“Immediate effect” and “heat of the moment” resignations – What has changed?

Scenario 1: An employee resigns with “immediate effect”. What does this mean?

If an employee advises that they are resigning with “immediate effect, an employer may assume that the employee wishes to resign without notice, with the added implication that they do not expect to be paid in lieu of their notice period.

However, the employee might mean that they are announcing their resignation today but have an expectation that they will work out their notice period (or be paid in lieu of their notice period).

What are the dangers of making the former assumption?

In Shaw v Joint Property and Portfolio Management Ltd[1] the employee (S) gave her employer (the Company) written notice that she wished to resign, “effective immediately”. S handed the notice to the CEO of the Company. The CEO promptly told S to leave the premises, without giving S the opportunity to explain the intent of her resignation. Given the Company’s response S requested that she be paid in lieu of notice. The Company refused.

The CEO gave evidence before the Employment Relations Authority that he assumed S intended to leave the Company immediately. However, the Authority found that S was ready, willing and able to work out her notice period. The Authority also found that S had communicated her expectations, on the day of the resignation, that she would be paid in lieu of notice in light of the CEO’s decision to tell her to leave immediately.

The Authority held that S was unjustifiably disadvantaged as she was not given a chance to elaborate on what she meant by resigning with immediate effect, which was found to be a breach of the Company’s good faith obligations. As per S’ employment agreement, she was not given the opportunity to work out her notice period or be paid in lieu of notice.

The Authority awarded S six days’ lost wages (S arranged to start work with her new employer a week after leaving the Company) and $3,500 in hurt and humiliation compensation.

Learning

To avoid any confusion both parties should refer to the employment agreement to ensure they understand their obligations if the matter arises.  There are also a few things each party can do independently.

An employer should: ensure that they understand what the employee intends by their resignation.  This can be done by reaching out the employee to discover what their actual intentions are.

An employee should: make it clear in their letter of resignation when their last day of work will be, to avoid any confusion about whether they intend to work out their notice period.

Scenario 2:  An employee resigns in the “heat of the moment”

In the past, employers have been encouraged to give employees a “cooling off” period before accepting a resignation given in a time of great stress.

Two recent cases – Mikes Transport Warehouse Limited v Vermuelen[2] and Urban Décor Ltd v Yu[3] – before the Employment Court give revised guidance to employers who face resignations given in the heat of the moment.

In Vermuelen the Court held that a cooling off period is not always required for a heat of the moment resignation to be valid.

In Vermuelen the employer held a performance management meeting with the employee (V). During the course of the meeting, V expressed his frustration about his ability to execute his role. Ultimately, V submitted his resignation at the meeting.

V then later argued that he had been unjustifiably dismissed, as his employer had not given him a cooling off period.

The Court rejected this argument and considered four key principles:

1. Resignation is a unilateral act – the correct question to consider is whether the employee resigned, not whether the resignation was made in the heat of the moment. Answering that question involves an objective assessment which is to be informed by the relevant circumstances.
2. An employee does not need to justify their resignation and the decision does not need to be demonstrably sensible.
3. If, on an objective basis, it is clear that an employee has resigned, the employer is not under an obligation to give that employee a cooling off period.
4. Finally, any contributory behaviour by the employer to the resignation can be addressed through the law around constructive dismissal.

In summary, the Court found that while V had not been given a cooling off period, his resignation was given in a clear and unequivocal matter. Using an objective assessment, V had resigned and did not have a claim for unjustified dismissal.

Learning

An employee should: notify their employer that they wish to return to work as soon as possible if they have resigned in a moment of anger or frustration. Be warned, however, that their employer may be able to hold them to a resignation that was made in clear and unequivocal terms.

An employer should: While recent developments slightly relax an employer’s obligations when receiving a heat of the moment resignation, employers should carefully consider whether there is any ambiguity around whether the employee has resigned. If it is not clear and unequivocal questions should be asked.

Scenario 3: The employer dismisses the employee after they resign

In Yu two employees of the employer (UDL) were involved in a heated argument with UDL’s director. The fracas lasted around 15 minutes, before the employees told the director that they “quit”. The employees left the premises and took their belongings with them. The next day the director sent the employees letters of dismissal.

The employees successfully argued before the Authority, that they had been unjustifiably dismissed because UDL had not given them a cooling off period.

However, the Employment Court followed the guidance set out in Vermuelen, and overturned this decision. It held that the employees had resigned. In support of this the Court noted that the pair had left the workplace after announcing their intention to “quit”, had not returned to work for the remainder of the day and had not indicated any intent of returning to work.

The Court also said that the employer’s issue of the dismissal letters did not alter the fact that the employees had already resigned. Even though the director may have considered that the employees had not resigned, this was immaterial in evaluating whether the resignations were valid.

Learning

If the resignation is clear and unequivocal then the issue of a dismissal letter will not unwind the resignation.

If you require advice around the resignation or termination process, or any other issues in relation to Employment Law, then please contact one of our specialists in the Employment team including Alexandria Till and Brett Edwards.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

[1] [2017] NZERA Auckland 263

[2] [2021] NZEmpC 197.

[3] [2022] NZEmpC 56.