Constructive dismissal is the legal label for a resignation that the law treats as a dismissal. It exists to stop employers engineering an exit: if an employer's conduct makes continued employment untenable, an employee can hand in a resignation and the Fair Work Act 2009 (Cth) (the Act) will still treat the end of the relationship as a dismissal, with all the rights and risks that flow from that. For a small to medium business this matters because a resignation you thought closed the matter can reopen as an unfair dismissal claim weeks later, complete with a conciliation conference, legal costs and a possible compensation order.
This guide explains how constructive dismissal actually works: when a resignation becomes a dismissal under the Act, who is eligible to claim, how the Fair Work Commission (FWC) assesses the claim, what remedies are available and where things commonly go wrong. It is most relevant when you are changing roles or pay, restructuring, managing a difficult employee, or sitting on a complaint that has not been resolved.
Three players are in the picture:
- The employee: resigns, then argues the resignation was forced and that the dismissal was unfair.
- The employer: the business whose conduct, or inaction, allegedly left the employee no choice but to resign.
- The Fair Work Commission: the federal tribunal that decides whether there was a dismissal, whether it was harsh, unjust or unreasonable, and what remedy follows.
When a resignation becomes a dismissal
The starting point is s 386 of the Fair Work Act 2009 (Cth). A person has been dismissed if the employer terminates the employment, or if the person "has resigned from his or her employment, but was forced to do so because of conduct, or a course of conduct, engaged in by his or her employer" (s 386(1)(b)).
The test was established in Mohazab v Dick Smith Electronics Pty Ltd [1995] IRCA 625, the case that gave Australian law its constructive dismissal doctrine. The facts are a useful illustration. The employer suspected a quality control manager of dishonesty over a missing item of stock, interviewed him with security consultants, prepared the letter of resignation on his behalf, had him sign it and escorted him from the premises. The Federal Court held that a resignation amounts to a termination at the employer's initiative when the employer's conduct leaves the employee with no real or effective choice but to resign. Where the employer effectively wrote the resignation letter, the choice was not real.
Two features of the test matter for employers. First, it is objective: the question is what a reasonable employee in the position would have done, not whether this particular employee was sensitive or difficult. Second, the Act speaks of "conduct, or a course of conduct". Constructive dismissal is rarely one event. It is usually the pattern of behaviour over time, and the FWC looks at the total picture, not a single incident in isolation.
What conduct can force a resignation
Conduct that leaves an employee with no real choice generally falls into one of these patterns:
- Unilateral changes to core terms: cutting pay, reducing hours, demoting, or stripping responsibilities without the employee's agreement and without a contractual right to do so.
- An unsafe or hostile environment: bullying, harassment or unreasonable workloads that continue after the employee has complained and the employer has done nothing effective.
- Pressure and ultimatums: telling an employee to resign or face the consequences, or signalling in words or conduct that resignation is the only realistic outcome.
- Fundamental breaches: conduct that goes to the heart of the employment relationship and makes continued employment untenable.
What will not amount to constructive dismissal
The test is a high bar, and several common situations will not meet it:
- A lawful and reasonable direction: if an employer directs an employee to do something within the scope of the role, the employee cannot simply resign and call it forced. An unwelcome but lawful direction is not constructive dismissal.
- A genuine performance management process: warnings, support and a fair process, even one the employee dislikes, do not force a resignation.
- Minor changes within the contract: small administrative adjustments that the contract permits.
- Ordinary friction and one-off disagreements: an employee who resigns because they are unhappy with conditions or had a difficult meeting, rather than because they had no real choice, will not meet the test.
There is also a statutory carve-out. A demotion is not a dismissal at all if it does not involve a significant reduction in remuneration or duties and the employee remains employed (s 386(2)(c)). A sideways move that keeps pay and standing therefore cannot found an unfair dismissal claim, although a significant demotion can still amount to a dismissal, and other claims may be available.
Who can bring a claim
Even where a resignation counts as a dismissal, the employee must be protected from unfair dismissal. Section 382 of the Act requires two things: the employee must have completed the minimum employment period, and must be covered by a modern award or enterprise agreement, or earn less than the high income threshold. Each element is a separate gate.
Minimum employment period
The minimum employment period depends on the size of the employer:
- Six months: for employers generally.
- Twelve months: for small business employers (s 383).
A "small business employer" is one that employs fewer than 15 employees (s 23 of the Act). The count is less forgiving than it sounds: associated entities are counted as one business, and a casual employee counts if they are a regular casual. The employee being dismissed is included in the count. If employment ends before the minimum period, the employee is not protected from unfair dismissal, whatever the conduct was.
Award, enterprise agreement or high income threshold
The employee must also be covered by a modern award, have an enterprise agreement apply to them, or earn less than the high income threshold (s 382(b)). The threshold is adjusted annually on 1 July. It is currently $190,100, and was $183,100 for dismissals that took effect on or before 30 June 2026, per the FWC's high income threshold page.
The threshold works the other way too: an employee earning at or above it who is not covered by an award or enterprise agreement cannot bring an unfair dismissal claim at all, no matter how forced the resignation. Note that "earnings" for this purpose is defined broadly and includes more than base salary, so a figure that looks under the threshold may not be. A high-income employee may still have options under the general protections provisions, discussed below.
Casual employees
Casual service counts towards the minimum employment period only if the employee was a regular casual employee and had a reasonable expectation of continuing employment on a regular and systematic basis (s 384(2)(a)). An irregular casual who worked sporadically will not accrue the minimum period, so the constructive dismissal route is usually closed to them.
The 21-day deadline
An application must be made within 21 days after the dismissal takes effect (s 394(2)). For a forced resignation, the dismissal takes effect when the resignation does, so the clock starts at the end of the employment relationship, not when the employee decides to claim or when the dispute becomes formal. The FWC can extend time only where there are exceptional circumstances, weighed against the factors in s 394(3): the reason for the delay, any action taken to dispute the dismissal, prejudice to the employer, the merits and fairness. Miss the window and a strong claim dies, so a resignation that might have been forced should be treated as urgent.
How the Fair Work Commission assesses the claim
The FWC asks two separate questions, and it is worth understanding both because they pull in different directions.
Was there a dismissal?
The employee carries the onus of showing that the employer's conduct left them with no real or effective choice but to resign. The Commission looks at the whole context: what the employer did and failed to do, what the employee knew at the time, whether concerns were raised and how the employer responded, and whether there was a practical alternative to resigning, such as lodging a grievance. Where the employee had a genuine complaint process available and simply did not use it, the claim is harder to make out, although the test remains objective and an employee can still succeed where complaining would have been futile or unsafe.
Was the dismissal harsh, unjust or unreasonable?
Only if the first question is answered yes does the Commission move to s 387 of the Act, which lists the criteria it must take into account:
- Valid reason: whether there was a valid reason for the dismissal related to the employee's capacity or conduct, including its effect on the safety and welfare of others.
- Notice and response: whether the employee was notified of the reason and given an opportunity to respond.
- Support person: whether the employer unreasonably refused to allow a support person at discussions relating to dismissal.
- Warnings: for performance-related dismissals, whether the employee had been warned about the unsatisfactory performance beforehand.
- Enterprise size and resources: the degree to which the size of the business, and the presence or absence of dedicated human resources expertise, affected the procedures followed.
- Other matters: anything else the Commission considers relevant.
Procedural fairness matters even where the employer had legitimate concerns. An employer who can point to a documented, fair process, with issues raised in writing, time to respond, support offered and a genuine attempt to resolve the matter, is in a far stronger position if a resignation follows. An employer who let a grievance fester, or ran a process designed to push the employee out, has effectively built the employee's case.
What happens after a claim is lodged
Once an application is filed, the FWC runs a conciliation conference, usually by telephone, where the parties try to settle the matter with a conciliator's assistance. Many unfair dismissal applications resolve at this stage. If no settlement is reached, the matter proceeds to a hearing or arbitration before a member of the Commission, who decides whether the employee was dismissed, whether the dismissal was unfair and what remedy, if any, to order. The parties are expected to have their evidence, documents and witnesses ready, which is why the paper trail matters from day one.
What remedies are available
The Commission's powers on a finding of unfair dismissal are these:
- Reinstatement: the primary remedy. The FWC orders reinstatement where it is appropriate, and compensation is available only where reinstatement is not ordered (s 390). In practice reinstatement is ordered less often than the statute's priority suggests, but it remains the starting point.
- Compensation: capped at the lesser of the remuneration the employee received, or was entitled to receive, in the 26 weeks before the dismissal, or half the high income threshold immediately before the dismissal (s 392(5) and (6)). At the current threshold that cap is $95,050, though the actual figure depends on the dismissal date and the employee's pay.
- No compensation for hurt feelings: the Act expressly excludes any component for shock, distress or humiliation caused by the manner of the dismissal (s 392(4)). Compensation is about economic loss, and the Commission must also take into account the employee's efforts to mitigate their loss and any earnings since the dismissal (s 392(2)).
There is a separate route worth knowing about. A forced resignation can also ground a general protections claim if the real reason for the employer's conduct was a prohibited reason, such as the employee exercising a workplace right, and the protections there are not limited by the high income threshold in the same way. Different rules and time limits apply, so a lawyer can help assess which route, or both, fits the facts.
Where claims commonly go wrong
These are the patterns that repeatedly defeat or surprise the parties:
- The demotion carve-out: a sideways move with pay and duties intact is not a dismissal under s 386, which surprises employees and employers in equal measure.
- Resignations in the heat of the moment: a resignation that is communicated generally takes effect immediately, and whether it can be withdrawn depends on the employer agreeing. If an employee resigns during a heated meeting, the safest response is to record what was said, offer a cooling-off period and make no assumptions.
- Resigning mid-process: employees sometimes resign while a performance management process is running. If the process was genuine and fair, the resignation is unlikely to be treated as forced. If the process was a sham designed to manufacture an exit, it will look like constructive dismissal.
- Employees who never complained: an employee who had a real grievance process available and did not use it will struggle to show there was no real choice. The converse is also true: an employee who complained repeatedly and was ignored has a strong claim.
- High-income employees without award or agreement coverage: no unfair dismissal claim is possible, so check coverage before assuming a resignation can be challenged.
- Small business timing: with a 12-month minimum period, a resignation within the first year of employment is far safer territory.
- The 21-day clock: it runs from the dismissal taking effect, and it catches everyone eventually. Late applications fail unless exceptional circumstances are established.
If employment does end, remember the housekeeping: check National Employment Standards notice entitlements and make sure final pay is calculated correctly and paid on time, so a defensible position is not undermined by a payment dispute.
Where a lawyer fits in
Most of the value of legal advice comes before there is a dispute. Before you change roles, cut pay, restructure or commence a disciplinary process, a lawyer can check the contract and any award or agreement for the right to make the change, and help document genuine consultation. When a complaint is raised, advice on how to investigate, what interim measures are safe (such as separating the parties or suspension on pay), and what records to keep can stop a grievance hardening into a forced resignation.
If a claim is lodged, the lawyer's job is more immediate: test eligibility against the minimum period, coverage and the 21-day deadline, gather and organise the contemporaneous record, prepare the employer's position for the conciliation conference, and negotiate a settlement with a properly drafted deed of release if a pragmatic resolution is the right call. Because the deadline is 21 days, this is work that needs to happen within days of the application, not weeks.
The record of your conduct is the case
Constructive dismissal turns on what the employer actually did and failed to do, judged across the whole course of conduct. The Commission cannot see the workplace; it sees the emails, the meeting notes, the investigation file and the complaint trail. An employer who consulted, documented and responded to concerns has a defence, and often no claim at all. An employer who let a grievance fester, or engineered an exit, has written the claim themselves. The cheapest time to fix the problem is before the resignation, not after the application lands. A consultation with an employment lawyer to review your contracts, your complaint-handling processes or a live dispute is not an expensive extra; it is the alternative to defending a claim that early advice could have prevented.