Constructive dismissal occurs when an employer unilaterally makes substantial changes to the essential terms of the employment contract. A fundamental term of the employment relationship can also be implied. For example, a fundamental implied term of any employment relationship is that the employer will treat the employee with civility, decency, respect, and dignity. If the employer breaches this implied term, the employee can treat the contract as being terminated and can sue for damages.

It is not a formal dismissal. It can also occur when the employment relationship becomes so strained that it becomes intolerable (i.e. a poisoned environment).