High Award in Constructive Dismissal

Just last month the Employment Relations Authority found a constructive dismissal proved. This is unusual in itself because constructive dismissal cases are very difficult for an employee to prove. The Authority directed the employer to pay the employee six months’ salary and $19,000 for hurt feelings compensation.  Lost wages awards of more than three months are unusual and hurt feelings compensation awards are, on average, only around the $5,000 mark.

The Authority case is Irvine v Wallace & Cooper Limited [[2012] NZERA Christchurch 90; 15/05/2012; A Dumbleton]

Mr Irvine had worked for Andar Holdings for many years before it was taken over by Wallace & Cooper Limited.  For several years Mr Irvine had been the managing director of the Andar Holdings business but, at Wallace & Cooper, he accepted the lower position of Sales and Marketing Manager on a salary of $150,000 per annum.  After just one week working for Wallace & Cooper, Mr Irvine phoned the Managing Director, Mr Cross, to ask why he had not been paid.  Mr Cross told him the reason was because Mr Irvine had not filled in timesheets.  There was some further brief discussion about timesheets when Mr Cross then abruptly and aggressively said:

“You’re no longer in the front corner office!  You are now in the back office!  You are a piece of shit and you do exactly what I tell you!  If I tell you to shit in a corner you shit in a fucking corner!”

Mr Irving told the Authority that in response to this he said “Whoa!  Whoa! Whoa! I think you've gone too far”.  Mr Irvine said the telephone call ended when Mr Cross said “Well, you have a good day”.  After this call Mr Irvine took the next day off as sick leave and, upon his return to work, he gave Mr Cross his letter of resignation in which he said:

“Gary, I found your oral outburst of abuse over the phone on Thursday afternoon totally unacceptable.  As a result, I am tendering my resignation effective in one hour which is in line with my current employment contract …. James Irvine].

The Authority did not accept Mr Cross’ defence that he had said:

“James, you're not in charge here anymore.  If you're told to sit in the corner, then you should sit in the corner.”

 - because there was another employee, Mr Evans, who had overheard the phone conversation and backed up Mr Irvine's version.

The Authority also thought it relevant that Mr Cross had a “propensity to express himself at times plainly but crudely …”  The Authority relied on a sound recording secretly made during a meeting in which Mr Cross could be heard using the word “fuck” or its derivatives and appeared to be hitting the table at the same time.  The Authority considered it more likely than not that Mr Cross had said “shit” rather than “sit” because this was more consistent with his habitual form of expression, employing “faecal or defecatory references”.  The Authority also referred to Mr Cross agreeing in evidence that he had referred to himself as “an arsehole” and that he had some expertise at being “an arsehole”.

The Authority also found that after his resignation, as Mr Irvine was leaving the workplace, Mr Cross said loudly to other employees “This man is an arsehole” and that he later told Mr Irvine “You’re just a fucking sniveler”. 

The Authority held:

“[35] The Authority cannot readily conceive of any situation where an employer could be justified in speaking to any employee, no matter what age, gender or position, in those terms.”

Under the heading “Constructive Dismissal” the Authority found:

“[38] I find in the circumstances that although the termination of employment was described by Mr Irvine as being by ‘resignation’, as a matter of legal principle applied to the circumstances, the termination was a constructive dismissal.

[39] Advocate and counsel, Mr Guest and Mr van Vuuren, both referred in their submissions to the leading case in this area of law of Auckland Electric Power Board v Auckland Provincial District Local Authorities Officers IUOW [1994] 1 ERNZ 168, often called ‘the meter reader’s case’.

[40] As stated by the Court of Appeal in its decision, the correct approach to claims of constructive dismissal is:

In such a case as this we consider that the first relevant question is whether the resignation has been caused by a breach of duty on the part of the employer.  To determine that question all the circumstances of the resignation have to be examined, not merely of course the terms of the notice or other communication whereby the employee has tendered a resignation.  If that question of causation is answered in the affirmative, the next question is whether the breach of duty by the employer was of sufficient seriousness to make it reasonably foreseeable by the employer that the employee would not be prepared to work under the conditions prevailing; in other words, whether a substantial risk of resignation was reasonably foreseeable, having regard to the seriousness of the breach.

[41] I have found that the resignation was caused by a breach of duty on the part of the employer.  Mr Irvine responded almost immediately to the behaviour of Mr Cross by tendering his resignation, in circumstances where he had been grossly humiliated and degraded by the language and behaviour of Mr Cross during the telephone call of 23 June.  Those circumstances extended to the fact that Mr Cross, immediately after the telephone call, made no attempt to retract his language or apologise for this behaviour, something which might have led to the employment continuing.

[42] I find that Wallace & Cooper, through its managing director, Mr Cross, breached the employer’s implied duty not to act in a manner calculated to destroy or seriously damage the employment relationship.  While perhaps Mr Cross behaved with some spontaneity over the phone and without contriving to dismiss Mr Irvine, he must be taken to have intended the consequences of his actions which were that Mr Irvine, like most if not all employees, would not be prepared to tolerate the high level of abuse directed at him personally.

[43] On taking an objective view, I find that the breach was of sufficient seriousness to make it reasonably foreseeable by the employer that Mr Irvine would not be prepared to work under the conditions prevailing.  The risk of resignation was substantial and reasonably foreseeable, having regard to the gravity of that breach, I find.

[44] Applying section 103A of the Employment Relations Act, I find that the dismissal was not justifiable: the employer’s actions and how the employer acted were not what a fair and reasonable employer could have done in all the circumstances at the time the dismissal occurred.” 

In relation to the award of $19,000 compensation for hurt feelings the Authority accepted Mr Irvine’s description of his departure as “a horrible ending to a lifetime’s work”.  Although Mr Irvine claimed $300,000 being two years’ salary, the Authority did not consider that there was any reasonable likelihood that he would have worked for that long, had he not resigned.  The Authority considered that the pressures the employment relationship was under from the start, were likely to have led to termination of the employment well before 12 months after commencement of it.  The Authority considered that increasing dissatisfaction on Mr Irvine’s part would have led him to resign within 12 months because of his very different background, attitude and business philosophy from that of the new business and that it was unlikely the employment would have continued for more than six months’ longer.
 

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