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CONSTRUCTIVE DISMISSAL IN MALAYSIA : AN OVERVIEW

 

  1. Constructive Dismissal - Meaning

    The doctrine of ‘Constructive Dismissal’ is a creation of law. It is a legal fiction, or otherwise a convenient label to describe a situation where employee terminates an employment in response to the employer’s ill conduct or mistreatment. Despite under any constructive dismissal there is no actual or direct dismissal by the employer, the employer’s ill conduct or mistreatment will be sufficient under the law for any employee to consider of having been dismissed by the employer.

    In Wong Chee Hong v Cathay Organisation (M) Sdn Bhd [1988] 1 CLJ 298 (Rep), Tun Salleh Abas LP expounded the concept of ‘constructive dismissal’ thus:-

    "The common law has always recognized the right of an employee to terminate his contract and therefore to consider himself as discharged from further obligations if the employer is guilty of such a breach as affects the foundation of the contract, or if the employer has evinced an intention not to be bound by it any longer."

    In Western Excavating (E.C.C.) Ltd. v. Sharp [1978] 1 All ER 713, Lord Denning MR held:

    We think the word 'dismissal' in this section should be interpreted in reference to the common law principle. Thus, it would be dismissal if the employer is guilty of a breach which goes to the root of the contract or if he evinced an intention no longer to be bound by it. In such situations, the employee is entitled to regard the contract as terminated and himself as being dismissed.

    In Quah Swee Khoon v. Sime Darby Bhd [2001] 1 CLJ 9, Gopal Sri Ram JCA (as his Lordship then was) held:

    Constructive dismissal can take place as we have attempted to demonstrate in a number of cases. Since human ingenuity is boundless, the categories in which constructive dismissal can occur are not closed. Accordingly, a single act or a series of acts may according to the particular and peculiar circumstances of the given case, amounts to a constructive dismissal. There are cases which fall as illustrations at either end of the spectrum.

    In short, the term ‘constructive dismissal’ refers to an act of an employee in terminating his or her employment due to a breach of contract committed by the employer. The breach committed must have been so significant or severe that it had altered the essential terms of an employee’s employment contract, leaving the employee no choice but to resign. In such a case, although there is no direct dismissal by the employer, it could still amount to unfair dismissal due to the conducts of the employer, hence the word ‘constructive’ in ‘constructive dismissal’.

  2. Measures to Determine Constructive Dismissal

    It is a well-established principle that under any contract of employment, there is an implied term that the employer will not, without reasonable and just cause, conduct itself in a manner which likely to destroy or seriously damage the relationship of trust and confidence between the employer and the employee.

    1. The Contract Test

      In order to determine the facts leading to a ‘constructive dismissal’ by employer, the test adopted by courts is the Contract Test.

      Contract test means that employer's conduct must be such as to amount to there being a breach of some term in the employee's contract of employment and must be so fundamental as to evince an intention not to be bound by the contract of employment. Expressed in another way, contract test is whether there has been a unilateral repudiation of the contract of employment by the employer as to entitle the employee to claim that he or she has been constructively dismissed. (see: Shahabudin Abdul Rashid v. Talasco Insurance Sdn Bhd [2004] 4 CLJ 514 [COA])

      In Western Excavating (E.C.C.) Ltd v. Sharp [1978] 1 All ER 713 @ 717, his Lordship Lord Denning, MR defined the term 'constructive dismissal' and applied the contract test to be as follows:

      If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer's conduct. He is constructively dismissed. The employee entitled in those circumstances to leave at the instant without giving any notice at all or, alternatively, he may give notice saying he is leaving at the end of the notice. But the conduct must in either case be sufficiently serious to entitle him to leave at once. Moreover, he must make up his mind soon after the conduct of which he complains; for, if he continues for any length of time without leaving, he will lose his right to treat himself as discharged. He will be regarded as having elected to affirm the contract.

      In Wong Chee Hong v Cathay Organisation (M) Sdn Bhd (supra), the then Supreme Court held that inter-alia before any determination by an industrial tribunal on the existence of constructive dismissal in any case, the contract test must be applied. His Lordship, Tun Salleh Abas LP further explained:

      "…The Court only spoke of constructive dismissal in the context of contract test. It never even made any reference to unreasonableness test. This is made clear by the following passage at p. 9 of the award.

      Past cases of constructive dismissals dealt with by this Court ... are agreed that whether or not there has been constructive dismissal is to be determined by the contract test: that is, did the employer’s conduct amount to a breach of contract which entitled the employee to resign? And did the employee make up his mind and act at the appropriate point in time soon after the conduct of which he complained had taken place.

      We accept this passage to be the correct statement of the law. The questions asked by the Industrial Court in fact are similar to that part of the judgment of Lord Denning MR in the Western Excavation case where the learned Master of the Rolls set out the contract test. Only in these circumstances can an employee be held to be constructively dismissed and that is what constructive dismissal is.

    2. The 4 Conditions to make out case for Constructive Dismissal

      It is a well settled principle that the employee must fulfil the pre-requisites and/or conditions in proving case for a constructive dismissal against the employer. It is for the employee to show on the balance of probabilities that the employer by its conduct has committed a breach of employment contract to warrant any claim for a constructive dismissal. (see: Shahabudin Abdul Rashid v. Talasco Insurance Sdn Bhd (supra))

      The Court of Appeal in Southern Investment Bank Bhd/Southern Bank & Anor V. Yap Fat & Anor [2017] 3 ILR 433 adopted the underlying principles laid down by the Supreme Court in the case of Wong Chee Hong v. Cathay Organisation (supra) in relation to the 4 conditions to be met by an employee to be able to successfully claim for constructive dismissal. The relevant passage of the Supreme Court decision reads:

      "[15] There are four conditions which have to be met by an employee to be able to successfully claim for constructive dismissal. The High Court in Bayer (M) Sdn. Bhd v. Anwar Abd Rahim [1996] 2 CLJ 49 set out the four conditions as follows:

      (1) there must be a breach of contract by the employer;

      (2) the breach must be sufficiently important to justify the employee resigning;

      (3) the employee must leave in response to the breach and not for any other unconnected reason; and

      (4) he must not occasion any undue delay in terminating the contract, otherwise he will be deemed to have waived the breach and agreed to vary the contract.

      Once these 4 conditions have been established by the employee in reference to a dismissal under Section 20 of the Industrial Relations Act 1967, the Industrial Court will then move into the next limb of inquiry; and that is to determine whether the employer had just cause or excuse for the dismissal. Only then the burden shifts upon the employer to prove otherwise.

      It is important to note that the above principles are still being applied by the Malaysian courts in the recent decided cases on constructive dismissal. (see: Southern Investment Bank Bhd/Southern Bank & Anor V. Yap Fat & Anor [2017] 8 CLJ 159 [COA], Elya Designs Sdn Bhd V. Mahkamah Perusahaan Malaysia & Anor [2011] 3 CLJ 929 [HC])

  3. Type of conducts which may lead to Constructive Dismissals

    Under any claim for constructive dismissal, the law demands that the breach committed by the employer must be significantly serious in order to establish a case for constructive dismissal. The degree of severity of each breach will be evaluated by the court and some notable instances in the recent decided cases are as follows:

    1. Non-payment of salary or wages. (see: Chandrakumar Perumal v. Semarang Bumi PJ Sdn Bhd [2019] 2 ILR 423 [IC])

    2. Reducing or attempting to reduce an employee’s wages or salary or other contractual benefits that the employee is entitled to under his/her terms of service. (see: Syed Othman Abu Bakar v. Cekal Teguh Sdn Bhd/Kazakhstan Methanol Limited [2018] 4 ILR 264 [IC])

    3. Victimizing or targeting the employee for no reason. (see: Justin Maurice Read v. Petroliam Nasional Berhad (PETRONAS) [2017] 3 ILR 527 [IC])

    4. Unilateral variation of the employment contract (eg employee’s pay, job content or job scope) without consultation or reasons. (see: Nur Ezlina Ismail v. UMW Toyota Motor Sdn Bhd [2020] 2 LNS 0569 [IC])

    5. Reassignment or transfer to a position outside the scope of the employee’s employment. (see: Bruce Dargus v. Vads Berhad [2019] 2 LNS 3166 [IC])

    6. Removal/substantial reduction of the employees’ job functions and putting an employee in ‘cold storage’. (see: Michele Shiranthi Desilver v. Fairview International School [2014] 1 ILR 631 [IC])

    7. Excessive demotion or disciplining of the employee. (see: Peter @ Patrose GP Lazarus v. Sankyu (M) Sdn Bhd [2016] 3 ILR 143 [IC]) ; and

    8. Breach of duty of trust and confidence – in recent years, this ground has given rise to many constructive dismissal claims. The basis of such a claim is that it is a fundamental term of every employment contract that an employer will not, without reasonable and proper cause conduct itself in a manner calculated to destroy or seriously damage the relationship of trust and confidence between an employer and employee. (see: Sharifah Faridah M.A.G. Abdul Rasheed v. Malaysia Smelting Corporation Berhad [2019] 4 ILR 360)

    Notwithstanding the above, the claim for Constructive Dismissal can be construed as factual in nature and requires the employee to prove to the court that the conduct of the employer has undoubtedly breached the fundamental terms and condition of his employment. The categories of such conduct are not closed. Gopal Sri Ram JCA in Ang Beng Teik v. Pan Global Textile Bhd, Penang [1996] 4 CLJ 313 explained the expression of ‘constructive dismissal’ thus:

    "There is no magic in the expression ‘constructive dismissal’. It is only a convenient label to describe the kind of conduct of an employer towards an employee which, though short of a formal dismissal or termination, the latter may treat as amounting to a dismissal without just cause or excuse. The categories of such conduct are not closed. Whether the conduct complained of is, in truth, a dismissal cloaked as something else, is a question of fact. But the facts must disclose that the particular workman has considered himself as dismissed by the particular act of the employer."

  4. Conclusion

    Before any determination on the existence of constructive dismissal is established, the contract test must be applied wherein the employer's conduct must be such as to amount to there being a breach of some terms in the employee's contract of employment and must be so fundamental as to evince an intention not to be bound by the contract of employment.

    It is trite law in a claim of constructive dismissal, the burden of proof lies on the employee on a balance of probabilities to prove the following 4 conditions:

    1. That the employer, by its conduct, had breached a term of contract of employment or had evinced an intention no longer to be bound by it;

    2. The breach is a fundamental that goes to the root of the contract;

    3. The employee left in response to that breach and not for some unconnected reason; and

    4. The employee did not unreasonably delay in terminating the contract of employment otherwise he may be deemed to have waived the said breach.

    Once these above preconditions for constructive dismissal have been proved by the employee in reference to a dismissal under section 20 of the Industrial Relation Act 1971, a case of constructive dismissal will be established against the employer.

    The burden of proof then shifts upon the employer to justify the dismissal; otherwise the employer will be liable under the law to compensate the employee accordingly.

For further advice on the above, you may contact Encik Mohd Saiful Hadi and Encik Ahmad Imran at 03-2171 1484 or at mail@azamlaw.com.

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