Ireland: Significant compensation award to former CEO for constructive dismissal and for breaches of Payment of Wages legislation

MK was employed as CEO by the Company, a supplier of medical clothing, since 1 February 2021.  MK was also appointed director of the Company’s other related entities.  MK experienced no difficulties in his employment until April 2022, when he was informed by the shareholders that it was not possible for them to invest further capital into the Company, and they were unable to say when this issue would be resolved.  MK was not paid any salary from 1 May 2022 and in mid-May 2022 he was unilaterally demoted to COO.  Despite not consenting to these changes, MK complied in the hope that the shareholders would invest funds into the Company.

As a result of the issues, MK resigned on 23 May 2022 and agreed to work his contractual notice (six months), on the assumption that he would be paid his salary during this time.  However, on 6 June 2022, he was given an ultimatum to either continue working for the Company without a salary until it became profitable, or resign with immediate effect.  MK resigned with immediate effect on 13 June 2022.

MK submitted a complaint of constructive dismissal to the WRC under the Unfair Dismissals Act 1977-2017 (“UDA”) and contended that he met the test for constructive dismissal by acting reasonably in all the circumstances and because the conduct of his employer was such that he had no option but to resign.

The WRC found that the Company had undermined the core of the contractual relationship and that it had acted in significant breach of contract by not paying MK during the notice period, or expecting him to work for six months for no pay.  Accordingly, the WRC found that MK was entitled to immediately terminate his employment without the use of the grievance procedure and that he was left with no other option but to resign in circumstances where the trust and confidence he was entitled to vis a vis his employer had been broken beyond repair.  The WRC noted that MK had attempted to raise his concerns with the shareholders during his employment, but it was evident that they were not willing to engage with him on any level.

The Company did not contest the evidence and did not attend the hearing.  MK was found to be unfairly dismissed and was awarded six months’ salary (equivalent to €108,000 gross) for a breach of his employment rights.  He was also awarded €25,800 under the Payment of Wages Act after it was found that he was properly entitled to his wages from the period of which they were unpaid (namely from 1 May 2022 to 13 June 2022).

Regarding the duty to mitigate financial loss by taking steps to secure new employment, MK told the WRC that he approached prospective employers from the date of his termination with the Company but that prospective employers were unwilling to hire him due to the six-month notice period in his contract.  This reasoning was accepted by the Adjudication Officer.  MK secured new employment on 1 January 2023.

Key Action Points for Human Resources and In-house Counsel

Constructive dismissal claims frequently fail in Ireland because an employee cannot reach the high threshold of proving both the unreasonableness of their employer’s conduct and that their resignation was reasonable.  Indeed, claims of this nature often fail due to the employee’s failure to exhaust all internal avenues such as a grievance procedure.  This decision therefore is a rare example of a successful constructive dismissal claim where the employer’s conduct was so unreasonable that the employee could not be expected to put up with it and the employee was entitled to resign in the circumstances (notwithstanding that he did not exhaust internal procedures before doing so).  The decision is an important reminder of the principles that will be applied by the WRC in such circumstances.