What is Constructive Discharge and How Can It Hurt Your Business? 

Constructive discharge is a legal term all businesses should understand and avoid. The courts have defined it as a wrongful discharge. That could mean an employee was a victim of unlawful:

• Discrimination
• Harassment
• Retaliation

Constructive discharge occurs when a business or its leadership makes or allows working conditions so difficult or intolerable that an employee has no option but to resign.

Many companies believe when an employee quits of their own volition, their problems are solved. If a constructive discharge has occurred, the issues may be just beginning. An employee can claim constructive discharge when managers set them up to resign, no matter the motivation. The employer is at risk when it occurs.

How costly is constructive discharge?

The EEOC in California recently resolved one of the most significant racial bias cases filed. Three companies of the Inland Empire distribution hub were found to have discriminated against African American workers. About 300 workers will see compensation of tens of thousands of dollars each.

The companies must pay almost $2.5 million in damages to:

• Existing employees
• Terminated employees
• Those who resigned

Those forced to quit because of ‘intolerable working conditions created by the hostile work environment’ will see similar compensation to those fired or those who chose to stay.

Avoidance may mean constructive discharge

For some managers, terminating an employee  — even one with substandard work or policy violations — is too challenging. Instead, they choose to make working conditions so difficult or undesirable that the employee resigns. While the intent may seem justified, the method violates employment law.

Avoiding termination, even when it’s warranted, may make it easier for a bad employee to file a claim against the company. An example may be a worker who consistently arrives late for their shift, burdening others or disrupting productivity. Although repeated warnings have not resolved the tardiness, the manager is averse to finally terminating the worker’s employment. Instead, the manager assigns the employee menial tasks or undesirable shifts, hoping they will resign.

The lesson for business: avoiding the problem is never the answer.

These actions may constitute constructive discharge. While the employee may have been legitimately deserving termination, the punishing or demeaning nature of the manager’s action may put them in a position to win a claim against the employer. The lesson for business: avoiding the problem is never the answer.

Terminating for cause

When an employee is unable or unwilling to perform their duties, the only option for the business is to terminate. The manager or team leader should have documentation that supports the separation. Keep warning notices, verbal and written, with the employee file. If progressive disciplinary action was used, any discussions with the staff member should be documented and, if possible, signed by the manager and the employee.

Even if the employee ultimately resigns, these documents can be an affirmative defense in the event of a discrimination charge or a constructive discharge claim. The company has the right to terminate the employee if the worker was repeatedly warned to correct the behavior or increase productivity but didn’t heed the warnings.

If the employee chooses to resign rather than be fired, following or during progressive discipline, the company has documented cause that led to the separation. A constructive discharge claim can be overcome if the company has documented evidence that the employee was on their way to being separated for cause but chose to resign instead.

Significant violations may still be constructive discharge

An employee who commits a severe policy violation, like a safety violation, is likely subject to disciplinary action. The disciplinary action may be a suspension without pay for a period of time. The employee may then choose to resign instead of accepting the suspension. You may believe there’s no case here for a constructive discharge claim, but there very well may be.

Some infractions are worthy of disciplinary action to try to correct — even significant discipline. As long as your organization is consistent in its actions, ‘all employees who violate these rules are subject to a 2-week suspension without pay,’ for example. If the employee resigns instead of accepting the suspension, as long as your policies and penalties are evenly enacted, their case may not be worthy of EEOC attention.

Immediate termination may be constructive discharge

Some infractions are so serious there can be zero tolerance. Employees who steal, assault, or threaten others may be subject to immediate termination without notice.

These or other behaviors or actions may clearly warrant termination without notice.

If the:

• Worker chooses to quit rather than be fired, they still may have a case against the employer.
• Employee wasn’t aware of the policy, they could claim they weren’t subject to the rule and shouldn’t have been threatened with termination.
• Reason for their resignation isn’t clearly a violation of policy that was known to the staff member, they may have a case for constructive discharge.

Where your employee handbook pays off

Employee handbooks are vital tools for businesses to avoid company policies and rules miscommunication. An employee handbook should outline what the rules and procedures are for the organization and what could result if the employee is found in violation.

Your handbook should list what infractions will result in immediate termination. Employees should know that this behavior or action will result in separation, even without notice. If an employee resigns rather than accepts termination, documentation that they were aware of the penalty for the infraction can be a defense against a constructive discharge claim.

This is why it’s critical to issue employee handbooks and have employee signatures on file that affirm they received and understand the organization’s rules and policies.

Paper or electronic handbooks are essential tools for businesses to disseminate and enforce their policies. Review your policies with new hires when onboarding, and communicate policies widely and often.

Constructive discharge can happen at any level

If coworkers consistently harass, discriminate against, or demean an employee, they may make working conditions unbearable. If management is aware of the harassment and does nothing to resolve the situation, the employee may resign rather than tolerate the behavior. Even though the problem wasn’t ‘top-down,’ the worker may have a case for constructive discharge.

Enforcing anti-discrimination and harassment laws in the workplace is the responsibility of management.

Enforcing anti-discrimination and harassment laws in the workplace is the responsibility of management. If they choose to ignore the problem, they may be part of a claim of discrimination or harassment in addition to one of constructive discharge.

Involuntary resignations

Constructive discharge is, in effect, an involuntary resignation. Working conditions are so difficult or abusive that the employee feels they have no alternative. Constructive discharge is subject to a reasonable person’s standard, however. This means a reasonable person would agree the employee had no choice but to resign.

An employee may claim that they were made to perform the most menial tasks of a job, making them feel demeaned or underutilized. If the employer can show the staff member was unreliable or their work was substandard, they may be able to justify the lesser assignments. If the employee resigns, stating they had no alternative, the company can show the task assignments were a reasonable response to the employee’s work product.

In 2015, the Supreme Court ruled that employees have up to 45 days to file a constructive discharge claim against an employer. The EEOC allows the clock to begin the day the employee gives notice of their resignation.

Constructive discharge often happens because managers are loathe to fire employees. Rather than have uncomfortable disciplinary or termination meetings, they hope to make the employee so miserable they leave of their own volition. It may seem like an easy fix to a challenging problem, but in many cases, it creates a problem of its own. If you have just cause to fire an employee, do so. You’ll reduce your risk of lost productivity as well as a potential claim of constructive discharge.