Resign or be fired?

When faced with the need to terminate the employment of a worker, sometimes employers will offer the employee the option to resign or face termination of employment. In this situation the employee may feel like they are being forced to resign. Often this approach is taken for two main reasons:

1. The employer thinks that if the employee resigns, then the employee will be ineligible to make an unfair dismissal claim or unlawful termination claim; and/or
2. The employer wants to allow the employee to move on and find alternative employment without having their prospects stifled by a dismissal from their previous job.

Contrary to popular belief, an employee who resigns under these circumstances still has grounds to make an unfair dismissal claim (subject to them meeting the normal eligibility criteria) on the basis of what is referred to as a “constructive dismissal”. In other words, the employee had no alternative but to resign from their employment due to the actions of the employer (in this case the ultimatum of ‘resign or be fired’).

If successful with such a claim, the employee’s separation will be treated as a dismissal and not a resignation.

Therefore, regardless of good intentions, we recommend that when an employer has proper grounds to terminate the employment of an employee, then the employment should be terminated. Following termination of the employment, either party can then initiate a discussion around the prospects of resignation as an alternative to termination. Approaching the situation in this manner is very different from a forced resignation.

However, any such agreement by the employer to treat the termination as a resignation should be conditional upon the employee agreeing to release the employer from any future claims with respect to their employment and the termination of it, including unfair dismissal claims or unlawful termination claims. Such an agreement should be properly recorded in a “Deed of Release” which is then signed by both parties. If necessary, the Deed of Release can later be relied upon by the employer as a bar to any future claims made by the employee.

If no settlement agreement is reached and an unfair dismissal claim ensues, then the employer retains the option of treating the termination as a resignation. Among other things, this remains one of the key bargaining factors in reaching agreement to settle an unfair dismissal claim.

Whichever way it goes, employers should not give up the privilege of treating a termination as a resignation too easily, unless it is agreed to as part of a formal settlement agreement.

For further information about what it means to provide an employer with indemnity by signing a Deed of Release, read this article.

For advice and assistance in these matters, including the drafting of a termination of employment letter, please contact our Employment Law Team.