Constructive dismissal in Australia and the employer duties that prevent a claim

Constructive dismissal is the name given to a resignation that the law treats as a dismissal. Under s 386 of the Fair Work Act 2009 (Cth), a person is "dismissed" if they resigned but were forced to do so because of conduct, or a course of conduct, engaged in by their employer.

For an Australian small or medium business, the obligation this creates is mostly a negative one: do not behave in a way that leaves an employee with no real choice but to resign. When that happens, the resignation can be re-characterised as a dismissal, and the business is exposed to unfair dismissal and general protections claims it may have assumed were off the table. This guide sets out who the obligation applies to, the conduct that most often breaches it, what happens if a claim is made, and the practical steps that reduce the risk.

Who the constructive dismissal obligation applies to

Constructive dismissal is not a separate cause of action. It is a way of establishing that a dismissal occurred, which then opens the door to the usual remedies. It can arise for any employer covered by the Fair Work Act, which includes most private sector businesses in Australia.

The trigger is an employee who resigns but who was forced to do so by the employer's conduct or course of conduct (s 386(1)(b) of the Fair Work Act). The classic statement of the test comes from Mohazab v Dick Smith Electronics Pty Ltd [1995] IRCA 625, where the court held that when an employee has no effective or real choice but to resign, it can hardly be said that the termination was truly at the employee's initiative. The Commission looks at all of the circumstances, not a single act in isolation, and the employee must have resigned because of the employer's conduct, not for unrelated reasons.

Whether a claim can then be pursued depends on the route the employee takes:

• Unfair dismissal: the employee must have completed the minimum employment period (6 months, or 12 months if the employer is a small business employer) and must either be covered by a modern award or enterprise agreement, or earn less than the high income threshold, which is $190,100 from 1 July 2026.
• General protections: no minimum employment period or earnings cap applies, so this route is open to more employees, including those who would be shut out of unfair dismissal.
• Time limits: an unfair dismissal application must be lodged within 21 days of the dismissal taking effect, and a general protections dismissal application has the same 21 day window.

The flip side matters just as much. Lawful and reasonable management action, carried out in a reasonable way, does not become constructive dismissal simply because the employee is unhappy with it. Setting performance expectations, addressing misconduct through a fair process, or restructuring a role with proper consultation will not ordinarily leave an employee with no real choice. The line is crossed where the employer's conduct, looked at as a whole, leaves resignation as the only reasonable option.

The core duty: never leave an employee with no real choice

The central question the Fair Work Commission asks is whether the resignation was a genuine choice. Conduct that commonly answers that question "no" includes ultimatums ("resign or we will terminate you"), unilateral cuts to pay or hours, demotion or removal of duties, unreasonable relocation, and threats dressed up as options. The employee in Mohazab was handed a pre-typed resignation letter and asked to sign it after being told police would be called in, which is why the court found the choice was not real.

A unilateral change to a core term of the employment contract is particularly dangerous. Cutting hours, reducing pay or moving an employee to a role with significantly less responsibility are the kinds of changes that require agreement, not direction. Consider the shop supervisor told at a Monday morning meeting that their hours are being halved from next week to save costs, with no consultation and no written variation. If they resign on the spot, the business has handed the Commission a textbook forced resignation: a significant detrimental change, imposed unilaterally, with no genuine choice offered. Where the contract, award or enterprise agreement contains a consultation obligation, it must be followed: explain the operational reasons, explore alternatives, give the employee a genuine opportunity to be heard, and document the process. A change imposed without agreement can amount to repudiation of the contract, and an employee who resigns in response can argue the business forced the end of the employment.

Keep the workplace safe and act on bullying

Work health and safety laws impose a primary duty on persons conducting a business or undertaking to ensure, so far as reasonably practicable, the health and safety of workers. A workplace where bullying, harassment or unreasonable work pressure is allowed to continue can quickly become intolerable, and an employee who leaves because of it can claim the business made continued employment untenable.

The practical obligations are straightforward but often neglected:

• Acknowledge complaints promptly and in writing.
• Investigate quickly, impartially and without prejudging the outcome.
• Take corrective action where concerns are substantiated, and put interim controls in place where there is a live risk.
• Keep the complainant informed of progress and of the outcome.

A culture that addresses issues early is far less likely to produce a constructive dismissal claim than one that lets grievances sit.

Stand down or suspend only on a lawful basis

Standing an employee down without pay is lawful only in the limited circumstances set out in s 524 of the Fair Work Act: industrial action, a breakdown of machinery or equipment, or a stoppage of work for which the employer cannot reasonably be held responsible. It is not a tool for parking an employee while a disagreement is sorted out.

Precautionary suspension pending an investigation is a different step, but it should be short, paid where the contract or agreement requires it, and based on a genuine risk to the investigation or to people. An unlawful stand down or a punitive, unexplained suspension can itself be the conduct that forces the resignation, so document the reasons for the decision and review it regularly.

Run performance management and investigations fairly

Most constructive dismissal claims are born in a process that went wrong. An employee who is accused of misconduct or underperformance without being told the specifics, given the evidence, or allowed to respond can reasonably conclude there is no point staying.

Procedural fairness generally means:

• Tell the employee the specific concerns in writing.
• Provide the relevant evidence.
• Give a genuine chance to respond, in writing and in person.
• Consider the response before making a decision, and record why.

A show cause letter is the structured starting point for serious concerns, and it protects the employer as much as the employee by forcing the process into a fair shape. Avoid anything that reads as an ultimatum, because an ultimatum is the classic fact pattern from Mohazab. Where the process is fair and the concerns are genuine, a resignation that follows will usually remain a voluntary resignation.

Pay wages and entitlements on time

Non-payment or late payment of wages, leave, allowances or other entitlements owed under the contract, the award or the National Employment Standards is unlawful in its own right, and it can also be the conduct that pushes an employee to resign. Payroll errors happen, but a pattern of non-payment that continues after the employee has complained is exactly the kind of course of conduct that supports a forced resignation claim. Fix errors promptly, communicate openly about when payment will be made, and never use withheld pay as leverage.

What happens if a forced resignation is established

If the Commission accepts that the resignation was forced, the dismissal can be found to be unfair where it was harsh, unjust or unreasonable. The Commission can order reinstatement or, where that is not appropriate, compensation. Compensation is capped at the lesser of 26 weeks' pay and half the high income threshold, which is $95,050 from 1 July 2026 (the cap is explained on the Fair Work Commission's compensation cap page).

The employee can also, or alternatively, pursue general protections. Adverse action includes dismissing an employee, injuring them in their employment, or altering their position to their prejudice (s 342 of the Fair Work Act), and it is unlawful if taken because of a workplace right such as making a complaint about their employment (s 340). The employer carries the onus of proving the action was not taken for a prohibited reason. Compensation under this route is not capped, and civil penalties can also apply. A forced resignation can also ground a breach of contract claim for damages.

Whichever route is taken, the process starts fast: applications in both the unfair dismissal and general protections streams must be lodged within 21 days.

A compliance checklist for employers

The steps below are routine hygiene, not crisis response: they are cheapest and most effective when they happen before a resignation is ever threatened.

• Consult before change: before varying pay, hours, duties or location, check the contract, award or agreement and consult with the employee. Get agreement in writing.
• Take complaints seriously: acknowledge them, investigate promptly and impartially, and close the loop with the complainant.
• Use stand down and suspension lawfully: keep them paid where required, short, documented and genuinely necessary.
• Follow fair process: specific allegations, relevant evidence, a real chance to respond, and a reasoned decision.
• Pay on time: keep wages and entitlements current and fix errors promptly.
• Train managers: most forced resignations trace back to day-to-day decisions made by managers, so equip them with the process skills.
• Keep records: contemporaneous notes of meetings, consultations and decisions are the best defence if a claim is later made.

When to get professional help

An employment lawyer can review contracts and policies before problems arise, advise on whether a proposed change to pay, hours or duties can lawfully be made, check whether a stand down or suspension is defensible, and guide a show cause or investigation process into a fair shape. If a resignation arrives with allegations attached, advice in the first days on the timeline, the documents and the risks is usually far cheaper than defending a claim, and it can head off the claim altogether where the relationship can still be salvaged or an agreed exit negotiated.

Read the resignation email twice

Resignations rarely surprise the employee, but they often surprise the employer. When one arrives amid friction, treat it as the start of a review, not the end of the matter. Document the timeline of events, preserve emails and notes, and ask whether the employee was given a real choice at each step. The 21 day clock starts running from the date the dismissal took effect, and the Commission will look at the whole course of conduct, not just the resignation itself. The cheapest moment to get advice is before a claim is lodged, not after.