The Law on Constructive Dismissal in Malaysia

Constructive dismissal is a creature to aid unjustly dismissed employees created by the court. It is also to protect employers from employees who are bringing action against them. It is 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. This is because his employer commits a breach of contract that goes to the root of the contract. Another case is when the employer dismisses the employee without a proper or valid reason. 

Even though the court creates the term, the courts 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]. Furthermore, 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 in Malaysia

1. Is there a breach of contract?

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. It is whether there is a breach of the fundamental terms of the contract.

Simply put, if the employer transfers the employee to another position, the employee cannot claim that he is being constructively dismissed. The transfer must have significantly altered the duties and responsibilities of the employee. Furthermore, it is no longer reflects the terms of the contract in which the employee was employed 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 warrants a resignation by the employee. An example that justifies 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. 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. Do employers or employees signal that they no longer want to be bound by the contract?

In this regard, there must be clear communication by both parties 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 resigns.

Remedies are 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]. The court can make an award if there is a valid case that satisfied the court. The award is dependent on the facts of each case. 

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

1. Act promptly. 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.