The Law on Constructive Dismissal in Malaysia

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What is constructive dismissal? Scroll down to find out more.

Constructive dismissal is a creature created by the courts to aid unjustly dismissed employees who are unjustly dismissed. It is also to protect employers from employees who are bringing an action against them simply because they cannot see eye to eye with their employer and their decision making. Generally, constructive dismissal occurs when an employee terminates his employment because his employer committed a breach of contract that goes to the root of the contract or when the employer dismisses the employee without a proper or valid reason. 

Even though the term was created by the courts, the courts also state that the procedures governing the law on constructive dismissal can be found under Section 20 (1) of the Industrial Relations Act (‘the Act’)[1], and while each case is determined on their facts and on a case to case basis, the court has also laid down certain principles in determining if an employee is constructively dismissed by their employer.

The principle governing the concept of constructive dismissal

1. Is there a breach of contract?

constructive dismissal

Section 20 (1) of the Act only states that an employee can file a representation at the office of the Director General if the employee is dismissed without just cause or excuse by his employer[2]. In order to determine whether the employer was dismissed without just cause or excuse by his employer, the court in Wong Chee Hong v Cathay Organisation (M) Sdn Bhd[3] stated that the test is one of whether there is a breach of the fundamental terms of the contract.

Simply put, the employee cannot claim that he is being constructively dismissed simply because he is being transferred to another position. The transfer must have significantly altered the duties and responsibilities of the employee that it no longer reflects the terms of the contract which the employee was employed with in the first place[4]

2. Does the breach warrant a resignation?

Once it can be satisfied that there is a breach of contract, the test that needs to be satisfied is whether the breach warrant a resignation by the employee. An example that justify resignation is if:

  1. There is a reduction of wages/ commissions/ allowances, demotion, or transfer without a valid reason;
  2. The working place is not conducive/ safe to work;
  3. The transfer involves an alteration in the terms of employment altogether; or
  4. The management had acted mala fide in reaching a decision.

However, an employee cannot claim that he is being constructively dismissed in all circumstances, as this would undoubtedly open a floodgate of litigation against an employer who is merely trying to run their businesses and merely acted bona fide in the interest of their business[5]

3. Does the employer or employee signal that they no longer wish to be bound by the contract?

In this regard, there must be a clear communication by either the employer or employee that they do not wish to be bound by the contract. Some of the factors that can act as an indication in determining if either party does not wish to be bound are:

  1. Not showing up for work;
  2. Expressly stated in a letter of dismissal;
  3. Expressed by the employer to the employee; or
  4. Employee resign.

Remedies available for constructive dismissal.

In the event that an employee is constructively dismissed by their employer, he will have sixty days to voice his grievances by making a representation to the Director General[6]. If the court is satisfied that there is a valid case, the court can make an award. The award is dependant on the facts of each case. 

In order for the employee to claim for constructive dismissal, the employee must:

  1. Act promptly, as the longer the employee chooses not to act against the employer when the employee has discovered that there is a substantial breach of the employment contract by the employer, the more likely that the court will take it as a sign that the employee has affirmed to the new terms in the employment contract[7]; and
  2. The employee can only make a representation to the Director General after he receives a notice of dismissal or after he informs the employer that he is being constructively dismissed by the employer[8]. There must be an act amounting to the dismissal of the employee before the right to file a representation under the Act can take place.

1. 1967
2. Ibid
3. [1988] 1 MLJ 92
4. Anwar bin Abdul Rahim v Bayer (M) Snd Bhd [1998] 2 MLJ 599
5. Ibid
6. Section 20(1), Industrial Relations Act 1967
7. Pexxon Sdn Bhd v Sia Qui Yau, Johor (1989) ILR August 235
8. Southern Bank Bhd v Ng Keng Lian & Anor [2002] 5 MLJ 553

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