also in the context of "the whole philosophy on which industrial relations law is based, namely that an employer should consult with an employee as early and as frequently as is reasonable when there is a danger of redundancies, or when he wishes to urge an employee to enter into a consensual variation of the contract". Commenting that it was a serious error to confuse the possibility of an unfair dismissal with an anticipatory breach of contract, the EAT in Beeley chose not to follow Greenaway.

Employer responsibility

In the same way that general principles of contract law underpin the test for whether or not there has been a repudiatory breach of contract, so too do they apply to the question of whether the employer is fixed with responsibility for conduct amounting to a breach.

This was confirmed by the EAT in the case of Hilton International Hotels (UK) Ltd v Protopapa, in which a supervisory employee reprimanded the applicant in such a way that, if the employer was fixed with liability for her conduct, it would constitute a repudiatory breach of contract. The EAT confirmed that the general rule of vicarious liability applied - an employer is bound by acts done by employees in the course of their employment - and made a finding of constructive dismissal accordingly.

More recently, a majority of the EAT has held that individual town councillors are under a duty not to engage in conduct likely to undermine the trust and confidence required in employment contracts and that if that duty is breached, the council itself will be vicariously liable as the employer (Moores v Bude-Stratton Town Council). Significantly, however, the President of the EAT, Mr Justice Lindsay, dissented from this conclusion. Not only was he of the opinion that town councillors were under no such duty, but he could see no basis for the finding of vicarious liability. The council had little control over the councillor in question and had not authorised her, expressly or impliedly, to speak to the employee at all.

IS THE BREACH SUFFICIENTLY SERIOUS?

In Western Excavating, Lord Denning stated that there must be conduct which is "a significant breach going to the root of the contract of employment; or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract". The Court of Appeal in Spafax refused to accept an argument that the second alternative need not necessarily involve a breach of contract.

Whether or not a breach of contract is fundamental is a question of fact to be determined objectively. Thus, an employer can repudiate a contract while professing to uphold the employment relationship by, for example, imposing a unilateral variation of contract upon an employee. The fact that the employer genuinely believes its conduct is not repudiatory is irrelevant (Millbrook Furnishing Ltd v McIntosh), as are the circumstances inducing the fundamental breach (Wadham Stringer Commercials (London) Ltd and another v Brown).

Genuine belief in interpretation of contract

There is no doubt, however, that the case law is confused on the relevance of a genuine, erroneous belief in a particular interpretation of a contract to the issue of repudiation.

In Frank Wright & Co (Holdings) Ltd v Punch, the EAT identified the principle that where there is a genuine dispute as to the construction of a contract, the courts are unwilling to hold that an expression of an intention by one party to carry out the contract only in accordance with its own, erroneous interpretation amounts to a repudiation. This proposition is based on decisions in two commercial cases (Sweet & Maxwell Ltd v Universal News Services Ltd and Woodar Investment Development Ltd v Wimpey Construction UK Ltd). The EAT in Punch held that where an employer had manifested a refusal to pay a cost-of-living increase without any justification, the tribunal should have considered whether there was a genuine dispute as to the construction of the contract.

However, the application of the principle in an employment context has been doubted and, at the very least, restricted to very particular circumstances, such as those in Financial Techniques (Planning Services) Ltd v Hughes. In that case, the employee, having already resigned on notice, disputed with his employer the amount payable to him after termination under a profit-sharing scheme. The terms of the scheme did not expressly deal with termination. The employer put forward its proposal to the employee, who promptly took it as a fundamental, anticipatory breach of contract and resigned without notice. The members of the Court of Appeal held that there was no such breach. There was a genuine dispute between the parties. The employer was not disputing that a payment was due to be made to the employee; it was merely putting forward its point of view.

However, in his judgment, Lord Justice Templeman sounded a note of caution. He stated that if any party has a plausible but mistaken view of his or her rights under a contract, to insist on that view may amount to repudiation. To the extent that Punch suggested otherwise, it should be regarded with "misgiving". In Templeman LJ's view, whether or not there is a fundamental breach depends on the facts and consequences of each action by the party who holds mistaken views. In Financial Techniques, it was relevant that the employer had not yet unequivocally committed itself to its view of the contract and indicated that it would be acting upon that view in the future. It had merely put forward a proposal. Templeman LJ emphasised that the case turned "very much on its own facts".

In Financial Techniques, the Court of Appeal also emphasised the fact that the alleged breach was anticipatory. In Blyth v The Scottish Liberal Club, the Scottish Court of Session concluded that, whatever the position in relation to anticipatory breaches of contract, there was no room for the Woodar principle when there was an actual breach of contract, noting that Lord Keith in Woodar had directly made this distinction. The Court of Appeal in Bliss v South East Thames Regional Health Authority also distinguished Woodar: in Bliss, the employer was "not purporting to exercise any express power in the contract. It [had to] be judged by what it did and not by its private intentions."

In Brown v JBD Engineering Ltd, the EAT said that in its view, the case of Punch did no more than treat a reasonable and genuine belief as a factor which may, in appropriate circumstances, be taken into account in determining whether or not there has been a repudiation. The EAT emphasised, however, that the fact that an employer acts on a genuine belief is not enough in itself to prevent its conduct from amounting to a repudiatory breach. "Appropriate circumstances" in that case included whether or not the belief was reasonable and whether it had been brought about by the conduct of the other party. However, in Hay v Glasgow City Council, the EAT was clearly of the view that if a mistaken belief was relevant, which it doubted, the reasonableness of that view was not relevant to the issue of whether there had been a breach of contract.

Rather unfortunately, there remains a comment from the Court of Appeal that "the mere fact that a party to a contract takes a view of its construction which is ultimately shown to be wrong does not of itself constitute repudiatory conduct" (Lord Donaldson MR in Bridgen v Lancashire County Council). However, the case did not turn on this point and no authorities were cited to the Court. Save for very particular circumstances, then, it seems that the principle has been buried and, indeed, such was the opinion of the Scottish EAT in Power Lines Pipes & Cables Ltd v Penrice and others. In that case, Lord Mayfield stated that the doctrine formed no part of the law of Scotland and was of "doubtful application in the contractual law of England in the field of employment".

Some examples of fundamental breach

The breach must be "sufficiently serious to entitle [the employee] to leave at once", whether it is a breach of an essential term, such as pay, or a serious breach of a lesser term. Not every breach of contract will be repudiatory, entitling an employee to leave without notice. In relation to essential terms, such as pay, even minor breaches may be repudiatory. Where a less vital term is breached, this may not be the case.

This was illustrated in Spencer v Marchington, where an employee was excluded from working during the remainder of her fixed-term contract in circumstances where she was entitled to work in the business as general manager to ensure good profits because she was entitled to half of them. The High Court found that the breach was not repudiatory. The judge stated: "If she had been excluded from management at the start of her fixed term, I am pretty clear that would have been a repudiation. At the other end of the spectrum, if an ordinary minor employee at a wage is told not to work out a month's notice on dismissal, I should be very surprised if that involved a repudiation. On the whole, I think that asking [the employee] to stay away from her desk from 24 March to 31 May was not quite important enough, even in the context of a 12-month contract, to amount to a fundamental breach."

Pay

In Cantor Fitzgerald International v Callaghan, the Court of Appeal commented that "it is difficult to exaggerate the crucial importance of pay in any contract of employment". The offer of skill and effort in return for pay is "the understanding at the heart of the contractual arrangement" between employee and employer. However, this does not mean that any breach of contract that relates to remuneration will be repudiatory. The Court of Appeal in Callaghan identified as critical the distinction between an employer's failure to pay, or delay in paying, and its deliberate refusal to do so.

Thus, where the failure or delay is the result of an administrative or technical error, illness, accident or unexpected event, a court may conclude that the breach does not go to the root of the contract, unless it is repeated or persistent. By contrast, where there is an emphatic denial by the employer of its obligation to pay the agreed salary or wage, or a determined resolution not to comply with contractual obligations in relation to pay and remuneration, this will normally be considered repudiatory.

By way of further example, an employer was found to be in repudiatory breach where it kept an employee unsure about the amount of pay he was to receive, saying "you will get paid what I think fit". That choice of phrase fundamentally breached the contract of employment (Bamber (Roof Trusses) Ltd v Barker).

In Seceurop Ltd v Wilson, an employer breached an implied term to provide the employee with a reasonable amount of work or a minimum of 54 hours' work each week. Such breach was found to go to the root of the contract, since the employee's wages depended on the hours he worked.

In Thompson v Ritec Ltd, the EAT found that the tribunal had erroneously treated pension contributions as less important than salary in deciding whether or not the employer was in fundamental breach. As the High Court made clear in Imperial Group Pension Ltd and others v Imperial Tobacco Ltd, "pension benefits are part of the consideration which an employee receives in return for the rendering of his services".

In Callaghan, the Court of Appeal doubted whether there was any room for a "de minimis" principle, commenting that, where a minor amount was at issue, an employee may well agree to a deduction if the employer's reasons are explained to him or her, but that a consensual variation should not be confused with even an apparently slight change imposed upon a reluctant employee by economic pressure from the employer. In those circumstances, there would be a fundamental breach of contract.

However, it is important to note that the mere fact that an employee loses income as a result of the employer's lawful action does not in itself render the employer in fundamental breach of contract. This was confirmed by the EAT in White v Reflecting Roadstuds Ltd, where an employee was transferred from the highest-paid department in the company, involving the hardest work, to another, lower-paid, department, as a result of his poor attendance and work rate. As a consequence, he suffered a considerable drop in pay. The employer's actions in transferring the employee were within the terms of an express job flexibility clause. The EAT held that there was no implied term preventing unilateral reductions in pay and, consequently, no breach (let alone fundamental breach) of contract. In the circumstances, there was also no breach of the overriding duty of trust and confidence.

Place of work and mobility

In Aparau v Iceland Frozen Foods plc, the EAT stated forcefully that for an employer summarily to instruct an employee to change his or her place of work without any contractual power to do so is a "prime example" of a repudiatory breach, requiring "extreme circumstances" to take it out of that category. In Bass Leisure Ltd v Thomas, it was stated that to require an employee to work where he or she cannot be required to work is "obviously fundamental".

Moreover, where there is a contractual mobility clause in the contract which is subject, for example, to the implied duty not to render it impossible for an employee to perform the contract (see above at p.5), breach of the implied restriction by the giving of inadequate notice may also amount to a fundamental breach (United Bank Ltd v Akhtar).

By way of further illustration, in Connolly v Friends Provident Life Office the EAT found that the employers had acted in fundamental breach by requiring the employee to work from home when her contract defined her place of work as a particular branch and/or sub-office.

Demotion

If an employee is employed in a particular role under the terms of his or her contract, it will be a breach of contract to demote him or her or force him or her to work in a different capacity. In McNeill v Charles Crimin (Electrical Contractors) Ltd, such a breach was found to be fundamental where a foreman was moved from his position on one site to work in a subordinate capacity under an ordinary operative on another site, even where the move was temporary. Such an act amounted to a "total abandonment" of the foreman's contract of employment by the employer.

In Edgestop Ltd (in receivership) v McGorry, the employee manager re-signed after the appointment of contract managers. The EAT found that the tribunal was justified in holding that the employee's management responsibilities were substantially changed, to the point where his status fell from manager to "a far more lowly position closer to supervisor", such that the change amounted to a fundamental breach of contract.

Conversely, where an employee was promoted to a position for which she lacked experience and was promised support and resources which were not forthcoming, the employer was found to be in fundamental breach of the implied term that the employer should not act so as to prevent the employee from being able to carry out her part of the contract (Whitbread plc t/a Thresher v Gullyes).

Shift patterns and hours of work

Altering the hours of work an employee is required to work in breach of contract may be repudiatory.

In Gordon Lodge Nursing Home v Jama, for example, the EAT refused to overturn a finding by the employment tribunal that a unilateral variation of contract, by which an employee who previously worked only night shifts was required to work day shifts, constituted a fundamental breach of contract. Likewise, in Abbey Thermosets Ltd v Vidler, it was common ground that imposing a new shift structure that involved working unsociable hours and loss of pay was a fundamental breach of contract.

A further illustration can be seen in National Semiconductor (UK) Ltd v Church and others, where the EAT upheld a finding that the employer was in fundamental breach of contract by altering employees' hours of work without the contractual power to do so. The employees, who worked 25 hours at weekends, were instead required to work, on average, 42 hours during the week on varying shifts.

Trust and confidence

In the context of the implied term of trust and confidence (see above at pp.5 and 6) it should be noted that any breach will now almost certainly be regarded as repudiatory. As the EAT stated in Courtaulds Northern Textiles Ltd v Andrew, "any conduct which is likely to destroy or seriously to damage [the relationship of trust and confidence] must be something which goes to the root of the contract, which is really fundamental in its effect upon the contractual relationship".

This was followed by the EAT in Woods and, more recently, in TSB plc v Harris, where the EAT stated that Courtaulds put the matter "beyond doubt". The Court of Appeal in Bliss v South East Thames Regional Health Authority did not generalise in the same terms, noting simply that "there must be some breaches at least of such an implied term which are fundamental and repudiatory and go to the root of the contract".

"Last-straw" incidents

It is now well established that a series of acts may cumulatively amount to a repudiatory breach of the implied duty of trust and confidence (Lewis v Motorworld Garages Ltd). In these circumstances, the last incident, which need not even in itself be a breach of contract (Irving v Thwaite Holmes Kitchens), is the "last straw", justifying the employee's departure. For examples, see the box on p.10.

A series of events may cumulatively amount to a repudiatory breach, not-withstanding the fact that some of the incidents making up the course of conduct are not sufficiently serious in themselves to establish a repudiatory breach in their own right. Nor is it relevant that the employee has waived an incident that does in itself constitute a repudiatory breach (Abbey National plc v Robinson).

If conduct over a period of time is found to amount to a repudiatory breach in this way, it is the end of the series of events that is relevant for the purposes of determining whether the contract has been affirmed (Robinson) (see below at p.11).

DID THE EMPLOYEE LEAVE IN RESPONSE TO THE BREACH?

Applying normal principles of contract law, a repudiatory breach does not automatically bring a contract to an end without "acceptance" of that breach by the innocent party, and this rule applies as much to contracts of employment as to other types of contract, at least in cases not involving outright dismissal or walk-out by the employee (Rigby v Ferodo Ltd).

Acceptance of the breach by an employee in the context of the employment relationship will necessarily involve the employee's resignation, which must be communicated to the employer by words or conduct (Edwards v Surrey Police). Further discussion of the circumstances surrounding a resignation in constructive dismissal cases will be found in part 2 of this Guidance Note, in the context of identifying the effective date of termination for unfair dismissal purposes.

Breach must be effective cause of resignation

The employee must establish that he or she resigned in response to the repudiatory breach, rather than for any other reason. This does not mean that the breach must be the sole cause of the termination of employment; it has been recognised that in the context of the labour market, concurrent causes may operate on the mind of an employee whose employer is in fundamental breach of contract. Such an employee may leave both because of the fundamental breach and because he or she has found another job. In such a case, the employment tribunal must establish the effective cause of the resignation (Jones v F Sirl & Sons (Furnishers) Ltd).

So, for example, where the employee in Jones had almost 30 years' service with her employer and left three weeks after the last of a series of serious breaches of contract to go to another job, the "overwhelming presumption" was that the effective cause of her leaving was the fundamental breach of contract, rather than the offer of alternative employment. In contrast, the fundamental breach in O'Grady v Financial Management Group Services Ltd was not the effective cause of the employee's departure. In that case, the tribunal made a crucial finding of fact to the effect that had the employee not left to take up another job, he would have remained in his previous post and affirmed the new terms and conditions imposed upon him by his employers.

It is important to note that it is not necessary for either the employee or the employer to know that there has been a breach of contract. What is crucial is that there is an objective causal link between the conduct that in fact amounts to a breach, and the resignation (Hay v Glasgow City Council).

Reason for resignation need not be communicated to employer

Ultimately, the question of whether or not an employee has resigned in response to a fundamental breach of contract, and so accepted the repudiation of the contract of employment by the employer, is one for the employment tribunal to determine on the facts of each case. While there is no need for an employee to make a formal assertion to that effect, as the EAT stated in Walker v Josiah Wedgwood & Sons Ltd, "it is at least requisite that the employee should leave because of the breach of the employer's relevant duty to him and that this should demonstrably be the case".

However, there is no rule of law that an employee must tell his or her employer why he or she is leaving in order to establish that they are accepting the breach and not leaving for any other reason (Weathersfield Ltd v Sargent overruling Holland v Glendale Industries). If a reason is not given to the employer at the time the employee leaves, this will be a relevant factor to be considered by the tribunal and will make it harder for the employee to prove that he or she left in response to the breach. But it is not in itself conclusive. Thus, in Weathersfield, the Court of Appeal upheld a finding of constructive dismissal where the employee had been put in an outrageous and embarrassing position and it was understandable that she did not want immediately to confront her employer with her reason for leaving. In the event, she gave her reasons by letter a few days after her resignation.

Further, as the EAT stated in Lopez v Villa del Cesari Ltd, it is a "perfectly well-understood concept in the general law of contract" that a repudiatory breach can be accepted by conduct. In that case, the employment tribunal erred, firstly, in failing to consider whether the employee, in response to a fundamental breach, had effectively brought the contract to an end by his conduct in leaving his employment and, secondly, in placing too great an emphasis on his failure to make an express communication to the employer.

Accepting an anticipatory fundamental breach

In Harrison v Norwest Holst Group Administration Ltd, the Court of Appeal held that it was open to an employee to resign in response to a repudiatory, anticipatory breach of contract (see above at p.7). However, until the employee communicated his acceptance of the breach to the employer, it was open to the employer to withdraw the threat of breach and communicate to the employee its intention to comply with the terms of the contract. When it did so, there was no longer a breach of contract for the employee to accept.

Resignation on notice

As s.95(1)(c) of the ERA itself makes clear, an employee who resigns on notice may still claim to have been constructively dismissed, as recognised by the EAT in Peterborough Regional College v Gidney. During the period of notice, there remains a subsisting contract which is capable of breach by either party, which may be relevant to the issue of compensation for unfair dismissal. This will be discussed further in part 2 of this Guidance Note.

Where an employee resigns on notice, it is possible that events during the notice period may give rise to a fresh repudiatory breach on the part of the employer, which the employee may accept as the reason for the termination of his or her contract of employment. This was recognised in Smith v GEC Marconi Command Defence Systems Ltd, where the employee resigned on notice but the tribunal found that at the time of his resignation, he had affirmed his contract and so was not constructively dismissed. The EAT noted that the employer was guilty of a further repudiatory breach during the notice period, which could have been accepted by the employee to found a constructive dismissal. However, on the facts, the employee had consistently maintained that his employment had ended when his notice had expired from his earlier resignation. On this basis, the later breach was not relevant.

AFFIRMATION

According to the general law of contract, in certain circumstances an employee may be taken to have affirmed the contract, losing the right to accept the repudiatory breach and, in the case of a repudiation that takes the form of a unilateral imposition of a new contractual term, such as a reduction in wages, agreeing such variation by his or her conduct. Whether the contract is affirmed or not in any given case is a matter of fact. The Court of Appeal in Western Excavating put it thus: an employee "must make up his mind soon after the conduct of which he complains; for, if he continues for any length of time without leaving, he will lose his right to treat himself as discharged".

However, it is important to realise that mere delay in itself does not constitute affirmation (WE Cox Toner (International) Ltd v Crook), but rather is evidence of implied affirmation if the employee's actions are consistent with the continued existence of the contract, although provided the employee makes clear his or her objection to what is being done, he or she will not be taken to have affirmed the contract by continuing to work and draw pay for a limited period of time (Cox applying Marriott v Oxford Co-operative Society).

However, if an employee purports to accept a breach by submitting an originating application for unfair dismissal, and then regularly continues to report for duty, this is not consistent with maintaining that a contract is at an end (Hunt v British Railways Board).

Reason for delay relevant

Where a delay is caused while an employee is trying to establish the real reason for the treatment he or she has suffered, that should not count against them.

For example, in The Post Office v Roberts, where the employee's trade union representative took six weeks to establish the real reason for the refusal of the employee's transfer request, the real point of time when she had to make a decision did not arrive until the matter finally became clear.

So too, in Lombard North Central plc v Leach and another, the employer sought to impose a change in the employees' place of work without fully explaining its intentions and failed to answer employee concerns about the practical consequences of the move. In those circumstances, the EAT held that the employees were fully entitled to remain in work until they knew what the changes were going to be, in this case working and continuing to protest about the lack of information for about six months.

Continuing breaches

As mentioned above at p.9, a number of events may make up a course of conduct that cumulatively amount to a fundamental breach. In these circumstances, it is the last act or incident that is relevant for the purposes of determining whether or not the contract has been affirmed (as was recently confirmed in Abbey National plc v Robinson). An employer's conduct may also give rise to a continuing breach of contract, as in the case of WA Goold (Pearmak) Ltd v McConnell, where the breach consisted of a failure to provide or operate a proper grievance procedure. In such cases, the issue of delay does not arise while the breach continues.

Does receipt of sick pay amount to affirmation?

In Wood & Mott Ltd v Carr, the EAT remitted to the employment tribunal the question of whether receipt of sick pay amounted to affirmation, noting that it was a "powerful determinant" but not conclusive in all and every circumstance.

For example, in Bashir v Brillo Manufacturing Co Ltd, an employer sought to argue that an employee had affirmed his contract by remaining off work and claiming sick pay for two and a half months following a disciplinary demotion. The EAT disagreed. Throughout that period, the employee had positively asserted that he did not accept the new position. Moreover, in accepting the sick pay, the employee was merely affirming the existence of his old contract, as the level of sick pay was identical for each position.

An illustration of a situation where an employee in receipt of sick pay was found to have affirmed his contract can be seen in Toyinbo v Clydesdale Bank plc. Following a fundamental breach by the employer, the employee went off sick and raised a grievance, finally resigning eight months after the grievance had been rejected. The EAT stated that even if failing to deal with the grievance was viewed as a fundamental breach, the tribunal had been right to consider that the employee had affirmed the contract. From the time that the grievance had been rejected, the employee had on five occasions promptly submitted a medical certificate for two months at a time, entitling him to payments that he would not have been entitled to had he accepted the repudiatory breach. The tribunal was entitled to hold that he was well enough to accept the repudiatory breach had he been minded to do so.

Negotiating with the employer

In Young v John D Wood & Co, an employee who had been promised a management position at a particular branch entered into negotiations with her employer over her future when the position in question was offered to someone else. After just over a month, she resigned. The EAT stated that the tribunal had been wrong to hold that remaining in negotiations in itself amounted to affirmation. The negotiations had to be considered in the round, relevant factors including the length of the negotiations and their nature.

Finding another job

In the same way that a repudiatory breach can be said to be the effective cause of an employee's resignation even where he or she also leaves to go to another job, so an employee who delays for a matter of weeks in order to find alternative employment need not affirm the contract by his or her actions.

For example, in Waltons & Morse, a long-serving employee with family commitments delayed her resignation for a few weeks in order to find another job. She had informed her immediate boss that she was looking for another job and made it clear that her reason for doing so was the fundamental breach; in those circumstances, she was found not to have affirmed the contract.

Employers in breach of statutory obligations

It appears from the case of Reid v Camphill Engravers that where an employer has a statutory obligation to make appropriate weekly payments, in this case under an Order issued by the Boot and Shoe Repairing Wages Council, it is not open to an employee to agree and affirm the contract for a lower sum than that decreed by Parliament. Presumably, this will also be true of an employer paying less than the national minimum wage under the National Minimum Wage Act 1998, although s.17 of that Act also specifically states that a qualifying worker will be taken under his or her contract to be entitled to be paid the difference.

Knowledge of legal rights relevant?

Is it possible for employees to delay accepting a fundamental breach of contract until they are aware of their legal right to do so? The Court of Appeal was faced with this "formidable argument" in Bliss, where the employee argued that, as a matter of law, a party cannot be held to have affirmed a contract if he does not know he has the legal right so to do, based on the Court of Appeal decision in Peyman v Lanjani, a commercial case dealing with the assignment of a lease. In the event, the Court of Appeal in Bliss did not find it necessary to express an opinion on the matter, although it did note that "acceptance of [the argument] could have considerable repercussions in employment law". Since then, maybe somewhat surprisingly, the argument appears to have been largely ignored.

Main points to note

The test for constructive dismissal is contractual, necessitating a fundamental breach of contract, in response to which the employee resigns, in circumstances where he or she has not otherwise affirmed the contract.

Breach of contract

Is the breach fundamental?

Leaving in response to the breach

Affirmation

Breach of mutual trust and confidence: selected examples

Whether the duty of trust and confidence has been breached will depend on all the circumstances of a particular case. By way of example, the term has been found to have been breached in the following situations:

General

Performance issues

Sexual harassment and related issues

Employee welfare

Verbal abuse

Varying the terms of employment

Transfers

Disciplinary issues

Pay

"Last-straw" situations

A cumulative breach of the implied term of trust and confidence may be made up of a number of incidents spanning a lengthy period of time, culminating in a "last-straw" incident that leads to the resignation of the employee. Examples in varying contexts include:

Bullying

Demotion and criticism

Pay

CASE LIST

Abbey National plc v Robinson 20.11.00 EAT 743/99

Abbey Thermosets Ltd v Vidler 7.10.96 EAT 378/96

Alcan Extrusions v Yates and others [1996] IRLR 327

Aparau v Iceland Frozen Foods plc [1996] IRLR 119

Arden v Bradley 25.1.93 EAT 251/91

Bamber (Roof Trusses) Ltd v Barker 26.9.90 EAT 340/89

Bank of Credit and Commerce International SA v Ali and others (No.3) [1999] IRLR 508

Bashir v Brillo Manufacturing Co Ltd [1979] IRLR 295

Bass Leisure Ltd v Thomas [1994] IRLR 104

Beeley v London Sailplanes Ltd 9.6.97 EAT 1345/96

Bliss v South East Thames Regional Health Authority [1985] IRLR 308

Blyth v The Scottish Liberal Club [1983] IRLR 245

BPCC Purnell Ltd v Webb 22.12.92 EAT 129/90

Bracebridge Engineering Ltd v Darby [1990] IRLR 3

Bridgen v Lancashire County Council [1987] IRLR 58

British Broadcasting Corporation v Beckett [1983] IRLR 43

Brown v JBD Engineering Ltd [1993] IRLR 568

Cantor Fitzgerald International v Callaghan [1999] IRLR 234

Connolly v Friends Provident Life Office 12.2.97 EAT 907/96

Courtaulds Northern Spinning Ltd v Sibson and another [1988] IRLR 305

Courtaulds Northern Textiles Ltd v Andrew [1979] IRLR 84

Devoy v World Duty Free (Europe) Ltd 27.11.00 EAT 59/00

Dryden v Greater Glasgow Health Board [1992] IRLR 469

Dumfries & Galloway Regional Council v Tindall 21.8.92 (S)EAT 295/92

Edgestop Ltd (in receivership) v McGorry 27.10.92 EAT 215/92

Edwards v Surrey Police [1999] IRLR 456

Financial Techniques (Planning Services) Ltd v Hughes [1981] IRLR 32

Forester v Charcon Products Ltd [1974] IRLR 308

Frank Wright & Co (Holdings) Ltd v Punch [1980] IRLR 217

Fyfe & McGrouther Ltd v Byrne [1977] IRLR 29

GEC Avionics Ltd v Sparham 12.10.93 EAT 714/91

Gogay v Hertfordshire County Council [2000] IRLR 703

Gordon Lodge Nursing Home v Jama 10.10.94 EAT 692/93

Greenaway Harrison Ltd v Wiles [1994] IRLR 380

Harrison v Norwest Holst Group Administration Ltd [1985] IRLR 240

Hay v Glasgow City Council 24.3.98 (S)EAT 1301/97

Hilton International Hotels (UK) Ltd v Protopapa [1990] IRLR 316

Holland v Glendale Industries [1998] ICR 493

Hunt v British Railways Board [1979] IRLR 379

Iceland Frozen Foods Ltd v Jones [1982] IRLR 439

Imperial Group Pension Ltd and others v Imperial Tobacco Ltd [1991] IRLR 66

Isle of Wight Tourist Board v Coombes [1976] IRLR 413

Irving v Thwaites Holmes Kitchens 18.12.90 Court of Appeal (NI)

Johnstone v Bloomsbury Health Authority [1991] IRLR 118

Jones v F Sirl & Sons (Furnishers) Ltd [1997] IRLR 493

Lewis v Motorworld Garages Ltd [1985] IRLR 465

Lombard North Central plc v Leach and another 7.10.94 EAT 534/92

Lopez v Villa del Cesari Ltd 12.4.00 EAT 423/99

Lytlarch Ltd v Reid 9.11.90 EAT 296/90

Macari v Celtic Football and Athletic Co Ltd [1999] IRLR 787

Malik and another v Bank of Credit and Commerce International SA [1997] IRLR 462

Marriott v Oxford Co-operative Society [1969] 3 All ER 1126

McNeill v Charles Crimin (Electrical Contractors) Ltd [1984] IRLR 179

Millbrook Furnishing Ltd v McIntosh [1981] IRLR 309

Moores v Bude-Stratton Town Council [2000] IRLR 676

Murco Petroleum Ltd v Forge [1987] IRLR 50

National Semiconductor (UK) Ltd v Church and others 1.7.97 (S)EAT 252/97

Nelson v Kingston Cables Distributors Ltd 2.5.00 EAT 662/99

O'Grady v Financial Management Group Services Ltd 27.10.95 EAT 1161/94

Passi, Passi, Handa v Ray 28.10.94 EAT 506/93

Pedersen v The Mayor and Burgesses of the London Borough of Camden [1981] IRLR 173

Peterborough Regional College v Gidney 13.11.98 EAT 1270/97

Peyman v Lanjani [1984] 3 All ER 703

Pfaffinger v City of Liverpool Community College [1996] IRLR 508

Power Lines Pipes & Cables Ltd v Penrice and others 29.1.87 (S)EAT 722/86

Reed and another v Stedman [1999] IRLR 299

Reid v Camphill Engravers [1990] IRLR 268

Rigby v Ferodo Ltd [1987] IRLR 516

Robinson v Crompton Parkinson Ltd [1978] IRLR 61

Sangarapillai v Scottish Homes 2.12.91 EAT 420/91

Scally v Southern Health and Social Services Board [1991] IRLR 522

Scott v Aveling Barford Ltd [1977] IRLR 419

Seceurop Ltd v Wilson 29.7.94 EAT 474/92

Smith v GEC Marconi Command Defence Systems Ltd 3.7.00 EAT 835/99

Smyth v Croft Inns Ltd [1996] IRLR 84

Spafax Ltd v Harrison [1980] IRLR 442

Spencer v Marchington [1988] IRLR 392

Star Newspapers Ltd v Jordan 22.11.93 EAT 344/93

Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 3 All ER 30

The Post Office v Roberts [1980] IRLR 347

Thompson v Ritec Ltd 10.12.96 EAT 651/96

Toyinbo v Clydesdale Bank plc 20.11.98 EAT 999/98

TSB Bank plc v Harris [2000] IRLR 157

United Bank Ltd v Akhtar [1989] IRLR 507

Wadham Stringer Commercials (London) Ltd and another v Brown [1983] IRLR 46

WA Goold (Pearmak) Ltd v McConnell and another [1995] IRLR 516

Walker v Josiah Wedgwood & Sons Ltd [1978] IRLR 105

Waltons & Morse v Dorrington [1997] IRLR 488

Weathersfield Ltd v Sargent [1999] IRLR 94

WE Cox Toner (International) Ltd v Crook [1981] IRLR 443

Western Excavating (ECC) Ltd v Sharp [1978] IRLR 27

Whitbread plc t/a Thresher v Gullyes 1.7.94 EAT 478/92

White v Reflecting Roadstuds Ltd [1991] IRLR 331

Wigan Borough Council v Davies [1979] IRLR 127

Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 All ER 571

Wood v Freeloader Ltd [1977] IRLR 455

Wood & Mott Ltd v Carr 6.11.96 EAT 1025/95

Woods v W M Car Services (Peterborough) Ltd [1981] IRLR 347 (EAT)

Woods v W M Car Services (Peterborough) Ltd [1982] IRLR 413 (CA)

Young v John D Wood & Co 29.9.99 EAT 1092/98