The Industrial Relations Act 1967 (IRA), states that when an employee considers themselves dismissed without just cause or excuse by the employer, they may make representations to the Director-General to be reinstated.
But what is the position if the employee is not dismissed, but finds themselves in a situation where they have no choice but to resign due to the conduct or decisions of the employer?
The IRA does not explicitly refer to situations where the employee is forced to resign. However, on many occasions, the Malaysian courts have adopted the common law right and definition of constructive dismissal. The procedure governing constructive dismissal can be found in section 20(1) of the IRA.
What is constructive dismissal?
The leading authority on the definition of constructive dismissal in Malaysia is the Supreme Court case of Wong Chee Hong v Cathay Organisation (M) San Bid 1 MLJ 92. The court adopted the English court definition of constructive dismissal.
“It would be a dismissal if an employer is guilty of a breach which goes to the root of the contract or if he has 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”.
The definition makes it clear that constructive dismissal does not refer to a situation where the employer actually dismissed the employee. It is also not about unfairness.
Constructive dismissal also does not give an employee free rein to terminate the contract when the employer merely acts unreasonably towards the employee or makes management decisions on the best way to run the company. The situation must meet specific criteria to qualify as constructive dismissal.
When will the courts recognise constructive dismissal?
By now, it is trite law (laws that are obvious or common knowledge) that the Malaysian courts will apply the ‘contract-test’ when considering constructive dismissal cases.
The courts won’t ask if the employer acted fairly. It will consider whether the employer acted in such a way that it amounts to a fundamental breach of the contract.
In overturning the High Court’s decision, the Appeal Court in Ng Teck Fay v Mahkamah Perusahaan Malaysia  10 CLJ 73 recently confirmed the four elements needed to establish constructive dismissal:
- There must be a breach of contract.
- The breach must be sufficiently important to justify the employee’s resignation.
- The employee must leave in response to the breach and not for some other unconnected reasons.
- The employee must not unduly delay in terminating the contract (if they do, they could be deemed to have waived the breach and agreed to the new terms of the contract).
What must employees do when the employer breaches the contract?
Employees must clearly indicate they no longer consider themselves bound by the contract.
Factors that could indicate that the employer no longer considers themselves bound by the contract include the employee:
- Responded without delay to the breach (failure could be seen as acceptance or that the employee does not regard the employer’s conduct as a sufficient breach of contract entitling the employee to terminate the contract).
- Indicated they no longer consider themselves bound by the contract, e.g., expressly stated constructive dismissal in a letter of resignation; or
- Clearly stated the reasons why they are claiming constructive dismissal; or
- Placed the employer on notice to remedy the situation; or
- Left the employment.
Under section 20(1A) of the IRA, the employee must file a representation to the Director-General of Industrial Relations within 60 days of the termination date.
Who carries the onus of proof?
Case law is clear that the onus is on the employee to prove a fundamental breach of contract by the employer to establish constructive dismissal.
There is no exhaustive list of categories of constructive dismissal, and each case will be judged on its own merits. The breach does not have to relate to a specific clause in the contract. It could also be a breach of the implied terms of mutual trust and the duty to act in good faith inherent in all employment contracts.
Only when the employee has succeeded in establishing the elements of constructive dismissal will the court move on to consider whether the employer had just cause and excuse for the dismissal.
The burden then shifts to the employer to prove just cause or excuse.
Examples of constructive dismissal
As mentioned above, each case will be considered on its facts and circumstances.
The following serve as examples where the courts found constructive dismissal.
De-motion, re-grading, or restructuring
In Ng Teck Fay, the court held that where the re-grading resulted in the employee having fewer responsibilities, reduced benefits, or the employee is demoted to a post he never held before, it amounts to constructive dismissal.
This category includes:
- Reducing or attempting to reduce the employee’s wages.
- Varying the employee’s job scope.
- Removing job functions.
Failure to pay salary or statutory deductions to the relevant authorities
The non-payment of salary is considered a fundamental breach of an employment contract. However, there could be circumstances where non-payment could be justified, as we have witnessed during the covid pandemic, where some industries were forced to shut down.
Attempts to get rid of an employee (after announcing a pregnancy) were considered constructive dismissal when the employer demoted her to an HSE Assistant from being the HSE Counsellor. Her salary was reduced, and her office moved to a position where she was exposed to noises and fumes from the motorcycle parking area.
When the employer’s behaviour amounts to sexual harassment, it breaches the implied term of trust and confidence between employer and employee. The courts have held in the past that it can amount to constructive dismissal.
Victimising the employee
Victimising an employee based on race, religion, culture, or exercising their employment rights might amount to constructive dismissal.
The list is not at all exhaustive. Constructive dismissal can include any type of conduct by the employer, short of a formal dismissal, where the employee considers themselves as being dismissed without just cause and excuse.
Available remedies for constructive dismissal
After the employee makes representation to the Director-General under section 20 (1A), the DG may refer the matter to a conciliation meeting.
If there is no likelihood of conciliation, the matter will be referred to the Industrial Court for a hearing.
If the court finds that the employee succeeded in establishing constructive dismissal and the employer failed to prove that the dismissal was with just cause or excuse, the court will make an award.
Due to the personal nature of employment, reinstatement is not often the appropriate award.
The court can order compensation instead of reinstatement. In addition, the employee can ask for back wages. Back wages are limited to 24 months.
If any party is not satisfied with the outcome of the case, section 33C allows any party to appeal to the High Court. The Notice of Appeal must be filed within 14 days.
In conclusion, case law is clear that constructive dismissal is not about “unfairness”. It is not a “handy tool” for employees to walk away from their employment because they think the employer is behaving unreasonably.
The courts will carefully consider all the allegations on a case-to-case basis. If the four elements are not met, the court will not find constructive dismissal.
At the same time, employers must be aware of the impact that management decisions can have on employees. Be careful of restructuring when it can impact the employee’s salary, benefits, employment scope, etc. If the employee can argue and establish that your conduct amounts to a fundamental breach of the employment contract, it will amount to constructive dismissal.
If you are thinking of restructuring, you should speak to a lawyer and ensure that you fully understand the implications of your management decisions.
If you feel you are a victim of constructive dismissal, speak to a lawyer to understand your rights, the burden of proof, and available remedies.