Constructive dismissal in Malaysia often happens during employment. This article explains what it is, what to do when faced with this threat, and prevention tips for employer.
What is Constructive Dismissal in Malaysia?
Constructive dismissal in Malaysia is when an employee resigns due to the employer’s actions or omissions that make the working conditions intolerable. It forces the employees to resign and is treated as a dismissal by the employee.
Constructive dismissal is different from direct dismissal as in the case of direct dismissal, the employer terminates the employee directly. Examples of direct dismissal include termination due to misconduct by an employee or there is a restructuring of the company by the employer.
However, in case of constructive dismissal, the employee asserts the actions by the employer make the employee unable to continue working in the present circumstances, thus causing an unfair dismissal and wrongful dismissal.
The concept of constructive dismissal comes from the case of Wong Chee Hong v Cathay Organisation (M) Sdn Bhd. Over the years, case laws by Malaysian courts, especially the recent case of Federal Court decision in Tan Lay Peng v RHB Bank Berhad & Anor [2024] had refined and laid down the legal requirements to constitute constructive dismissal which are:
The employer had breached the terms of the contract and it signifies unilateral repudiation of the contract (no longer intends to be bound by the employment contract)
The breach must be fundamental and goes to the root of the contract. The legal test is of ‘contract test’- that is whether is a fundamental breach of contract by the employer, and not a ‘reasonableness test’- that is whether the actions of the employer are reasonable.
The employee's decision to leave must be in response to the breach and not for unrelated reasons.
The employee should not delay excessively in terminating the contract in response to the employer's breach.
Examples of Constructive Dismissal Cases
Some examples of cases of constructive dismissal may include:
Unreasonable Changes to Job Scope
Changes in job scope and duties in the workplace can amount to constructive dismissal. For example, if an employer reduces an employee’s duties to a level below their qualifications or assigns unrelated tasks without the agreement of the employee, the change may be unreasonable.
When there is a removal of substantial responsibilities and duties, these can also amount to deprivation of work and marginalization of roles. However, minor changes in job scopes are usually within the discretion of management decisions.
Unilateral Change in Contract Conditions
When there is a substantial reduction in contractual benefits such as payroll wages, this results in a unilateral variation of the contract.
Hostile Working Conditions
Actions such as sexual harassment, discrimination or unfairness, bullying and forcing the employee to resign can cause a hostile working environment. These mistreatments affect the employee’s feelings, making the workplace an undesirable place.
Demotion without just cause
This happens when the employee has been demoted from the current role.
Employer's Breach of Contract
Apart from the above actions, some of the actions by employers can amount to breaches of employment contracts, particularly when the actions violate employment rights under the employment laws of Employment Act 1955.
However, if the employee signs any agreement in accepting breaches or accepts compensation such as severance payment for the breaches, then he may not claim afterwards for the breaches.
Steps to Claim Constructive Dismissal
If the employee suspects there is a case of constructive dismissal, here are a few steps he can take:
Step 1: Assess the Severity of Actions
The employee can gather the related documents such as employment contracts and write down the alleged ill conduct of the employer. Then, seek the advice of an employment lawyer. The lawyer will be able to assess the severity of the cases and whether the actions of the employer are significant breaches of the employment agreements.
At the same time, the lawyer will be able to point out the potential issues that can arise which may differ for different situations. This preliminary assessment is important as it assesses the chances for a successful claim and outcome if the employee decides to commence lawsuits later on.
A competent lawyer will be able to advise as to whether the situation fulfils the conditions for constructive dismissal as stated in the given judgments and also whether the employee has a good chances for the legal proceedings.
Step 2: Send a letter requesting rectification
The employee then sends a letter to the employer stating the unfair actions and requires the employer to rectify the actions within a specified timeframe. If the employer has a valid reason for those unfair treatments, then he can explain the justification for the decisions taken.
Step 3: Resignation Letter
If the employer fails to rectify the alleged breaches, then the employee can tender a resignation due to the breaches as soon as possible and without undue delay.
Step 4: Legal action
Under section 20 of the Industrial Relations Act 1967, any workman who says that he has been terminated without just can file claims in the Industrial Relations Department for reinstatement within 60 days of termination.
In the context of constructive dismissal, the termination date is the resignation date. The officer of the department will then hold several conciliation meetings between the employee and employer to mediate the settlement of the claim.
If the reconciliation efforts are unsuccessful, then the department will refer the representation to the Director General who will then refer the claims to the Industrial Court (Mahkamah Perusahaan Malaysia) for a hearing of the matter.
For the legal proceedings, the claimant and employer will file and exchange relevant documents between them. After that is done, there will be an Industrial Court hearing where the parties, with their witnesses, will need to give evidence in the courts. The employee has the burden of proof to prove there is there is constructive dismissal.
After the hearing, the court will make a determination on the issues. If the court finds an employee successful in proving a constructive dismissal claim, the court can order reinstatement, that is the employee to be reinstated to the former employment.
Alternatively, the court can order the employer to pay back wages to the employee which can be up to 24 months of wages (for confirmed employees) and 12 months (for probationers).
Furthermore, the court can also order the employer to pay compensation to employees, whether it is confirmed or probationary employees. If any party is dissatisfied with the decisions of the court, they can appeal to the High Court where the High Court judge can rehear the matter. The length of the court actions may take from months to 2 years, depending on whether there is an appeal or not.
Prevention Strategies for Employers
Here are some of the proactive measures that an organization can take to increase employee retention and improve employer-employee relationships, apart from preventing cases of wrongful dismissal/unfair dismissals.
Proper procedures
The human resources and recruitment department can take proactive steps by setting proper procedures for handling complaints from employees, and also disputes and conflicts between employees and employers.
This ensures that any dissatisfaction is properly informed to the management before any constructive dismissal claims are filed. If resolved satisfactorily, it then increases employee productivity. Furthermore, the employer should ensure compliance with its obligations under the law.
Healthy workplace environment
The employer can also prevent an intolerable work environment by conducting an inquiry upon hearing cases of negative behaviour such as sexual harassment. A meeting can be held with the complainant to address the issues early on.
Alternatives to termination of employment in Malaysia
In the case where termination is inevitable, the employer can then consider other ways for termination such as offering a voluntary separation scheme in Malaysia (vss Malaysia). This is a scheme where the employee resigns voluntarily in return for some payments.
Although it is practically impossible to prevent cases of constructive dismissal claims, employers can take steps to manage dismissal claims by establishing positive relationships with employees. If needed, the employer can consider engaging a law firm for advice on legal issues and drafting contracts such as employment agreements.
Conclusion
If you face claims of constructive dismissal in Malaysia and looking for legal advice, do contact us to arrange a legal consultation. Our employment lawyers will be able to advise on the legal issues that you face.
Frequently Asked Questions
1. What is the constructive dismissal law in Malaysia?
Constructive dismissal is when an employee quits because of the employer’s actions that have created intolerable working conditions. The employee considers himself to be constructively dismissed and examples of employer actions include unilateral reduction in salary.
2. Where to report constructive dismissal in Malaysia?
Employees can file claims with the Industrial Relations Department within 60 days of the termination date if they claim they have been terminated without just cause. In the context of constructive dismissal, the 60 days may start from the resignation date.
3. What is the difference between constructive dismissal and forced resignation?
A forced resignation is an example of an employer’s behaviour that can constitute dismissal. However, not all cases of constructive dismissals are of forced resignation as some other examples are unilateral reductions in salary and demotion.
4. How to prove unfair dismissal in Malaysia?
You can prove unfair dismissal in Malaysia by proving that the employer's actions had breached the fundamental terms of the contract. The breach must go to the root of the contract and examples include a reduction in salary without consent of the employee.
