Constructive dismissal: The quiet firing

Constructive dismissal, although not expressly defined and recognised under Indian law, is a significant concern in the country’s employment landscape. It refers to an employer’s conduct that effectively alters the terms and conditions of employment, such that it makes the work environment unbearable for an employee. Such changes can range from unjustified demotion and arbitrary salary reduction to unreasonable workloads, humiliation and harassment. The effect is to force employees to quit when that may not be their initial intention. Coerced resignations, driven by the employer’s actions, threaten the roots of fair employment practices and encroach on the rights of the employee.

Judicial precedents have laid down circumstances where resignations are deemed to be involuntary or coerced. These include a resignation without a proper inquiry into an alleged misconduct, changes in employment conditions significantly affecting an employee’s personal life and workplace harassment. Claims of constructive dismissal of workmen can be brought under section 2A of the Industrial Disputes Act, 1947 (act), as such disputes relate to the employer “otherwise terminat[ing] the services” of such employees. The discharge or dismissal of a workman by way of victimisation, with or without bad faith in the colourable exercise of the employer’s rights is an unfair labour practice under the act.

In Suresh Kumar v Sainik School Society, the Himachal Pradesh High Court held that where the employer, using the strength of its unequal bargaining power, creates circumstances that leaves the employee with no option but to resign, the resignation cannot be viewed as one that results from the exercise of the employee’s free will. Here, the employee alleged ill treatment at the workplace as the cause for his resignation. As per Indian courts, a resignation not voluntarily submitted by the employee but brought about by force, duress or in any other manner by the employer is an end to employment by the employer’s actions. In effect, such forced resignations are considered as termination of employment by the employer.

Where resignations are held to be forced, the courts have granted relief in a number of ways to affected employees, including reinstatement in service, with or without back wages, payment of salary owed by the employer, with or without interest, and requiring the employer to provide other consequential benefits.

The Supreme Court, in its recent verdict of Bharti Airtel Limited v AS Raghavendra, diverged from the previous judicial position and emphasised that an employee cannot dictate the terms of employment to the employer. Circumstances such as inadequate redress of the employee’s grievances, and performance ratings viewed as unfair by the employee, would not necessarily imply a forced or coerced resignation.

The courts of the United Kingdom have applied the test of reasonableness to ascertain whether constructive dismissal occurred. This test determines whether the employer’s behaviour is so unreasonable that the affected employee cannot fairly be expected to put up with it. Thus, while the employer’s actions may not amount to a breach of contract, they could nonetheless be regarded as unreasonable enough to justify the employee’s decision to quit.

While Bharti Airtel provides relief to employers, constructive dismissal remains a concern. This poses risks for employers and employees alike. Often, organisations ask their employees to resign, thinking this will minimise their liability. While this approach may be a solution in the short term, it carries inherent risks that expose employers to additional legal liabilities. These include claims of wrongful termination, discrimination or breach of contract. Furthermore, it can damage an organisation’s reputation and erode trust among existing and prospective employees. To avoid such consequences, employers must have in place open-door policies to allow employees to express their concerns and provide them with timely redress. Employers should implement adequate anti-harassment and anti-discrimination policies and address performance or conduct-related concerns in an expedient manner. Employers must recognise the ethical and legal pitfalls of coercive resignation tactics and must prioritise fair and transparent communication as well as comply with the law.

Agrima Awasthi is counsel and Shivanshu Sharma and Diksha Singh are associates at Wadhwa Law Offices.