Constructive termination: Overview, definition, and example
What is constructive termination?
Constructive termination occurs when an employer or contracting party makes working conditions so difficult, hostile, or unfavorable that the other party is effectively forced to resign or terminate the contract, even if they are not explicitly fired. In legal terms, this is treated as an involuntary termination because the party had no reasonable choice but to leave.
For example, if an employer drastically cuts an employee’s salary, removes key responsibilities, or creates a hostile work environment, the employee may claim constructive termination, arguing that they were forced to quit.
Why is constructive termination important?
Constructive termination is important because it protects employees and contract parties from unfair treatment. Without these protections, an employer or contracting party could avoid legal consequences by making conditions unbearable rather than outright terminating the agreement.
For businesses, understanding constructive termination is crucial to avoiding wrongful termination claims. Employers should ensure that contract changes, workplace conditions, or restructuring efforts do not create situations where employees or contractors feel forced to leave.
Understanding constructive termination through an example
Imagine an employee with a five-year contract at a company. After two years, the employer reduces their salary by 50%, removes job responsibilities, and relocates them to a distant office without justification. If the employee resigns due to these changes, they could claim constructive termination, arguing that the company effectively forced them to leave.
In another example, a consultant signs a service agreement with a company. Midway through the contract, the company stops providing necessary resources and refuses to communicate, making it impossible for the consultant to complete their work. If the consultant is forced to walk away, they may argue constructive termination, claiming the company breached the agreement.
An example of a constructive termination clause
Here’s how a constructive termination clause might appear in an employment or service contract:
“If the Employer takes actions that substantially change the Employee’s compensation, job responsibilities, or working conditions in a manner that forces resignation, such resignation shall be deemed constructive termination, entitling the Employee to the same severance benefits as an involuntary termination.”
Conclusion
Constructive termination occurs when an employer or contracting party creates conditions that effectively force the other party to leave, even if no formal termination occurs. It is treated as an involuntary termination under the law, often leading to claims for severance, damages, or breach of contract.
For businesses, ensuring fair treatment and clear contract terms can help prevent constructive termination claims, maintaining ethical and legally compliant work environments.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.