From 1 January 2027, the risks for the employer will increase in regard to claims for constructive unfair dismissal. Changes brought in by the Employment Rights Act 2025 will widen the scope of employees who can bring a claim for unfair dismissal and will also remove the current cap on the amount of compensation that an employee can recover in an employment tribunal.
‘There are many circumstances in which an employee can feel so unwanted in the workplace that they treat themselves as dismissed; and this can gradually build up over time. Once the employee resigns, even if they are working out their notice, the employer does not have the opportunity to repair the situation. The employer may not even have any warning that the employee is about to resign,’ says Claire Simon, a Partner in the employment team with QualitySolicitors Parkinson Wright. ‘Very soon employees will have the right to bring an unfair dismissal claim from much earlier in the relationship, so employers need to be ready.’
Claire explains the basis of a constructive dismissal claim and the imminent changes in the law.
What is constructive unfair dismissal?
Constructive dismissal is not a consequence of the employer actually dismissing the employee, instead the employer’s treatment of the employee is such that the employee is entitled to resign and consider themselves dismissed. This occurs where the employer breaches a significant term of the contract or terms that are implied into the contract which require reasonable treatment of the employee.
Examples of constructive dismissal
Behaviour by the employer that could lead to a successful constructive dismissal claim include:
- significant changes to terms in the employee’s contract without the contractual right to do so or the employee’s consent, such as cutting pay;
- imposing a significant change of work location without the contractual right to do so, or the employee’s consent;
- even where the employer does have the contractual right to change a term, such as work location, if this done in an unreasonable way, this can give the employee the right to resign and claim constructive dismissal;
- harassment or discriminatory treatment;
- refusing to address a grievance without a good reason; and
- acting in a way that destroys trust and confidence between the employer and employee. Practical examples include unfairly excluding the employee from meetings, withholding work, or effectively demoting them.
‘Last straw’ and constructive dismissal
There does not necessarily have to be a big, one-off event or breach of contract. It could be that a series of smaller incidents cumulatively amounts to a breach of trust and confidence, allowing the employee to resign and claim constructive dismissal.
What if the employee delays resigning?
An employee can continue to work under protest and still have the right to bring a claim, so long as they make it clear that they do not accept the employer’s treatment. They must not delay too long, but particularly if they are off sick, they could be allowed to wait several weeks before resigning. It is not possible for the employer to make amends or ‘cure’ a breach.
Do they have to bring a grievance before resigning?
No, although the effect of the Acas Code of Conduct on disciplinary and grievances may affect the level of compensation they can claim if they do not raise a grievance, even after they have left.
What is changing?
For purposes of bringing an employment tribunal claim, the law treats a constructive dismissal the same as a dismissal by the employer. This means that the same rules apply for time limits to bring a claim and the need to have a minimum amount of service with the employer.
Big changes are on the horizon due to the Employment Rights Act 2025; employees will be able to bring a claim for unfair dismissal with just six months’ service, not two years. Employees starting on or after 1 July 2026 will benefit from this right, meaning a new starter could resign and bring a claim from January 2027.
In some cases, employees have the right to bring an unfair dismissal claim from their first day of employment. This is where the dismissal is for a discriminatory reason or certain specific reasons, such as whistle-blowing or pregnancy. The same applies to constructive unfair dismissal claims, where the employee establishes that the reason for the treatment is a prohibited one.
The Employment Rights Act 2025 is also bringing in strict limitations on changing terms and conditions of employment, through what is known as the ‘fire and rehire’ process. If dismissed in breach of these rules, employees will be able to claim unfair dismissal from the first day of employment. We will have to wait and see how the tribunals interpret the new laws, but it seems likely that if an employee resigns in response to a prohibited change to terms and conditions of employment, they would have the right to claim unfair dismissal from day one. This change is expected to come into effect in January 2027.
If an employee brings a successful claim in the employment tribunal, the maximum compensation that they can be awarded for an ‘ordinary’ unfair dismissal is currently capped. The limit is the lower of 52 weeks’ pay or a fixed amount that increases annually in line with inflation. For 2026/27 this cap is £123,543. Removing these limits will increase the potential liabilities, particularly for:
- higher earners;
- employees who will struggle to get similarly well-paid new work, perhaps due to age or ill health; and
- employees who lose out on valuable accrued pension rights.
Finally, the Government has indicated that at some time after October 2026, the time limit to bring an unfair dismissal claim will increase. At present, employees have just three months to make a claim. This will be extended to six months.
How we can help
We can provide you with clear, practical advice if an employee indicates that they are unhappy with the way they are being treated, to minimise the risk of claims for constructive unfair dismissal.
For further information, please contact Claire Simon in the employment team on 01905 721600 or email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.