The start-up stopped paying him, so he quit. It was a dismissal

What happened

Wayne Merry joined the board of Swisstec Investment Holdings in mid-2020, while the business was in its start-up phase. From 1 January 2023 he also became an employee, appointed Executive Director on a base salary of $10,500 a month plus superannuation. He handed his finance duties to an external accountant in mid-2023 and, he said, focused on other work, including IT.

Then the pay stopped. His last salary payment, for August 2023, arrived on 5 September 2023. Later that month he warned the board about the company's solvency. On 10 October 2023 he resigned as a director, explaining he wanted to avoid conflicts of interest with a health promotion charity he was also a director of. He kept working as an employee.

Between November 2023 and January 2024 he emailed the accountant several times about his unpaid salary and expenses. The only reply, in December, assured him “the matter is not being ignored.” Nothing was paid. In February 2024 he asked what the company wanted him to focus on next, and received no apparent direction.

On 19 March 2024 he resigned. His letter said his salary was “more than 6 month in arrears” and that “These circumstances do not permit me to provide for my family, and therefore it compels my resignation.” He applied to the Fair Work Commission for an unfair dismissal remedy on 8 April 2024.

The parties settled at a conciliation conference in May 2024, but the company did not make all the agreed payments. Because of that, Deputy President Masson found the settlement did not stop Mr Merry pursuing his claim, and it went to a hearing in November 2024.

The employer's argument: he had already quit

Only a worker who has been “dismissed” can bring an unfair dismissal claim under s 394 of the Fair Work Act 2009 (Cth). The company's chief executive said Mr Merry's October 2023 board resignation was also a resignation from his job, so no salary was owed after it and there was no dismissal.

The Deputy President rejected that. The director role and the job were “separate and distinct”, and the October email spoke only of the board. Mr Merry and two former directors said he kept working after October, and the chief executive's contrary evidence was not accepted. The Deputy President found it “striking” that, despite his many emails about pay, there was no evidence the company had ever told Mr Merry he was no longer an employee.

Why: the legal test for a forced resignation

Section 386(1)(b) says a person who resigned is dismissed if they were forced to resign because of the employer's conduct or course of conduct. A forced resignation of this kind is often called a constructive dismissal.

Under the Full Bench decision in Bupa Aged Care Australia Pty Ltd v Tavassoli, the question for (b) is whether the employer acted intending to end the employment, or whether ending it was the probable result of the employer's conduct, so that the employee had no effective or real choice but to resign.

The Deputy President found: “By any standard, the non-payment of salary for several months is conduct of an employer that is likely to leave an employee no choice but to resign.” The Deputy President accepted that Mr Merry understood the company's difficult financial position, and that the chief executive genuinely wanted to help him move to the charity. The conduct may not have been deliberate, but resignation was its probable result, and that was enough.

Unfair, even for a small business

Swisstec had fewer than 15 employees, so it was a small business employer, and a dismissal that follows the Small Business Fair Dismissal Code is not unfair. The company did not argue that it had followed the Code, because its case was that he had resigned in October, so the dismissal was not consistent with it.

Under s 387, the Commission then asks whether a dismissal was harsh, unjust or unreasonable, starting with whether there was a valid reason related to the worker's conduct or capacity. There was no evidence of one, the remaining factors were neutral or also favoured him, and the dismissal was unfair.

How much was awarded

Both sides agreed reinstatement was inappropriate. Given the start-up's uncertain finances, and Mr Merry's own concession, the Deputy President found he was unlikely to have stayed more than two more months, worth $21,000 in salary.

That figure was reduced by 25% because Mr Merry gave no evidence of the job applications he said he had made, leaving $15,750. The $14,000 he later earned working for the charity fell outside the two months, so it was not deducted. The company was ordered to pay $15,750 gross, less tax, within 14 days.

What this means for you

An employee does not have to keep working indefinitely without pay. If wages stop, a resignation in response can be a dismissal in law, even if the employer did not mean to push the employee out, and even if the employee is a shareholder or former director.

Two cautions. Unfair dismissal compensation covers what the dismissal itself cost; this decision did not deal with the unpaid salary already owed, which is a separate claim. And the Commission expects proof of job hunting, so keep a record of every application. If you resign because of your employer's conduct, the time limit for an unfair dismissal claim is 21 days from when the resignation takes effect.