Constructive dismissal and forced resignation — what Australian employers need to know

When an employee hands in a resignation letter, most employers treat the matter as closed. But a resignation is not always the end of the story. Under Australian employment law, a resignation obtained through employer pressure or misconduct can be treated as a dismissal — and that means the employer can face an unfair dismissal claim before the Fair Work Commission (FWC), even though the employee technically chose to leave.

This concept is known as constructive dismissal, and it is one of the more misunderstood areas of employment law for small and medium-sized business operators. This article explains:

what constructive dismissal is and how the law defines it
the eligibility rules that determine whether an employee can bring a claim
the kinds of employer conduct that commonly trigger — or do not trigger — a finding of constructive dismissal
where things typically go wrong for employers, and
when to get legal advice before the situation escalates.

What constructive dismissal actually means

The term "constructive dismissal" refers to a situation where an employee resigns but argues the resignation was not truly voluntary — that the employer's conduct left them with no real choice but to leave.

Under s 386 of the Fair Work Act 2009 (Cth), a person is taken to have been "dismissed" if they resigned from their employment but were forced to do so because of conduct, or a course of conduct, engaged in by their employer. That statutory definition is what makes forced resignation a category of unfair dismissal rather than a voluntary exit.

The key word is "forced." The test is objective: would a reasonable person in the employee's position have felt they had no real choice but to resign? The employer's subjective intention — whether or not they actually wanted the employee gone — is not determinative. What matters is whether the employer's behaviour, in practice, made continued employment untenable.

Who can bring an unfair dismissal claim

Not every employee can pursue a constructive dismissal claim. The Fair Work Act 2009 sets minimum eligibility thresholds.

Minimum employment period. An employee must have completed the minimum employment period before lodging a claim. That period is:

six months for employees of businesses with 15 or more employees, and
twelve months for employees of small businesses — defined as employers with fewer than 15 employees at the time of dismissal.

Application deadline. Eligible employees must apply to the FWC within 21 calendar days of the dismissal taking effect. The 21-day clock starts the day after the resignation. The FWC can grant extensions in exceptional circumstances, but late applications are the exception, not the rule.

High-income earners. Employees earning above the high income threshold who are not covered by a modern award or enterprise agreement are also excluded from unfair dismissal protections. That threshold is adjusted periodically by the FWC.

Employees who do not meet these thresholds may have other avenues — for example, a general protections claim under the Act — but that is a separate regime.

Employer conduct that can lead to a finding of constructive dismissal

Because the test is objective, the FWC looks at what the employer actually did and whether it fundamentally undermined the employment relationship. Employer conduct that has been found relevant includes:

Unilateral pay cuts. Reducing an employee's remuneration without consent, particularly a significant reduction, goes to the heart of the employment contract. If the employer changes pay terms without agreement and the employee has no genuine option to refuse, resignation in response can be treated as forced.
Serious demotion. Stripping an employee of their role, responsibilities, or seniority without cause or consent can amount to a repudiation of the employment contract.
Failure to pay wages. An employer's failure to pay wages at all is a fundamental breach of the employment relationship.
Ignored or enabled workplace harassment. If an employer fails to act on credible reports of bullying, harassment, or unlawful treatment — or actively facilitates it — the employee may be placed in an untenable position that constitutes forced resignation.
Unsafe work environment. Refusing to address a genuine and serious safety risk can, in extreme cases, leave an employee with no reasonable choice but to leave.
Pressure to resign. Direct requests, suggestions, or ultimatums to resign — including threats that the alternative is termination — are the most straightforward form of constructive dismissal. Employers who say "resign or you'll be fired" are effectively dismissing the employee, regardless of what the employee then does.

The common thread is that the employer's conduct has either fundamentally changed the terms of employment without consent, or has made the workplace so hostile or unsafe that remaining is not a real option.

Conduct that does not amount to constructive dismissal

The FWC also regularly finds that certain circumstances, while uncomfortable for the employee, do not meet the threshold of constructive dismissal. Knowing the boundaries matters as much as knowing the risks.

Resigning before a disciplinary process concludes. An employee who resigns at the outset of — or during — a disciplinary interview or performance review is generally not considered to have been forced out. The employer's legitimate exercise of performance management rights does not make a subsequent resignation involuntary.
Resignation while on a performance improvement plan. Placing an employee on a structured performance management plan, where the process is genuinely applied and the employee is treated fairly within it, has consistently been found not to constitute conduct forcing resignation.
Isolated minor grievances. A single instance of poor management, a disagreement over a decision, or intermittent frustrations does not ordinarily constitute a "course of conduct" sufficient to force a reasonable person to resign. Constructive dismissal typically requires something sustained, serious, or going to the fundamental terms of the employment relationship.
Delayed salary payments. Where an employer has occasionally failed to pay wages on time but the underlying obligation to pay is not in dispute and payments are eventually made, this has been found insufficient on its own to amount to forced resignation.

Where employers commonly get into trouble

The constructive dismissal cases that end badly for employers usually share recognisable patterns.

Handling performance issues the wrong way. Informally pressuring an employee to leave — rather than following a proper performance management or redundancy process — is one of the most common triggers. Employers who hint that "it would be better for everyone if you resigned" or who create hostile conditions around an underperforming employee are taking a significant legal risk. A formal process, applied consistently and documented properly, is far better protection than an informal push.

Unilateral contract variations. Changing an employee's role, hours, location, or remuneration without agreement — even when the employer believes it is commercially necessary — can constitute a repudiation of the contract. The fact that the employer had a good business reason does not automatically protect against a constructive dismissal finding. The right approach is to consult the employee, seek genuine agreement, and document it.

Letting workplace culture problems fester. Employers who receive complaints about bullying or harassment and fail to act, or who dismiss concerns without genuine investigation, expose themselves not just to constructive dismissal claims but to workers compensation and workplace health and safety liability as well. Early intervention — a formal investigation, clear outcomes, and genuine follow-through — is almost always less costly than inaction.

Misusing the "resignation option" in negotiations. When businesses are trying to manage headcount or exit an employee who is not performing, sometimes a conversation about resigning is raised as an alternative to termination. That conversation can be appropriate if the employee is given a genuine, informed choice and time to consider. It becomes constructive dismissal when the employee is told their job is gone either way, or when the circumstances make clear there is no real alternative.

How Artificer Legal can help

Constructive dismissal claims are factually intensive. The FWC will examine the full history of the employment relationship — emails, meeting notes, HR records, payroll data, and witness accounts — to determine whether the employer's conduct crosses the line. That means the evidentiary preparation matters enormously, both for employers defending a claim and for employees considering whether to bring one.

Where an employer is responding to a claim already filed, a legal practitioner will typically:

Review the full factual record of the employment relationship to identify the conduct at issue and assess its characterisation under s 386.
Advise on whether conciliation is appropriate — the FWC requires parties to attend conciliation before arbitration, and many constructive dismissal matters settle at that stage.
Prepare a formal response and, if conciliation does not resolve the matter, represent the employer through FWC arbitration.

Where an employer is trying to manage an employment situation before it becomes a claim, early advice on process — how to conduct a performance review, how to document a change to terms, how to handle a resignation conversation — is far more cost-effective than defending a claim after the fact.

Artificer Legal works with small and medium-sized Australian businesses on employment matters including unfair dismissal, performance management, and employment contract drafting. If you have a current situation or want to make sure your processes are sound, we can help.

The single most important thing to remember

A resignation is only as clean as the circumstances that produced it. If employer conduct was the driving reason an employee left — whether through direct pressure, fundamental contract changes, or a hostile environment — the FWC can treat that resignation as a dismissal and assess whether it was unfair.

The practical takeaway for employers: before having any conversation that involves the word "resign," or before making a unilateral change to an employee's terms, get advice first. The 21-day window for claims moves quickly, but the circumstances that create liability often build up long before it starts.

Key points:

Constructive dismissal is defined in s 386 of the Fair Work Act 2009 (Cth) — a resignation forced by employer conduct is treated as a dismissal.
The test is objective: would a reasonable employee in those circumstances have had no real choice but to resign?
Eligible employees have 21 calendar days from the date of dismissal to apply to the FWC.
The minimum employment period is six months (or 12 months for small businesses with fewer than 15 employees).
Legitimate performance management, properly applied, is not constructive dismissal — but informal pressure and unilateral contract changes often are.
Early legal advice on process is almost always cheaper than defending a claim.