What is Constructive Dismissal?
Constructive dismissal is when an employee exits his/her employment due to the employer breaching a fundamental term of the employment contract between them.
The breach must go to the heart of the employment relationship, leaving the employee with no choice but to resign.
When that happens, even though there was no direct termination by the employer, the employee can be said to have been dismissed, constructively.
What Is the Key Case for Constructive Dismissal?
“Constructive dismissal” is a common law concept and is most clearly explained in Wong Chee Hong v Cathay Organisation (M) Sdn Bhd [1988] 1 MLJ 92 where the Court held as follows:
“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. It was an attempt to enlarge the right of the employee of unilateral termination of his contract beyond the perimeter of the common law by an unreasonable conduct of his employer that the expression “constructive dismissal” was used.”
Who to Prove Constructive Dismissal?
As per the case of Yew Mun Khean v Kumpulan Liziz Sdn Bhd [2018] MLJU 330, the burden of proving constructive dismissal lies on the employee.
How to Prove Constructive Dismissal?
The test for Constructive Dismissal is the “Contract test”.
This means that the act by the employer that caused the employee to resign must be a fundamental breach of the employment contract; if an employee resigns merely because his/her employer acted unfairly or unreasonably (but not in breach of the contract fundamentally), the employee will not succeed in a claim for constructive dismissal.
In Anwar Abdul Rahim v Bayer (M) Sdn Bhd [1998] 2 MLJ 599, his Lordship Mahadev Shanker J in the Court of Appeal (as his Lordship then was) articulated the following:
“It has been repeatedly held by our courts that the proper approach in deciding whether constructive dismissal has taken place is not to ask oneself whether the employer’s conduct was unfair or unreasonable (the unreasonableness test) but whether the conduct of the employer was such that the employer was guilty of a breach going to the root of the contract or whether he has evinced an intention no longer to be bound by the contract (the contract test).”
According to the Anwar case, in order to succeed in a claim for constructive dismissal, the employee must establish the following:
- the employer had breached a term or terms of the employee’s contract or has evinced an intention to no longer be bound by the contract;
- the breach must be significantly important to justify the resignation;
- the employee must have left in response to the breach and not for some unconnected and ancillary reasons; and
- the employee should not delay in taking action when the breach occurs.
What Are Some Examples Of “Fundamental Breach of The Contract”?
These are some examples that resulted in successful constructive dismissal claims:
- Non-payment of salary
The case of Tan Kok Chai v Mega 9 Housing Sdn Bhd [2020] 2 LNS 0013 held that “Non-payment of salary by the employer has always been regarded as a fundamental breach of the contract of employment.”
- Unilateral pay-cut
In North Malaysia Distributors Sdn Bhd v Ang Cheng Poh [2001] 3 ILR 387, the Court held that “The unilateral pay-cut was a clear wilful breach of the employment contract on the part of the company. The salary of an employee is the fundamental factor in a contract of employment has been breached.”
- Baseless Demotion
In Ang Beng Teik v Pan Global Textile Bhd Penang [1996] 3 MLJ 137, the Court stated that “A workman in a particular case who suffers a demotion may consider himself to have been dismissed without just cause or excuse. He may treat the demotion as a dismissal.”
- Mala-fide transfer or change in job scope
It was established in the case of Govindasamy Munusamy v Industrial Court Malaysia & Anor [2007] MLJU 684 that, “The transfer per se was not bona fide, but with a view to eliminating the applicant from the service of the second respondent by transferring him to a different entity which was not part of the contractual term”.[1]
What Does It Mean That “The Employee Should Not Delay In Taking Action When The Breach Occurs”?
The employee must protest or voice out the alleged breach to the employer or tender his resignation soon after the breach of the contract happens.
By remaining in the office, the employee may be deemed to have acquiesced to the breach and thereby waived his/her right to complain.
In the case of CCM Fertilizers v Peter Shanta Arthur Sukumar [2003] 3 ILR 944, the employee’s delay of 2½ months in making a complaint was deemed to have accepted the breach and therefore could not claim for constructive dismissal.
If An Employee Can Prove That He/She Has Been Constructively Dismissed, Does That Mean That The Company Is Definitely Liable For Wrongful Dismissal And Has To Reinstate Or Compensate The Employee?
The answer is no.
Even if the employee successfully proves that he/she has been constructively dismissed, the employee merely succeeds in proving that there was in fact a dismissal despite no direct termination by the employer.
The burden then shifts to the employer to prove that there was just cause or excuse to dismiss the employee. This was stated in the case of Wong Chee Hong.
As such, if the employer still manages to prove that there was just cause of excuse to terminate the employee, the Court may still find that the dismissal was proper and thus the employer is not liable to reinstate or compensate the employee.
Although, in reality, the facts leading to a finding of constructive dismissal would most likely lead to a finding of the constructive dismissal being without just cause or excuse.
Conclusion
An employee who deemed himself/herself as constructively dismissed should file a complaint to the Director General of Human Resource within 60 days pursuant to section 20 of the Industrial Relations Act 1967. This will lead to a claim in the Industrial Court, which the process is stated here: How To Make A Claim In The Industrial Court.
The remedies of a successful constructive claim are the same as an unfair dismissal claim, e.g. backwages of up to 24 months, reinstatement, compensation in lieu of reinstatement and so on.
Overall, employees and employers alike are advised to abide by the terms of the employment contract that they have mutually agreed to. Any breach of the terms, may not only be a breach of contract issue, but also a constructive dismissal issue.
Employers are advised to seek legal advice before taking any actions such as those listed above e.g. demotion, pay cuts, and so on to ensure those actions do not give rise to litigation and if employers receive a threat of resignation and a constructive dismissal claim, employers are advised to get legal advice and legal representation immediately.
Feel free to Contact Me if you need further advice or require legal consultation on this issue.
Authored with the assistance of my able intern, Lim Zhi Ying.