Constructive Dismissal: A Guide for NZ Employers and Employees

Constructive dismissal happens when an employee resigns because of their employer’s behaviour. It’s not a simple resignation. Instead, the employee feels they have no choice but to leave.

For businesses in New Zealand, understanding constructive dismissal is important. It can lead to costly personal grievance claims, reputational damage, and workplace tension. Many employers in Auckland and across NZ have faced challenges when managers unintentionally create situations that force an employee out.

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In this guide you’ll learn:

• The meaning of constructive dismissal in NZ
• Common examples and signs to watch for
• Legal obligations and employee rights
• How payouts and claims are handled
• Practical advice for employers to prevent issues

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What Is Constructive Dismissal?

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Constructive dismissal means an employee resigns because of the employer’s actions or failure to act. Under New Zealand employment law, it can count as an unjustified dismissal.

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The key point is that resignation wasn’t freely chosen. The employee felt pressured, mistreated, or ignored to the point that staying wasn’t possible.

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Why Constructive Dismissal Matters in New Zealand Workplaces

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Constructive dismissal claims can be costly. Employers may face:

• Compensation payouts for lost wages
• Hurt and humiliation payments
• Legal fees and mediation costs

For example, a small Auckland business once shared how a valued team member resigned after feeling excluded from key meetings. The employee filed a personal grievance, claiming a breach of their employment contract. The business ended up settling with a payout that was more expensive than if they had managed the issue early.

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Cases like this show the risk of not addressing employee concerns quickly.

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Constructive Dismissal Meaning and Legal Grounds

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The meaning of constructive dismissal in NZ includes three common situations:

1. Employer tells or forces the employee to resign

Example: A manager says, “It would be better if you resigned before we let you go.”

2. Employer makes the workplace intolerable

Example: Ignoring complaints about bullying or harassment until the employee feels they cannot stay.

3. Employer breaches the employment contract

Example: Cutting pay or changing hours without agreement.

Each of these can form the grounds for a constructive dismissal claim.

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Constructive Dismissal Examples

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Here are some examples of constructive dismissal seen in New Zealand workplaces:

• A worker is constantly left out of training opportunities while others progress.
• A retail employee was pressured to resign after refusing unsafe work.
• An employer moving someone to a lower role without consultation.
• Pay reduced without explanation or agreement.

These examples of constructive dismissal show how common workplace issues can escalate into legal disputes.

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Signs of Constructive Dismissal

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Employees may show signs that point towards a constructive dismissal situation, such as:

• Frequent complaints about unfair treatment
• Resignation letters mentioning pressure or forced resignation
• Sudden resignation following ignored grievances
• Emotional distress, burnout, or disengagement

Employers should treat these signs as red flags and act early to avoid a constructive dismissal personal grievance.

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Constructive Dismissal Payouts in NZ

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One of the biggest questions employers ask is: How much can you get for constructive dismissal?

Payouts depend on the case. The Employment Relations Authority (ERA) can order:

• Lost wages (to cover the time without work)
• Compensation for hurt and humiliation (often between $10,000 and $40,000 depending on the case)
• Costs and penalties for breaches of employment law

For comparison, the average payout for unfair dismissal in NZ often falls between $15,000 and $30,000, though some cases can be higher.

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This is why managing disputes early is always better than facing a constructive dismissal claim.

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Key Takeaways for Employers

• Constructive dismissal is when an employee resigns due to the employer’s conduct.
• It can lead to unjustified dismissal claims and costly payouts.
• Employers should watch for signs of constructive dismissal and act early.
• Good communication, fair treatment, and documented processes are the best defences.
• Seeking professional HR support can prevent disputes from escalating.

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