Constructive dismissal and its HR implications

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  • ol`.fm a e clxxxix uesday, eptember `, ` `[2010] 1 ILJThe Law of Constructive Dismissal and its Implications to Human Resource Management clxxxix in MalaysiaTHE LAW OF CONSTRUCTIVE DISMISSAL AND ITS IMPLICATIONS TO HUMAN RESOURCE MANAGEMENT IN MALAYSIA byBALAKRISHNAN MUNIAPAN1 School of Business & Design Swinburne University of Technology (Sarawak Campus) Abstract This paper specically analyses some of the constructive dismissal awards and its implication to human resource management in Malaysia. The methodology employed in this paper is the analysis of case laws using criterion-based sampling from the Industrial and Superior Court awards on constructive dismissal. With a good understanding of the constructive dismissal awards, it is expected that organisations will manage and treat their human resources as their greatest assets and prevent constructive dismissal claims from taking place. This will eventually help to improve and maintain harmonious employment relations. Key words: human resource management in Malaysia, dismissal, constructive dismissal, employment law, employment relations and comparative industrial relations.INTRODUCTION Constructive dismissal is creating a new challenge to human resource management in Malaysia. This is due to the increasing number of awards on constructive dismissal made by the Malaysian Industrial Court over the last nine years. From the years 2001 to 2009, the 1Balakrishnan Muniapan is a Senior Lecturer in HRM at the School of Business & Design, Swinburne University of Technology, Sarawak Campus, in Kuching (Malaysia). He had previously taught HRM at Curtin University of Technology, Sarawak Campus in Miri, Hertfordshire University program at BIMC in Beijing (China), and Economics for British and Australian Universities program in Penang. He has more than 45 publications which include journal articles, book chapters and conference proceedings (refereed and non-refereed). He has also presented HRM papers at academic conferences in several countries within Asia, Australia and Europe. Email:

2. il ol`.fm a e cxc uesday, eptember `, ` `cxcIndustrial Law Journal[2010] 1 ILJIndustrial Court has made 562 awards on constructive dismissal, mostly against employers. With compensation awarded to each employee amounting to as much as 24 months of back-pay salary plus a months pay for every year of service, employers can no longer neglect this pressing issue. The concept of constructive dismissal falls within the purview of s 20 of the Industrial Relations Act 1967. Constructive dismissal is a deemed dismissal if an employer is guilty of a breach of the employment contract which goes to the root of the contract. It arises when a workman terminates his/her contract of employment and considers himself/herself discharged from further obligations because of the employers conduct. LITERATURE REVIEW In the context of Malaysian human resource management, studies on employment laws especially on constructive dismissal are limited as it is considered as a new area and a specific area of study. Over the years, some of the authors who have written about Malaysian employment laws are Muniapan (2006; 2007), Muniapan and Parasuraman (2007), Ramasamy (2006), Mohammad (2006), Pathmanathan et al (2003), Thavarajah (2008), Thavarajah and Low (2003), Aminuddin (2007; 2008), Ayadurai (1996), Anantaraman (1997; 2000), DCruz (2007), Kiong (2002), Idid (1993), Gomez (1997) and Wu (1995). Except for the studies done by Anantaraman (2000) and Thavarajah (2008), none of the studies have specifically dealt with constructive dismissals in depth. This paper therefore hopes to fill the existing gap in the literature, to highlight some of the recent awards and lessons to prevent constructive dismissal claims from taking place and generally to contribute to the constructive dismissal and employment laws literature in Malaysia. METHODOLOGY Research in employment law involves the analysis of statutes and case laws. The statutes are the primary sources while the case laws are the secondary sources. However, none of the important statutes related to employment law in Malaysia, such as the Employment Act 1955, Industrial Relations Act 1967 and Trade Unions Act 1959 have defined the term constructive dismissal, although constructive dismissal comes within the scope of dismissal in s 20 of the Industrial Relations Act 1967 as per the landmark judgment made by Tun Salleh Abbas LP in Wong Chee Hong v Cathay Organization (M) Sdn Bhd [1988] 1 MLJ 92 (SC). This paper therefore is based on case analysis of some of the constructive dismissal awards made by the Industrial Court and 3. il ol`.fm a e cxci uesday, eptember `, ` `[2010] 1 ILJThe Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysiacxcithe superior courts by using criterion based sampling, and a review of existing literatures in the field of constructive dismissal in Malaysia. The author is familiar and has been involved in the field of employment law in Malaysia as a lecturer, trainer and consultant and is familiar with employment laws such as the Employment Act 1955 and the Industrial Relations Act 1967. EMPLOYMENT RIGHTS IN MALAYSIA Employment laws in Malaysia provide security of employment for workmen2 as employment is considered to be a constitutional right and is protected by the Federal Constitution under arts 5(1)3 and 8(1).4 This was clearly highlighted by the Industrial Court in Award 20/1997 (cited in DCruz, 2007), as follows: The right to livelihood is a right protected by Part II of the Federal Constitution. In consonance with the concept of social justice which is rmly entrenched in industrial jurisprudence is the principle that the security of tenure of an employee is akin to a right of property and is not to be treated lightly by a dismissing authority.This is also evident in Kuching Plywood Bhd v Ng Tiong Hie (1994), whereby the dictum from the Supreme Court of India in Delhi Transport Coporation v DTC Mazdoor Congress (1990) was cited, and the learned chairman of the Industrial Court made the following observation (cited in DCruz, 2007): 23 4The term workman is different from term employee as dened in the Employment Act 1955. Employee as dened in the Employment Act, s 2(1) as any person, irrespective of his occupation, who has entered into a contract of service with an employer under which such persons wages do not exceed ringgit Malaysia one thousand and ve hundred (RM1500). In the Industrial Relations Act 1967, the term workman is dened as any person, including an apprentice, employed by an employer under a contract of employment to work for hire or reward and for the purposes of any proceedings in relation to a trade dispute . In this paper, both the terms employee and workman are used interchangeably depending on the context of statutes applied (Employment Act and Industrial Relations Act). The Federal Constitution of Malaysia is the supreme law of the country. Article 5(1) provides that no person may be deprived of life or personal liberty save in accordance with law. Article 8(1) provides that all persons are equal before the law and entitled to its equal protection. However in practice, this can be debated as in the case of art 8(2) which allows no discrimination against any citizens on the grounds of religion, race, descent or place of birth. 4. il ol`.fm a e cxcii uesday, eptember `, ` `cxciiIndustrial Law Journal[2010] 1 ILJThe right to life includes the right to livelihood. The right to livelihood therefore cannot hang on the fancies of individuals in authority. Employment is not a bounty from them nor can its survival be at their mercy. Income is the foundation of many fundamental rights and when work is the sole source of income the rights to work becomes as much fundamental. Fundamental rights can ill afford to be consigned to the limbo of undened premises and uncertain applications. That will be a mockery of them.From an international context, the International Labour Organization (ILO) Convention No 158 of 1982, Article 4 of the Convention Concerning Termination of Employment at the Initiative of the Employer (cited in Muniapan, 2007) made the following provision: The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirement of the undertaking, establishment or service.In employment law, it is a well established fact that the termination of employment is not an absolute right of employers. Practically, it can be a very traumatic and costly exercise and proper care and conduct must be exercised by the employer when effecting or embarking on such course of action (Thavarajah, 2008). Dismissal is just one of the types of termination of the employment contract; other types of termination include resignation, retirement, frustration of contract, termination due to breach of contract, non-confirmation of a probationer, ending of a fixed term contract and termination due to redundancy (retrenchment). Dismissal is commonly associated as an act of an employer firing or terminating an employee from employment. Dismissal is normally due to the workmans misconduct, which is not consistent with the expressed or implied terms and conditions of employment. The Industrial Relations Act 1967 and the Employment Act 1955 regulate the dismissal of a workman and an employee in the context of Malaysian employment laws. Dismissal is also one of the managerial prerogatives or managerial rights provided within the legal context. The Industrial Relations Act 1967, s 13(3), recognises the following managerial prerogatives or management rights: (a) the right to promote by an employer any workman from a lower grade or category to a higher grade or category; (b) the right to transfer by an employer a workmen within the organisation o