Is it ever okay to ask an employee to resign?

HRD takes a look at the circumstances in which it’s okay to ask an employee to resign, and the potential pitfalls to watch out for

Is it ever okay to ask an employee to resign?

Oftentimes an employee just won’t be working out as part of your team, and you have decided that it’s best for the both of you to part ways. However, terminating an employee isn’t as simple as just saying the word – and asking them to resign, while seemingly a gentler option, is no less fraught with potential legal difficulties. Handled the wrong way, asking an employee to resign might create more headaches than the employment relationship was causing in the first place.

But handled the right way, asking an employee to resign might be a mutually beneficial outcome for both employer and employee – allowing for a smooth and amicable transition.

Here are some tips from the experts on how to approach this tricky subject.

Under what circumstances is it actually okay to request that an employee resign?

Erin Lynch, Director at People + Culture, has previously told HRD that the circumstances in which it’s acceptable to ask an employee to resign are in fact quite limited. Even if not framed as a termination, requesting an employee to resign may be challenged and construed by courts as a variety of ‘unfair dismissal’ under the Fair Work Act (FWA). “There are protections in the Fair Work Act that cover situations where the employee has not resigned voluntarily – for example in the unfair dismissal jurisdiction, involuntary resignation can fall under one of the definitions of unfair dismissal.”

Indeed, the FWA defines the term ‘dismissed’ as including not only straightforward termination, but also situations where “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.”

Lynch advises that employers tread carefully in this area, and consider the context in which they are asking for the resignation, as well as the potential protections available to them as employers, should they be subsequently challenged.

“The most common circumstances in which we see these discussions being held are where it’s an alternative to termination which is inevitable following performance management or misconduct.

“If an employer asks someone out of the blue to resign, they are opening themselves up to discrimination claims, general protection claims, and all sorts of legislative breaches.”

Requesting an employee’s resignation should only be done against the backdrop of a prior and legally legitimate prospect of terminating employment. “It could come up as part of a conversation about the individual’s ongoing employment prospects; tell them that you are willing to accept their resignation rather than terminating them,” Lynch said.

“Protecting yourself is all about that conversation and how you document it – ensure that you record the fact that you are really putting the option to the employee.

“If they are given that option, make sure that you tell them you have made a conclusive decision and why you have made it – you have to be very clear, and they have to be legitimate reasons.”

Lynch notes that running through the reasons for termination – such as poor performance – reduces the likelihood that a subsequent claim of forced resignation could be made. “It’s all around messaging and making sure that it’s clear the resignation has not been forced.”

What not to do

If an employee is found to have been coerced by an act of the employer into resigning, then the act of resignation may be found to be an act of ‘constructive dismissal’ by the employer. This in turn will allow the dismissal to be challenged as amounting to ‘unfair dismissal’.

An example of ‘constructive dismissal’ is illustrated by a leading case Mohazab v Dick Smith Electronics. In that case, an employee suspected of stealing was given an ultimatum to either resign or face a police investigation. The employee resigned. But because the employee had no effective course of action but to resign, and because this decision was forced upon him at the instigation of the employer, it was ruled that what had occurred amounted to ‘dismissal’ rather than an instance of voluntary resignation.

The takeaways from this case and the notion of ‘constructive dismissal’ in general are that employers must at all costs avoid the impression that they are coercing an employee into resigning.

Employers should avoid:

  • Issuing a final ultimatum (“resign or be terminated”) – rather than telling an employee that they will be terminated, instruct them that the process is ongoing, and the outcome is uncertain, but that there is a real likelihood they may be terminated, together with strong supporting reasons as to why this would be justified;
  • Delivering the news in a confrontational or otherwise threatening manner;
  • Drafting a resignation letter for the employee to sign in advance of the meeting – this will clearly indicate that a decision has already been made and a course of action already decided on behalf of the employee by the employer.

What are the benefits of requesting that an employee resign over straight termination?

Karli Evans, a partner at Maddocks specialising in employment law and industrial relations, spoke recently to HRD and described a typical situation in which a business wishes to secure a resignation from an employee:

In a situation where an employee has engaged in what is clearly egregious conduct, such as a financial controller defrauding a company of millions of dollars, or an employee engaging in sexual harassment towards junior staff members, termination of employment is usually straightforward. Subject to conducting an appropriate investigation, the employee can be dismissed for serious misconduct without payment or notice.

However the situation is less clear where an employee is unsuitable for a role, is the wrong cultural fit, or their performance is less than optimal. The unfair dismissal and general protections regime in the Fair Work Act provide a range of protections for employees which can make termination complex. In this context, it is worth exploring an alternate strategy to achieve a separation, alongside a performance management or other process.

So what approach should businesses take?

When we have a business approach us for advice on how to exit an unsuitable employee, we sit down and must determine a basis upon which that can be validly done with minimal risk. So – often we’ll get asked ‘can’t I just make the employee redundant?’ Or the employer will say that they have taken too much time on sick leave, or they’re a poor performer, or they drank too much and touched someone up at the Christmas party. And we say: ‘Okay – we’ve got a whole range of issues here. Which (if any) of these grounds is a legitimate basis for terminating the employee? What strategy will be the most appropriate vehicle to achieve an optimal outcome for the business, and provide an opportunity for the employee to separate with dignity?’

That is to say, that prior to considering approaching an employee for a resignation, it’s essential to determine whether there is a legally valid reason for termination, and to ensure that the business has met any procedural fairness requirements. “Particularly for employees falling within the unfair dismissal jurisdiction (currently $145,400), or employees who have clear grounds to make a general protections claim, it’s a very high risk strategy to  just ring them up and say: ‘This isn’t working’ … So we always say [to employers] identify an appropriate reason for termination, run that process to its conclusion and then hold  a without prejudice discussion alongside a legitimate ‘show cause’ meeting. If a without prejudice offer to separate on the basis of resignation is rejected in the face of a proposed termination for a valid reason, the employer can at least proceed to termination with (somewhat) less risk.”

The strategy that an employer adopts should differ for high income employees or those currently in a probationary period. Crucial to any such strategy is a requirement that the employee execute a comprehensive deed of release, containing confidentiality requirements (although recent cases such as Seven Network (Operations) Limited v Amber Harrison [2018] NSWSC 633 demonstrate that such agreements are far from ‘water-tight’).

The benefits are in the neutralisation of the risk of litigation, smoothness and optics of the exit process for both parties – employer and employee. Evans suggests that a good way to achieve this is by clarifying the legitimate reasons for termination to the employee concerned, before making a proposal along the following sort of lines:

… there are two ways that we can deal with this situation. We have valid grounds to terminate your employment, but an alternative is that on a without prejudice basis we’re prepared to offer you an amount of money  subject to you signing a confidential deed of release, in which circumstances you can elect to resign, and retain some control over the messaging within the business. We can have a formal morning tea for you. You can  save face with your colleagues, and we will part ways, and we’ll give you a statement of service from someone within the organisation … with key points about your role. Take the deed away for a couple of days, and get some some independent legal advice on our offer’.

A statement of service isn’t the same as a recommendation, but it is often  appropriate and right to offer formal acknowledgement of an outgoing employee’s service to the company to facilitate their search for future employment – notwithstanding that they didn’t work out in your particular organisation.

From an employer’s perspective, it is far more congenial to simply communicate to co-workers that someone has resigned, rather than having to go through the messy business of defending litigation arising from a dismissal – including colleagues having to give evidence in a court or tribunal, and risking  unnecessary reputational damage, workplace discontent, orders for compensation or – in a worst-case scenario – reinstatement of the employee.

According to Evans, going straight for a dismissal can “very easily play into the hands of someone who is litigious, who then has a whole suite of claims that they can bring.”

Evans says that the standard notice period included in contracts can be misleading  because it may give employers the false impression that giving notice is the only obligation that you need to discharge to exit an employee who isn’t working out. “You need to understand the compliance framework and identify exactly what’s going on below the surface, to work out the most risk-averse process to exit an employee.”

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