Western Excavating (ECC) Ltd v Sharp

An employee is constructively dismissed only where the employer's conduct gives the employee a contractual right to terminate the employment without notice. The statutory question of dismissal is distinct from the later question whether a dismissal was fair. It is therefore insufficient that an employer has acted unreasonably in a sense which makes continued employment unattractive.

The conduct must amount to a repudiatory or fundamental breach, or show that the employer no longer intends to be bound by an essential contractual term. The employee must elect to treat the contract as at an end within a reasonable time or be taken to have affirmed it. This is the contract test under Trade Union and Labour Relations Act 1974, Schedule 1.

The employee was dismissed for misconduct but, on an internal appeal, the dismissal was withdrawn and replaced by five working days' suspension without pay. Experiencing financial difficulty, he asked his employer for an advance of accrued holiday pay or a loan. The employer refused, consistently with its policy. The employee resigned, obtained his holiday pay and claimed compensation for unfair dismissal.

By a majority, the Industrial Tribunal held that the employer should have done more to assist him and that its conduct justified his resignation. The Employment Appeal Tribunal dismissed the employer's appeal because it could not say that no reasonable tribunal could have reached that conclusion. The employer appealed to the Court of Appeal. The central issue was whether the statutory concept of constructive dismissal depended on unreasonable employer conduct or on the employee's contractual right to leave without notice.

Disposition

1. The Court of Appeal unanimously allowed the employer's appeal. The award of compensation was set aside. The employee's resignation was not a dismissal, constructive or otherwise.

2. Lord Denning MR held that paragraph 5(2)(c) of Schedule 1 to the Trade Union and Labour Relations Act 1974 adopts the contract test. Its language, especially “entitled” and “without notice”, requires a legal right to terminate the contract immediately because of the employer's conduct. The separate statutory treatment of dismissal and fairness showed that Parliament did not intend the reasonableness inquiry applicable to unfairness to determine whether a dismissal had occurred.

3. The relevant contractual threshold is conduct amounting to a significant breach going to the root of the contract, or conduct showing that the employer no longer intends to be bound by an essential term. An employee who relies on that conduct must elect to leave without undue delay; continued employment may amount to affirmation of the contract.

4. Lawton LJ independently reached the same construction. Dismissal is a clearly identifiable legal state of affairs which must exist before fairness can arise. An employee can terminate without notice only where the law confers that contractual right. Eveleigh LJ agreed with both judgments.

5. On the facts, the employer had not breached or repudiated the employment contract. It was not obliged to advance holiday pay or make the requested loan. The employee resigned because of his personal financial position, not because employer conduct entitled him to leave immediately.

• Court of Appeal: Allowed the employer's appeal and set aside the compensation award: [1978] QB 761.

• Employment Appeal Tribunal: Dismissed the employer's appeal, holding that it could not say the Industrial Tribunal had erred in law or reached a conclusion no reasonable tribunal could reach.

• Industrial Tribunal at St Austell: By a majority, upheld the employee's claim for compensation for constructive unfair dismissal. The minority held that the employee had resigned by his own personal decision and that there had been no dismissal.