6 Common Scenarios for Constructive Dismissal

Have you worked for your employer for more than 2 years?

Before we turn to the constructive dismissal scenarios, there is one fundamental issue that every employee needs to know: if you have less than two years’ continuous employment with your employer, your employer can dismiss you by giving you no more than statutory or contractual notice. Unfortunately, there is nothing you can do about this unless you have a claim such as discrimination or a specified claim which does not require two years’ service. Such claims are rare.

An employee needs two years’ service in order to claim unfair dismissal, the most common claim leading to settlement agreements.

What does it mean if you have less than 2 years’ service?

This means that for the vast majority of employees, if you have less than two years’ service and are facing any of the scenarios in this chapter, or you have simply been dismissed, there is often very little that you or we can do about it.

This isn’t always the case, and we have negotiated very high value settlements for people without two years’ service, but they usually fall into one of three categories:

1. They have a strong claim against the company for discrimination or something similar;
2. They are very well paid and the company wants to “do the right thing by them”. This latter scenario usually means that they don’t want to get a reputation in their field for treating highly-paid employees poorly, which will make it difficult for them to attract the best talent in the future.
3. The employee is employed in a commercially sensitive position and the company wishes them to enter into a settlement agreement in order to sign up to restrictions post-termination (such as a restrictive covenant), and the company is willing to pay for this.

Of course, there will always be other scenarios which will mean that a settlement agreement and a severance package complete with ex gratia payment will be achievable; however, based on our experience, if an employee does not have two years’ service or fall into one of the above three categories, the chances of achieving a settlement are low.

That said, and bearing the two years’ service factor in mind, we can examine the most common scenarios which lead to a negotiation and a settlement agreement.

6 Common scenarios leading to negotiation between an employee and an employer

• Performance Management Procedures
• Mergers and Aquisitions
• Role Erosion
• Mental Health Absence
• Redundancy
• A settlement agreement is offered

Read on for more detail…

Scenario 1: Performance Management Procedures

The most common scenario which leads to a settlement agreement in our experience is the commencement of performance management procedures for an employee (such as a Performance Improvement Plan, or ‘PIP’) . It is almost certainly the case that if an employer, in conjunction with its HR department, has sufficient concerns about an employee’s performance (to the extent that it is willing to engage that employee in formal procedures) then it wants that employee to leave.

HR departments do not take the commencement of performance management procedures lightly – they take up a lot of management time and HR resources, and are often undertaken in bad temper (what employee likes being told that their employer doesn’t think that they are up to the job?). So, you can bet your bottom dollar that the employer feels strongly about the matter and so they are almost certainly looking to move the employee out of the company.

For the employee, being told that they are going to face performance management can be like being punched in the gut. Often, the employee considers that their performance is more than adequate, and in many cases they are correct and their employer has just taken a dislike to them for some reason. In these cases, the employer sees performance management as a way of letting the employee know they are no longer wanted.

Sometimes, the employer may be justified in undertaking performance management, but the employee simply cannot see the employer’s point of view, which is understandable given they have worked hard for many years. That said, if an employee is told that they are going to have to undertake performance management, there is rarely a better opportunity to start negotiations and achieve a settlement agreement.

The first step for the employee is to either accept that the writing is on the wall and it’s time for them to move on with the best possible financial exit package; or, alternatively, to stay and fight for their current role. Our advice would be that employees who stay and fight, for the most part, are deluding themselves that they have a future with that particular employer. How many employees subject to performance management survive the process? How many go on to achieve a pay-rise or promotion? How many are happy in their role even if they survive the process?

The trust often goes between employer and employee once these matters are raised, and with that goes the future of the relationship. Of course many employees pass performance management procedures, and go on to remain with the company for months or years, and if that’s what the employee wants to do then we always encourage them to stand and fight (having explained to them the above caveats). But always bear in mind that there is never a better time to accept that it’s time to move on and start negotiating for an exit package.

Why is this a good scenario for achieving a settlement agreement?

The reason why this scenario is often the best in which to achieve a settlement is that both parties want a deal. The employer at the very least recognises that there is a problem and wishes to resolve it one way or the other, and the employee recognises it may be time to move on rather than face performance management. Therefore, you have the basis for an agreement: two willing parties.

It is increasingly common for an HR department to actually invite the employee into a meeting to commence performance management procedures and then have a “without prejudice” or “protected” conversation1 and offer a settlement agreement before the procedure has actually commenced (read more about Without Prejudice Meetings in our helpful article).

HR departments have to be careful about this, as if the employee is unaware of any pre-existing issues and no performance process has started, there is a possibility that the offer will not be afforded protection (i.e. the conversation will be “on the record”). This means that the employee will be in a very strong negotiating position as they can allege the result of any performance management procedure is a forgone conclusion and therefore the dismissal potentially unfair.

That said, most get it right and it is perfectly legitimate to offer an employee an “either/or” scenario: take the money and go now with a reference, or face the uncertainty of the procedure.

If you are reading this and have just been told you will face performance management, or have been offered a settlement agreement as an alternative, don’t worry – in fact look at this as a great opportunity.

You are in the prime position to negotiate some extra money, get paid your notice, agree the form of wording for a reference and then go and do something better with your life.

No one likes being told that their work is viewed as inadequate, but what’s worse is toiling away hoping for promotion, a pay-rise or even recognition in a company that doesn’t appreciate you. Not to mention the fact that you are probably in an environment which is having a negative impact on your mental health.

Scenario 2: Mergers and Acquisitions

Mergers and acquisitions were famously called “murders and executions” in the 1980s, and the reason being that the results of neither were pretty. In the cases we see of mergers and acquisitions, this means that jobs are lost, lines of reporting are changed, promotion prospects are squashed and redundancies imminent. You can also read our article specifically about T.U.P.E (transfer of undertakings).

So, if you are an employee facing your company being merged or taken over, and you believe that the consequences are likely to affect you negatively, you should think about starting the negotiation ball rolling. Depending on the circumstances, it may be wise to bargain your way out of your job before the axe falls.

Employees facing consequences of mergers and acquisitions generally fall into one of three categories:

1. They are employed by the company which is taking over another company.
2. They are employed by a company that is merging with another to create a partnership of equals or other symbiotic relationship.
3. They are employed by a company which is being taken over by a larger or more powerful concern.

Employees in category 1 are usually going to be fine, unless their employer dislikes them and sees the situational flux as an opportunity to push them out, in which case it’s a good time to start negotiating a settlement agreement for much the same reasons as we discussed in the performance management paragraphs above.

Employees in category 2 are vulnerable to new economies of scale and role-overlap, but this usually takes between six months and a year to begin to make itself known and therefore they are better off remaining in their post until the situation looks like it may lead to redundancies.

Employees in category 3 are the most vulnerable. It is they who are now at the mercy of a larger business, of managers who do not know them, have no relationship with them and are likely to prefer their own staff over them when push comes to shove.

Sometimes a larger company acquires another, and simply wants the business to continue running and expand naturally. This is rare given one company has to buy the shares of another (at an inflated rate if they are a plc, as a takeover always pushes up share prices). Either that or they have to make a global offer for 100% of the shares and assets (as is usually the case in a private limited company).

This will cost a lot of money, and in order to realise an investment sooner the purchaser will usually try and make efficiency savings (i.e. job cuts, pay cuts, bonus cuts, streamlined structures, fewer promotions, not replacing staff who are leaving, etc). This almost always leads to disaster and a terrible working environment. So if you are facing this scenario, believe your job is going to be affected and see an opportunity to start negotiations, then it’s an opportune time to raise the prospect of leaving.

What do we mean by opportune time? 

Well, it could mean that some of your role is being given to someone else without you having been consulted. It could mean that your clients (which you have had for years) have suddenly been given to another employee. You could find that decisions that you usually take are being taken by someone else.

These things almost always happen following a merger or acquisition, and taken together or on their own these instances may amount to constructive dismissal and/or a breach of the TUPE regulations (again, see our article).

If this has happened then it’s time to raise a formal grievance setting out these complaints openly in writing, while also sending a “without prejudice” or “protected” letter offering to leave employment under a settlement agreement in return for your notice and an ex gratia payment.

Scenario 3: Role Erosion

Role erosion is an old phrase that we used to use in the 1990s to describe the process by which an employer gently eases out an employee. The employee is blissfully engaged in the role they have held for years, when the employer suddenly takes issue with them, and without due explanation, begins to gently remove the employee from the company. The employer often does this without the employee even knowing about it until they realise that all their main responsibilities have been taken away from them.

Role erosion can be almost benign at first. An employer attempting to remove an employee in this way moves at an extremely slow pace, employing the “death by a thousand cuts” method and so ensuring that the employee cannot point to any one reason as an example of a breach of contract to support a constructive dismissal claim (see our article on constructive dismissal).

The trick that employers adopt is to take away almost all of the employee’s role and responsibilities without him realising it, and then declare him redundant. They would pay him off with the pittance which the state allows employers to pay in cases of redundancy (i.e. a statutory redundancy payment – it’s even less than you think, look it up!).

The key for the employee in this scenario is to recognise what is going on at an early stage and make the employer’s life as difficult as possible. If the employee acts strategically in this way, the employer will want to get rid of the employee enough to pay him off rather than continue down the long and tedious route it had initially envisaged.

What to look out for and how to react:

There are two main signs to look out for in regards to the behaviour and actions of your employer:

• The company employing someone to manage you with a suspiciously similar job title and description.
• Your roles and responsibilities are gradually prised away from you and given to either the new manager with the very similar sounding job title to your own, or to your colleagues.

The most obvious sign of role erosion is the company employing someone to manage you with a suspiciously similar job title and description. If you are the Commercial Manager and report to the Managing Director, and the company has just decided to appoint a “Commercial Director” who doesn’t actually sit on the board and also reports to the Managing Director, then you can pretty much guess what’s down the road for you.

The appointment of someone above you, especially if you are in a management position, is usually a good sign that your employer is trying to gently remove you without a fuss (or you realising). There is nothing unlawful or even apparently objectionable about employing someone to manage you, but it’s often a significant warning sign as to the safety of your role.

The second most obvious sign usually accompanies the first, and that is that your roles and responsibilities are gradually prised away from you and given to either the new manager with the similar sounding job title to your own, or to your colleagues.

This often happens over a period of weeks and months so that you can’t object too quickly, and the employer has a litany of convenient excuses to fall back on, most of them encompassing the word “synergies”. If you suddenly find yourself twiddling your thumbs for four hours a day, retrace your steps and look at how that happened. If your lack of work is not due to a downturn in business, it’s likely that others are doing what used to be your role are redundancy could be around the corner (along with the dreadfully low statutory redundancy payment).

So, you need to wise up and act quickly. Don’t let them get away with the “death by a thousand cuts” approach. Let them know that you know what’s going on and that you won’t take it lying down. Object to each decision in the strongest, but politest, terms. Always do this in writing and keep records of the e-mails. This way you are building up a record of your objections and increasing pressure on your employer not to take another step.

If you suspect foul play (i.e. Andy from accounts has just told you that he’s now responsible for something that you used to do), then demand answers and explanations in writing. If you’re really getting nowhere you could make a Subject Access Request (see our article on SARs).

If you keep up pressure on your employer then pretty soon they will get sick of you and, knowing that you’re wise to the game, may approach you with a settlement agreement. Either that, or the time will come (after the third or fourth incident) for you to raise a formal grievance, or instruct a solicitor to set out the incidences (referring to all your e-mails).

A solicitor will negotiate with your employer to achieve a settlement agreement in order to stop you from making a claim of constructive dismissal.

Scenario 4: Mental Health Absence

Employers, particularly HR professionals, hate sickness. They especially hate sickness that they cannot see, as it is hard to prove. Mental health is one of the most challenging issues of our times; accepted by parliament and the NHS to be a national (and indeed global) epidemic. Yet, take time off for stress or depression, or reveal any other sort of mental illness, and you may find doors will slam in your face.

While all but the most heartless and unscrupulous of employer would allow an employee to take time off following a cancer diagnosis, support them through the treatment and welcome them back to work, the same cannot be said for issues of mental health.

Regrettably, a significant number of our clients over the years have fallen ill because of stress, usually work-related, and have found that their employer’s reaction has been far from supportive. While the employer may pay lip-service to the usual requirements, so as not to fall foul of disability discrimination, their behaviour has actually lead to marginalisation and stigmatisation.

If you are reading this and are currently signed off work with a stress related illness, or with anxiety or depression, we realise that this is not the sort of thing you want to hear. However, while some employers (especially certain corporates) deal with their employees’ mental health issues very well, the majority of employers do not.

Some think the employee is lying in order to take time off and try and manufacture an exit package. Others simply cannot admit as acceptable an employee with diagnosed mental health issues returning to work, and working in a business where a mistake could cost money. While some still hold out-dated and often negative views about people with mental health problems.

What this all boils down to is that if you suffer from a mental health condition and have taken time off as a result of it (or are on long-term sickness) then the chances of you being offered a settlement agreement are high.

In all circumstances, if you are offered a settlement agreement, it is vitally important for you to draw the link between your illness and the offer of a settlement agreement.

HR professionals are terrified of being accused of disability discrimination and having to go to an Employment Tribunal and justify their actions. Almost always, the company will settle any claims or any threats of a claim well before this is necessary. There is therefore a premium to be paid by the employer if it offers a settlement agreement to someone who has diagnosed metal health issues, and you should not let your employer under-settle any claim you have.

Scenario 5: Redundancy

A redundancy situation does not always lead to a settlement agreement. If the employer is confident that it has conducted a fair process, it may decide to simply proceed to dismiss and run the risk of a claim.

Furthermore, as alluded to above, most employers need not pay any more than statutory redundancy pay if an employee is selected for redundancy (clearly this differs if a contractually binding or union negotiated policy is in place, in which case the employer is unlikely to offer more in any event). However, many employers offer a settlement agreement with an enhanced redundancy payment in order to ensure a smooth exit from the business for the employees, and also to protect the company against any claims.

Each circumstance varies in a redundancy situation in which the employer offers an enhanced package under a settlement agreement. Some employers offer huge amounts even though they don’t have to, especially to high-earning employees. This is known as a virtuous circle, in that departing employees are offered very generous terms because those employees making the offer – usually senior HR or board-level directors – want to ensure that precedent is set, and if they too were to depart, then they would get a large package as well. Some offer little more than statutory, but enough to make the employee accept it if their situation is hopeless.

What is important to understand is that usually the terms are negotiable, and if they are not then focus on other areas such as bonus payments, the termination date, share options and holiday pay as points of negotiation to increase your overall exit package.

Scenario 6: Being Offered a Settlement Agreement

Yes, this is obvious we know, but our point in including this point is to remind you, the employee, that just because you are being offered a settlement agreement does not mean that you must take what is initially offered.

You should treat this as the start of a negotiation, not the end of it, and for that reason being actually offered a settlement agreement is, for obvious reasons, the best time to start negotiating.

For further reading, take a look at some of our helpful articles about negotiating with your employer.

References: 1 Employment Rights Act s.111A affords the employer protection from having termination conversations being adduced in evidence against them if certain criteria are met.

Next steps

If you want to talk to us about your work situation, including your next steps and whether you deserve a better deal, just get in touch on 020 7717 5259 or click here to request a free no obligation 15 minute consultation.