When a situation involves constructive dismissal, a settlement agreement can provide a beneficial path forward for both the employee and the employer. Constructive dismissal occurs when an employee feels they have no choice but to resign due to their employer’s conduct, which has fundamentally breached the terms of the employment contract. This type of situation can be highly distressing and may involve issues such as bullying, discrimination, unreasonable changes to working conditions, or failure to provide a safe workplace.

If you believe you’ve been constructively dismissed, here’s what you need to know about how a settlement agreement might apply, how it can resolve issues quickly, and what terms are typically negotiated in such cases.

1. What Is Constructive Dismissal?

Constructive dismissal occurs when an employee resigns because their employer’s actions have made it impossible for them to continue working under the contract’s original terms. These actions, known legally as a “repudiatory breach,” may include:

• Significant changes to your job role, pay, or benefits without agreement.
• Failure to address serious workplace issues such as bullying or harassment.
• Unreasonable work demands or a lack of necessary support.
• Breaches of trust or other conduct that undermines the employee-employer relationship.

In constructive dismissal cases, the employee resigns, but they may have grounds to argue that their employer effectively forced them out. They can seek to bring a claim for unfair dismissal if they can prove that the employer’s behavior left them with no other choice but to resign.

2. Why Use a Settlement Agreement in Constructive Dismissal Cases?

A settlement agreement can be a practical way to resolve a constructive dismissal situation without the need to pursue a lengthy and potentially stressful tribunal claim. For employees, a settlement agreement offers financial compensation and the possibility of resolving issues privately. For employers, it minimizes the risk of an employment tribunal and allows the company to avoid negative publicity or prolonged disputes.

In constructive dismissal situations, settlement agreements are often used to:

• Compensate the Employee: The settlement typically includes a compensation payment that acknowledges the employee’s losses and the circumstances of their resignation.
• Avoid Tribunal Litigation: By agreeing to a settlement, both parties can avoid the time, cost, and uncertainty of an employment tribunal. Constructive dismissal claims can be challenging to prove, and a settlement provides a certain outcome.
• Provide Closure and Confidentiality: Settlement agreements can help both parties achieve closure on the matter, often including confidentiality terms that keep the details of the settlement and the constructive dismissal claim private.

3. Key Terms in Settlement Agreements for Constructive Dismissal Cases

In constructive dismissal cases, a settlement agreement may contain specific terms that address the unique nature of the resignation and compensate the employee for their losses.

Compensation for Financial Losses

The primary element of a settlement agreement in a constructive dismissal case is financial compensation. This amount will vary depending on the circumstances but may include:

• Loss of Earnings: Compensation for lost wages due to the employee’s resignation. This is often based on the time it may take the employee to find comparable employment.
• Notice Period: If the employee did not work out their notice period, the agreement may include a pay-in-lieu of notice (PILON) to cover this period.
• Compensation for Breach of Contract: Additional payment may be negotiated to compensate for the breach of contract that led to the resignation.

Non-Financial Terms

Settlement agreements in constructive dismissal cases often include terms to help the employee move forward and protect their future employment prospects:

• Positive or Neutral Reference: A reference is essential if the constructive dismissal involved conflicts that could affect the employee’s reputation. An agreed reference ensures that the employer will provide neutral or positive comments when contacted by future employers.
• Confidentiality and Non-Disparagement: These clauses ensure that neither party will disclose details of the agreement or make negative comments about each other publicly, protecting both the employee’s and employer’s reputations.
• Waiver of Future Claims: By signing the settlement, the employee agrees not to bring further claims against the employer related to their employment or resignation. This provides legal closure for both parties.

Compensation for Emotional Distress

In some cases, particularly where the constructive dismissal involved severe misconduct by the employer, the settlement may include compensation for injury to feelings or emotional distress. This payment is often tax-free and calculated based on guidelines similar to those used in discrimination cases, compensating the employee for the harm suffered.

4. Steps to Take Before Agreeing to a Settlement in Constructive Dismissal Cases

If you’re considering a settlement agreement after a constructive dismissal, it’s essential to take specific steps to strengthen your position:

• Gather Evidence: Constructive dismissal claims require evidence of the employer’s conduct, so it’s vital to document instances of breaches, including emails, meeting notes, or witness statements. This evidence can support your claim and may provide leverage during settlement negotiations.
• Seek Independent Legal Advice: In the UK, independent legal advice is required for a settlement agreement to be legally binding. A solicitor can help assess the fairness of the offer, negotiate improved terms, and ensure that your rights are protected.
• Consider the Alternative—Employment Tribunal: Constructive dismissal claims are difficult to prove, and pursuing a tribunal case can be costly and time-consuming. Consider whether the settlement provides an acceptable outcome compared to the uncertainty of tribunal proceedings.

5. Benefits of a Settlement Agreement in Constructive Dismissal

Settlement agreements offer unique advantages in cases of constructive dismissal:

• Quicker Resolution: An employment tribunal can take months or even years, whereas a settlement agreement provides a much faster resolution. This allows you to move on and focus on new opportunities.
• Certainty of Outcome: Constructive dismissal claims are challenging to prove, as the employee must demonstrate that the employer’s conduct constituted a fundamental breach of contract. A settlement agreement avoids the risk of losing the claim and ensures you receive compensation.
• Reduced Stress: The experience of constructive dismissal is often stressful, and the prospect of a tribunal can add to that. A settlement agreement allows you to resolve the matter without the pressures of legal proceedings, which can involve reliving the negative experiences in court.

6. Potential Downsides to Consider

While a settlement agreement can offer closure, it’s important to be aware of its limitations:

• Waiver of Claims: By signing the agreement, you waive your right to pursue any related claims in the future. If additional issues arise or new evidence comes to light, you will not be able to take further legal action.
• No Admission of Liability: Employers often include a clause stating that the settlement does not admit any wrongdoing. If you are looking for an acknowledgment of responsibility, this may be frustrating, as the agreement is typically a “no-fault” resolution.
• Confidentiality Requirements: Confidentiality clauses are common, and while they protect your privacy, they also prevent you from publicly discussing your experiences. If public acknowledgment is important to you, this limitation may be a drawback.

Final Thoughts

In cases of constructive dismissal, a settlement agreement can provide a fair and private resolution that compensates you for both financial and emotional losses while allowing you to move forward without the stress of a tribunal. Such agreements offer certainty, closure, and potentially faster compensation than a tribunal outcome.

If you believe your situation qualifies as constructive dismissal, consult with a solicitor who can review the proposed terms, guide you through the process, and help you achieve a fair outcome. By understanding your rights and options, you’ll be better equipped to negotiate a settlement agreement that fully addresses the impact of your constructive dismissal and protects your future interests.