Constructive dismissal and its HR implications

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[2010] 1 ILJ clxxxix The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia THE LAW OF CONSTRUCTIVE DISMISSAL AND ITS IMPLICATIONS TO HUMAN RESOURCE MANAGEMENT IN MALAYSIA by BALAKRISHNAN MUNIAPAN 1 School of Business & Design Swinburne University of Technology (Sarawak Campus) Abstract This paper specifically 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 1 Balakrishnan 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: [email protected]. ilɑ ol`.fm ae clxxxix θuesday, ʃeptember ´`, ´` ` ɑ

Transcript of Constructive dismissal and its HR implications

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[2010] 1 ILJ clxxxix

The Law of Constructive Dismissal and its Implications to Human Resource Management

in Malaysia

THE LAW OF CONSTRUCTIVE DISMISSAL AND ITS IMPLICATIONS TO HUMAN RESOURCE MANAGEMENT

IN MALAYSIA

by

B

ALAKRISHNAN

M

UNIAPAN

1

School of Business & DesignSwinburne University of Technology (Sarawak Campus)

Abstract

This paper specifically analyses some of the constructive dismissal awardsand its implication to human resource management in Malaysia. Themethodology employed in this paper is the analysis of case laws usingcriterion-based sampling from the Industrial and Superior Court awardson constructive dismissal. With a good understanding of the constructivedismissal awards, it is expected that organisations will manage and treattheir human resources as their greatest assets and prevent constructivedismissal claims from taking place. This will eventually help to improveand maintain harmonious employment relations.

Key words

: human resource management in Malaysia, dismissal,constructive dismissal, employment law, employment relations andcomparative industrial relations.

INTRODUCTION

Constructive dismissal is creating a new challenge to human resourcemanagement in Malaysia. This is due to the increasing number ofawards on constructive dismissal made by the Malaysian IndustrialCourt over the last nine years. From the years 2001 to 2009, the

1 Balakrishnan Muniapan is a Senior Lecturer in HRM at the School ofBusiness & Design, Swinburne University of Technology, SarawakCampus, in Kuching (Malaysia). He had previously taught HRM at CurtinUniversity of Technology, Sarawak Campus in Miri, HertfordshireUniversity program at BIMC in Beijing (China), and Economics forBritish and Australian Universities program in Penang. He has more than45 publications which include journal articles, book chapters andconference proceedings (refereed and non-refereed). He has alsopresented HRM papers at academic conferences in several countrieswithin Asia, Australia and Europe. Email: [email protected].

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Industrial Court has made 562 awards on constructive dismissal,mostly against employers. With compensation awarded to eachemployee amounting to as much as 24 months of back-pay salary plusa month’s pay for every year of service, employers can no longerneglect this pressing issue. The concept of constructive dismissal fallswithin the purview of s 20 of the Industrial Relations Act 1967.Constructive dismissal is a ‘deemed dismissal’ if an employer is guiltyof a breach of the employment contract which goes to the root of thecontract. It arises when a workman terminates his/her contract ofemployment and considers himself/herself discharged from furtherobligations because of the employer’s conduct

.

LITERATURE REVIEW

In the context of Malaysian human resource management, studies onemployment laws especially on constructive dismissal are limited as itis considered as a new area and a specific area of study. Over the years,some of the authors who have written about Malaysian employmentlaws 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), D’Cruz (2007),Kiong (2002), Idid (1993), Gomez (1997) and Wu (1995). Except forthe studies done by Anantaraman (2000) and Thavarajah (2008), noneof the studies have specifically dealt with constructive dismissals indepth. This paper therefore hopes to fill the existing gap in theliterature, to highlight some of the recent awards and lessons toprevent constructive dismissal claims from taking place and generallyto contribute to the constructive dismissal and employment lawsliterature in Malaysia.

METHODOLOGY

Research in employment law involves the analysis of statutes and caselaws. The statutes are the primary sources while the case laws are thesecondary sources. However, none of the important statutes related toemployment law in Malaysia, such as the Employment Act 1955,Industrial Relations Act 1967 and Trade Unions Act 1959 have definedthe term ‘constructive dismissal’, although constructive dismissalcomes within the scope of ‘dismissal’ in s 20 of the Industrial RelationsAct 1967 as per the landmark judgment made by Tun Salleh Abbas LPin

Wong Chee Hong v Cathay Organization (M) Sdn Bhd

[1988] 1MLJ 92 (SC). This paper therefore is based on case analysis of some ofthe constructive dismissal awards made by the Industrial Court and

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the superior courts by using criterion based sampling, and a review ofexisting literatures in the field of constructive dismissal in Malaysia.The author is familiar and has been involved in the field ofemployment law in Malaysia as a lecturer, trainer and consultant andis familiar with employment laws such as the Employment Act 1955and the Industrial Relations Act 1967.

EMPLOYMENT RIGHTS IN MALAYSIA

Employment laws in Malaysia provide security of employment forworkmen

2

as employment is considered to be a constitutional rightand 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 D’Cruz, 2007), as follows:

The right to livelihood is a right protected by Part II of the FederalConstitution. In consonance with the concept of social justice which isfirmly entrenched in industrial jurisprudence is the principle that thesecurity of tenure of an employee is akin to a right of property and is not tobe 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

DelhiTransport Coporation v DTC Mazdoor Congress

(1990)

was cited,and the learned chairman of the Industrial Court made the followingobservation (cited in D’Cruz, 2007):

2 The term workman is different from term ‘employee’ as defined in theEmployment Act 1955. Employee as defined in the Employment Act, s2(1) as any person, irrespective of his occupation, who has entered intoa contract of service with an employer under which such person’swages do not exceed ringgit Malaysia one thousand and five hundred(RM1500). In the Industrial Relations Act 1967, the term ‘workman’ isdefined as ‘any person, including an apprentice, employed by anemployer under a contract of employment to work for hire or rewardand for the purposes of any proceedings in relation to a trade dispute…’. In this paper, both the terms ‘employee’ and ‘workman’ are usedinterchangeably depending on the context of statutes applied(Employment Act and Industrial Relations Act).

3 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 personalliberty save in accordance with law.

4 Article 8(1) provides that all persons are equal before the law andentitled to its equal protection. However in practice, this can bedebated as in the case of art 8(2) which allows no discrimination againstany citizens on the grounds of religion, race, descent or place of birth.

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The right to life includes the right to livelihood. The right to livelihoodtherefore cannot hang on the fancies of individuals in authority.Employment is not a bounty from them nor can its survival be at theirmercy. Income is the foundation of many fundamental rights and whenwork is the sole source of income the rights to work becomes as muchfundamental. Fundamental rights can ill afford to be consigned to thelimbo of undefined premises and uncertain applications. That will be amockery of them.

From an international context, the International Labour Organization(‘ILO’) Convention No 158 of 1982, Article 4 of the ‘ConventionConcerning Termination of Employment at the Initiative of theEmployer’ (cited in Muniapan, 2007) made the following provision:

The employment of a worker shall not be terminated unless there is a validreason for such termination connected with the capacity or conduct of theworker or based on the operational requirement of the undertaking,establishment or service.

In employment law, it is a well established fact that the termination ofemployment is not an absolute right of employers. Practically, it canbe a very traumatic and costly exercise and proper care and conductmust be exercised by the employer when effecting or embarking onsuch course of action (Thavarajah, 2008). Dismissal is just one of thetypes of termination of the employment contract; other types oftermination include resignation, retirement, frustration of contract,termination due to breach of contract, non-confirmation of aprobationer, ending of a fixed term contract and termination due toredundancy (retrenchment). Dismissal is commonly associated as anact of an employer firing or terminating an employee fromemployment. Dismissal is normally due to the workman’s misconduct,which is not consistent with the expressed or implied terms andconditions of employment. The Industrial Relations Act 1967 and theEmployment Act 1955 regulate the dismissal of a workman and anemployee in the context of Malaysian employment laws.

Dismissal is also one of the managerial prerogatives or managerialrights provided within the legal context. The Industrial Relations Act1967, s 13(3), recognises the following managerial prerogatives ormanagement rights:

(a) the right to promote by an employer any workman from a lowergrade or category to a higher grade or category;

(b) the right to transfer by an employer a workmen within theorganisation of an employer’s profession, business, trade orwork, provided that such transfer does not entail a change tothe detriment of a workman in regard to his terms ofemployment;

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(c) the right to employ by an employer of any person that he mayappoint in the event of a vacancy arising in his establishment;

(d) the right to terminate by an employer of any workman by reasonof redundancy or by reason of the reorganisation of anemployer’s profession, business, trade or work or the criteria forsuch termination;

(e) the right to dismiss and reinstate a workman by an employer;and

(f) the right to assign or allocate by an employer duties or specifictasks to a workman that is consistent or compatible with theterms of his employment.

However, the right to dismiss an employee by an employer or anyother management prerogatives is not absolute. This needs to bemade clear to employers as the Industrial Court in

Lim Sim Tiong vPalm Beach Hotel

(1974) stated:

It is the basic principle of industrial (employment) law that a court wouldbe wrong to interfere with bona fide exercise of powers which are given tomanagement by common law and by contracts of service or which areinherent in management. If there has been no abuse of discretion, nodiscrimination, no capricious or arbitrary action, if management has actedin goods faith and upon fair investigation, an arbitrator should not disturbthe decision taken by the employer. However as a court of equity and goodconscience, this court will interfere not only where there has beenvictimisation, but also where it is of opinion that upon the substantialmerits of the case the action taken by the management was perverse,baseless or unnecessarily harsh or was not just or fair, or where there hasbeen a violation of principles of natural justice, or where there has beenunfair labour practice or other mala fide action on the part of themanagement in the exercise of its powers.

For employers, s 14(1) of the Employment Act 1955 further statesthat the employer may, on grounds of misconduct inconsistent withthe fulfilment of the express or implied conditions of his service,after due inquiry: (a) dismiss without notice the employee;(b) downgrade the employee; and (c) impose any other lesserpunishment as he deems just and fit. It is an established principle ofemployment law that an employer must establish sufficientcircumstances justifying dismissal such as misconduct. His LordshipMohd Azmi FCJ stated in the case of

Milan Auto Sdn Bhd v WongShe Yen

[1995] 3 MLJ 537 (FC) that the function of the IndustrialCourt in dismissal cases on a reference under s 20 of the IndustrialRelations Act 1967 is two-fold, namely:

... first, to determine whether the misconduct complained of by theemployer has been established, and secondly whether the proven

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misconduct constitutes a just cause or excuse for the dismissal … Thus thetwo questions, which the court had to ask itself, are: (i) was there adismissal; and (ii) if the answer to (i) is in the affirmative, was the dismissalwith or without just cause or excuse.

Therefore in any dismissal made by the employer, the burden ofproving the misconduct falls in the hands of the employer (not theemployee) to provide the reasonable reasons for the dismissal. Thiswas also clearly established by the Industrial Court in

StamfordExecutive Centre v Dharsini Ganesan

[1986] 1 ILR 101 (IC

).

Thecourt commented:

It may further be emphasised here that in a dismissal case the employermust produce convincing evidence that the workman committed theoffence(s) he is alleged to have committed and for which he has beendismissed. The burden of proof lies on the employer. He must prove thatthe workman guilty, and it is not the workman who must prove himself notguilty. This is so basic a principle of industrial jurisprudence that noemployer is expected to come to this court in ignorance of it.

As a result, due inquiry based on the rules of natural justice is a mustbefore dismissing an employee who is within the scope of theEmployment Act 1955. The due inquiry is also necessary for aworkman who is not within the scope of the Employment Act 1955 tofulfil the requirement of natural justice.

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Dismissal is the most severepunishment, which can be awarded to a delinquent workman by hisemployer mostly for some act of misconduct which had to be provenafter the due inquiry. However in employment law, just as theemployer has the right to dismiss the employee, the employee also hasthe right to dismiss the employer if there has been a fundamentalbreach of the employment contract by the employer, which goes tothe root of the contract. In some circumstances, the employer’s act of

5 The concept of natural justice has two basic components: (1) the rulesof

audi alteram partem

and (2) the rule against bias. The of

audialteram partem

rule, or the rule requiring a fair hearing is ofimportance and can be used to construe a whole code of administrativeprocedural rights. The rule against bias is also of equal importance for aman should not be judged in his own cause and justice must not bedone but seen to be done. An adjudicator should not be a party to thedispute if he has some interest therein and it is not necessary to provethat a particular decision made by the adjudicator was in fact influencedby biasness. It is sufficient if there is a reasonable suspicion about hisfairness. He must not only be free from biasness, but there must noteven be an appearance of biasness. Source:

Eastern Plantation Agency(Johore) Sdn Bhd v Association of West Malaysian PlantationExecutives, Seremban

(1985).

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unilateral changes in the terms and condition of the employmentcontract, forces the workman to terminate the contract with orwithout notice. This kind of unfair dismissal is popularly known as‘constructive dismissal’. The constructive dismissal awards made bythe courts over the years have great implications to human resourcemanagement in Malaysia.

CONSTRUCTIVE DISMISSAL

Constructive dismissal is a ‘deemed dismissal’ if an employer is guiltyof a breach of the employment contract which goes to the root ofthe contract. It arises when a workman terminates his/her contractof employment and therefore considers himself/herself dischargedfrom further obligations because of the conduct of the employer.According to Bowman and Lord Hailsham (2005)

in

Halsbury’sLaws of England

, constructive dismissal happens when anemployee terminates the contract of employment with or withoutnotice and may still make a claim to have been dismissed, if thecircumstances are such that he or she terminated it by reason of theemployer's conduct or a breach of contract by the employer. Theemployee must leave immediately in response to the breach ofcontract.

In a Canadian case,

Farber v Royal Trust Co

(1997), Canada'sSupreme Court defined constructive dismissal as follows:

Where an employer unilaterally makes a fundamental or substantial changeto an employee’s contract of employment — a change that violates thecontract’s terms — the employer is committing a fundamental breach ofthe contract that results in its termination and entitles the employee toconsider himself or herself constructively dismissed.

Constructive dismissal denotes the conduct of an employer, which isoutrageous and makes continued employment impossible; a workmanneed not tolerate it and can treat himself or herself as dismissed(

Lotteries Corporation Sabah Sdn Bhd v Vincent Lee

[1991] 1 ILR554 (IC)). A much clearer explanation of constructive dismissal wasgiven by Dato’ Gopal Sri Ram JCA in

Quah Swee Khoon v Sime DarbyBerhad

[2000] 2 MLJ 600 (CA) who simply defines constructivedismissal as follows:

An employer does not like a workman. He does not want to dismiss himand face the consequences. He wants to ease the workman out of hisorganisation. He wants to make the process as painless as possible forhimself. He usually employs the subtlest of means. He may, under the guiseof exercising the management power of transfer, demote the workman …Alternatively, he may take steps to reduce the workman in rank by giving

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him fewer or less prestigious responsibilities than previously held.Generally speaking, he will make life so unbearable for the workman so asto drive the latter out of employment.

In a constructive dismissal, an employer is guilty of a breach of theemployment contract which goes to the root of the contract or if theemployer has shown and committed unreasonable actions orbehaviours which repudiates the contract of employment. In suchsituations, the workman is entitled to regard the employment contractas having terminated and construe himself/herself as having beenconstructively dismissed.

In Malaysia, the Supreme Court (now Federal Court) ruling by TunSalleh Abas LP in

Wong Chee Hong v Cathay Organization (M) SdnBhd

[1998] 1 MLJ 92, firmly established the doctrine of constructivedismissal. As a result, constructive dismissal has been brought withinthe ambit of s 20 of the Industrial Relations Act 1967,

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which meansdismissal rights under the law are now extended to those workmenwho are compelled to resign because of the conduct of theiremployers (Anantaraman, 2000).

However, constructive dismissal cases need to be analysed from adifferent perspective unlike wrongful dismissal and unfair dismissal orfrom any other type of employment terminations, as in a constructivedismissal, the burden of proof is on the workman to prove that his/heremployer is guilty. The term ‘wrongful dismissal’ is based on contractlaw and it happens when the employer breaches the employmentcontract and forces the employee to leave and the claims for wrongfuldismissal means looking at the employment contract to see if theemployer has breached the contract. In the context of Englishemployment law, constructive dismissal would be the case of a

6 Section 20(1) — ‘Where a workman, irrespective of whether he is amember of a trade union of workmen or otherwise, considers that hehas been dismissed without just cause or excuse by his employer, hemay make representations in writing to the Director General to bereinstated in his former employment; the representation may be filed atthe office of the Director General nearest to the place of employmentfrom which the workman was dismissed.’ The Industrial Court in

PGPak Poy & Associates Sdn Bhd vs Looi Sook Chan

(1986)

asserted that:‘Section 20 of the IRA embodies the concept of security of tenure ofemployment … a workman is entitled to keep his job and no employermay be allowed to throw a workman out of his employment withoutgood reason. This provision gives a workman the right to claimreinstatement and this court may order reinstatement in the workman’sformer employment if his dismissal is considered to be without justcause or excuse.’

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wrongful dismissal. The term ‘unfair dismissal’ on the other hand, isbased on statute when the employer dismisses the employee withoutreasonable excuse as in s 20 of the Industrial Relations Act 1967.However, in the Malaysian context of employment law, the term‘wrongful dismissal’ and ‘unfair dismissal’ are synonymous and areused interchangeably (Thavarajah, 2008) and constructive dismissal isseen as another type of dismissal apart from wrongful dismissal andunfair dismissal.

In determining constructive dismissal claims, it is the contract testand not the reasonable test, which must be present. The contract testwas used in

Wong Chee Hong v Cathay Organization (M) Sdn Bhd

(also cited in

Sama World Asia Sdn v Teh Soo Seng

[2008] 1 ILR 112(IC ) where the learned judge, Tun Salleh Abas LP made the followingcomments:

Thus it would be a dismissal if an employer is guilty of a breach which goesto the root of the contract or if he has evinced an intention no longerbound by it. In such situation, the employee is entitled to regard thecontract as terminated and himself as being dismissed.

Similarly in the case of

Shabudin Abdul Rashid v Talasco InsuranceSdn Bhd

[2004], 4 CLJ 514 the Court of Appeal held that:

We confirm this to be the true test as the employer’s conduct … must besuch as to amount to there being a breach of some term in the appellant’scontract of employment and must be so fundamental as to evince anintention not bound by the contract of employment.

In

Western Excavating (ECC) Co Ltd v Sharp

[1978] 1 All ER 713 (CA)which was an earlier English case, the decision was established thatreference must be made to the contract of employment in order to seewhether the employer’s conduct constitutes a fundamental breach ofcontract. This principal was also used in

MPH Bookstores Sdn Bhd vLim Jet

Seng

[1987] 1 ILR 585 (IC), that in order for a claim ofconstructive dismissal to be successful, both limbs of the common law‘contract test’ must be present; they are as follows:

Did the employer’s conduct amount to a breach of the contract or had heevinced an intention no longer to be bound by the contract therebyentitling the workman to resign, and did the workman make up his mindand act at the appropriate point in time soon after the conduct, which hehad complained of, had taken place.

Therefore, the onus of proof is on the workman and not on thecompany to prove on a balance of probabilities that he/she wasdismissed. The claimant has to prove that the company has breachedthe contract thereby entitling him/her to plead under constructivedismissal. In order to prove that he/she has suffered constructive

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dismissal, an employee must prove that he/she did so as a result of abreach of contract by his/her employer who no longer intends to bebound by the essential terms of the contract. The key element ofconstructive dismissal is that the workman must have been entitledto leave without notice as a result of the employer’s conduct. Theword ‘entitled’ means that the employee could leave when theemployer’s behaviour towards him/her was so unreasonable that he/she could not be expected to stay (Smith and Wood, 2007).

Circumstances where the workman can classify when anemployer’s action has led to constructive dismissal (D’Cruz, 2007)are:

(a) arbitrary reduction of wages, commission, allowance, etc;

(b) withdrawal of contractual benefits provided as they arementioned in the contract of service;

(c) altering or taking away facilities reflective of the position;

(d) demotion or downgrading to a lower post, with or without thereduction of salary, fringe benefits, etc;

(e) transfer to a different location if such transferability is not clearlystated in the letter of appointment;

(f) substantial changes in the job function, especially if theemployee is incapable of performing those functions;

(g) behaviour by the employer, which is intended to humiliate theemployee;

(h) acts of victimisation such as setting unattainable deadlines,constant fault-finding and harassment (including sexualharassment); and

(i) threatening with dismissal if the employee does not resign fromthe job.

The table below shows a drastic increase in the number ofconstructive dismissal awards made in 2009 which is the highest overthe last nine years and the number is expected to rise in 2010. This isindeed alarming and it is a pressing issue that cannot be taken lightlyby human resource practitioners in Malaysia. With compensationawarded to each employee amounted to as much as 24 months ofback-pay salary plus a month’s pay for every year of service,organisations can no longer neglect this issue. Therefore, it is essentialfor human resource practitioners to learn and understand the cases onconstructive dismissal in order to not only manage it but also toprevent constructive dismissal claims from taking place.

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Analysis of Awards on Employment Termination (2001 – 2009)

Source: Malaysia Industrial Court at http://www.mp.gov.my/.

SOME OF THE CONSTRUCTIVE DISMISSAL AWARDS

Transfer of a workman

The right to transfer a workman within the organisation of anemployer’s profession, business, trade or work is a managerial right;however that such transfer does not entail a change to the detrimentof a workman in regard to his or her terms of employment. This lawon transfer was also clearly summarised by Raus Sharif J in

Chong LeeFah v The New Straits Times Press (M) Bhd

[2006] 1 MLJ 289 (HC)cited in

Thavarajah

(2008). In the earlier case of

Supermix Concrete(M) Sdn Bhd v Raduan Ahmad

[2002] 1 ILR 80 (IC), the claimantargued that a transfer to another plant was a breach of thefundamental contract. The judge held that in a transfer provision, thecompany had the discretionary power to transfer at any other locationas and when the company required or needed; therefore, there wasno mala fide or victimisation; the company’s power to transfer theclaimant in this case

was a bona fide

exercise.

However in

Dicklin Sdn Bhd v Bathma Subramaniam

[1991] 2ILR 750, IC, the court held that the transfer provision was only limitedto a transfer from one selection, division or associated company to theother and that under the contract of service, the company had nocontractual right to transfer the claimant from West Malaysia (SubangJaya) to East Malaysia (Kota Kinabalu). The company’s action was malafide given the fact that there was an ongoing retrenchment exerciseand knowing that the transfer will force her to resign, to avoid payingretrenchment benefits.

Types of Termination 2001 2002 2003 2004 2005 2006 2007 2008 2009

Constructive 26 35 40 34 22 42 97 126 140

Misconduct 726 810 763 1638 2144 2051 1200 878 613

Retrenchment 41 52 61 61 16 32 422 155 114

Others – – – – – – 402 573 328

Total

793 897 864 1733 2182 2125 2121 1732 1195

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In the case of Cosdel (Singapore) Pte Ltd v Ching Chooi Ham[2002] 1 ILR 562 (IC) the claimant had verbally agreed to betransferred to another location assuming that the terms andconditions of the employment were similar to the current job. Uponreceiving a new appointment letter with different terms, she agreedto accept the transfer provided that the terms and conditions of heremployment were not changed. The court held that it was an unjustdismissal whereby the company had altered the terms and conditionsof the employment.

There were a few cases of constructive dismissal in the late1990s which were related to transfers which are relevant for usexplore further. In Funai Electric (Malaysia) Sdn Bhd Johore vSalliah Ahmad [1997] 2 ILR 1002 (IC), the claimant, an assistantmanager (shipping) claimed constructive dismissal on the groundthat her transfer to the service parts department resulted in theerosion of her duties and responsibilities. She claimed constructivedismissal only after reporting to the new position and after beingthere for 12 days. The court allowed her claim of constructivedismissal notwithstanding the delay of 12 days on the ground thatthe claimant had to report to the new position as well as spend 12days to find out whether it was indeed a demotion; this was not fatalto her claim.

In Titan Polyethylene (M) Sdn Bhd v Othman Busu [1997] 3ILR 497 (IC), when the company demoted the claimant from theposition of group human resource manager to assistant to the vice-president of human resource, he wrote to the managing director toreconsider his decision and to reinstate him in his former position.Pending the outcome of his appeal, the claimant worked underprotest for 2.5 months before claiming constructive dismissal. Heexplained that the delay was there because he wanted to give thecompany a chance to remedy the breach. The court did not holdthe delay as amounting to affirmation of the new terms of hiscontract.

In Hotel Malaya Sdn Bhd v Say Lip Nyen [1994] 1 ILR 464 (IC),the action of the hotel in transferring its maintenance executive to thenewly created job of ‘car park executive’ without any indication ofduties and functions was claimed by the claimant as both mala fideand a breach of contract. The court found that the claimant's new jobfunctions at the car park tantamounted to that of a car park attendant.It upheld the claim of constructive dismissal and rightly ordered forreinstatement to his former position in the maintenance departmentwithout any loss whatsoever.

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In Harta Maintenance Sdn Bhd v Vanaja Chelliah & Ors [1999]1 ILR 639 (IC), the claimants were cleaners at the Kajang Hospital andbecause of their trouble with their supervisor, they were transferredto the Kuala Lumpur Hospital. Though the right to transfer was theprerogative of the employer, it should not entail a change to thedetriment of the employees. The claimants accepted the cleaner's jobin Kajang because the place of their work was just one block awayfrom their homes. However, transfer was detrimental to the claimantsas it caused them economic loss, an increase in travelling expenses,and a decrease in their monthly income in terms of overtime income.The court upheld their claim of constructive dismissal and orderedcompensation to be paid to the claimants.

Therefore, it is pertinent for organisations to understand theirlegal right to transfer their employees as well as their limitations. Thiswas highlighted by the Industrial Court in Kian Joo-Southcorp Sdn vNurul Syafiqah binti Abdullah [2003] 2 ILR 344 (IC). In this case, thecourt cited Ghaiye’s Misconduct in Employment in respect to thepower to transfer, which the learned author has emphasised, issubject to well recognised restrictions namely:

(a) there is nothing to the contrary in terms of employment;

(b) the management has acted in a bona fide manner and in theinterests of its business;

(c) the management is not actuated by any indirect motive or anykind of mala-fide;

(d) the transfer is not made for the purpose of harassing andvictimising the workman; and

(e) the transfer does not involve a change in the conditions of service.

The above restrictions was also cited in the Court of Appeal by ArifinZakaria JCA in Ladang Holyrood v Ayasamy a/l Manikam & Ors[2004] 3 MLJ 339, and Raus Sharif J in Chong Lee Fah v The New StraitsTimes Press (M) Bhd [2006] 1 MLJ 289; [2005] 4 CLJ 605 cited inThavarajah (2008).

Setting unreasonable targets

The assignment of work and the setting of work targets andperformance goals are considered to be the right of organisations;however, under certain circumstances, this can lead to constructivedismissal if this right is not exercised in a bona-fide manner. Forexample, in Informatics v George Varkey Sebastian [2002] 1 ILR 300(IC), the claimant contended that the company had set anunreasonable target and a re-designation. A contract test applied

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whereby the judge held that in a constructive dismissal claim, theonus is upon the claimant to establish on a balance of probabilitiesthat the company by its conduct had breached a term or terms(express or implied) of the contract; that the breach is a fundamentalone going to the root or foundation of the contract; that the claimanthas terminated the contract by reason of the company’s conduct andthe conduct is sufficiently serious to entitle the claimant to leave atonce; and that the claimant in order to treat himself as discharged, leftsoon after the breach.

Lasalle International Design School Sdn Bhd v Azhari Haltami[2002] 1 ILR 340 (IC) is an interesting case where the claimant, alecturer, was unfairly dismissed when the company restructured theorganisation and also due to unsatisfactory work performance. Thecourt held that where it concerned unsatisfactory performance, thecompany has to prove that the company has given sufficient warningsor notice to improve the employee’s quality of work, failing which,the employee could be asked to leave. During the process ofrestructuring, the management has the right to reduce the number ofworkmen in accordance to the company’s needs; however thisexercise must be bona fide and genuinely undertaken. Since there wasno evidence to prove that the claimant was given prior notice ofretrenchment and warnings about his unsatisfactory performance, thedismissal was deemed unfair.

Unilateral of changes in contract

It is well established in employment law that the employment termsand conditions cannot be varied unilaterally by one party. In KonnasJet Cargo Systems Sdn Bhd v Cheah Cheong Tian [1995] 2 ILR 800(IC) the claimant was a general manager of the company and a memofrom the company dated 3 February 1987 unilaterally altered hisduties and responsibilities and also made him subservient to anassistant general manager brought in from the parent company. Thebreach of contract as alleged occurred on 3 February 1987 but theclaimant only left his employment on 6 July 1987, more than fivemonths later. Since the company insidiously committed a series ofbreaches which were inconsistent and incompatible with theclaimant's functions, duties, status and dignity as a general manager ofthe company only after its letter dated 3 February 1987, the courtruled that the delay was not fatal.

In Sugar Bun Services Corp Bhd v Ong Siew Choon [2006] 1 ILR99 (IC), the employee’s fixed annual bonus was an express term in theemployee’s annual remuneration and as such, it was a fundamentalterm of the contract between the two parties. The company therefore

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could not unilaterally withdraw the said fixed annual bonus withoutthe employee’s consent. The company’s action amounted to a seriousbreach of the claimant’s contract of employment.

Payment of wages

In the case of ATI Technologies (M) Sdn Bhd & Anor v Jamilah AbuBakar [2002] 1 ILR 385 (IC), the claimant constructively dismissedherself when she was not paid monthly salary. The court held this asunjust dismissal and ordered the claimant to be paid back wages andcompensation in lieu of reinstatement. In TKS Kitcheneering Studio(SA) Sdn Bhd v Chia Mooi Keng [2002] 1 ILR 124 (IC), the companyhad constructively dismissed the claimant via her demotion and thedrastic salary reduction without providing her with any reasons. InBroadway Typesetting Sdn Bhd v Puan Ho Nyet Khoon [1987] 2 ILR350 (IC), the claimant was dismissed because she was 4 1/2 monthspregnant. The court held that the company had avoided paying hermaternity leave and had therefore found that there was no just causeor excuse to dismiss the claimant.

In Sama World Asia Sdn Bhd v Teo Soo Seng [2008] 1 ILR 112(IC), cited in Thavarajah (2008), the employee claimed constructivedismissal when the company did not pay his salary, income tax andEPF (Employee Provident Fund) for three months as well as hisreimbursements for travelling and medical expenses. The IndustrialCourt however dismissed the employee’s claim, holding that theemployee had failed to prove that the company had evinced anintention not to be bound by the contract.

Repudiation of contract

In Plastic Tecnic Sdn Bhd v Saraswathy d/o Manickam & Ors [1991]1 ILR 643 (IC), the company relocated itself from Petaling Jaya toBangi promising its employees that a free transport service would becontinuously provided. However, the bus service ceased operationsafter two months. The conduct of the company in ceasing operationswas held to be a repudiation of a fundamental term of the contract,and the employees were therefore, entitled to regard themselves ashaving been constructively dismissed.

Breach of implied term

The terms and conditions of employment are both expressed(written) and implied (not written or psychological contact). Therewere several cases of breach of implied contact in the 1990s which

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lead to constructive dismissal. For example in Aik Poh RubberIndustries Sdn Bhd v Goh Seng Hooi [1991] 2 ILR 849a (IC), the courtapplied the common law principle that the company by humiliating,intimidating and assaulting the claimant which made him fear for hissafety was guilty of breach of an implied term which goes to the rootof the contract of employment. This is therefore dismissal. In anotheraward provided by the court in Multrapac Sdn Bhd v Low Kok Piew[1993] 2 ILR 242 (IC), the court held that no employer has the rightto assault his/her employee for any reason. Therefore, the claimanthad the right to walk out after the assault and treated himself as beingdismissed by the company. While in the case of Syarikat PengurusanLadang Sdn Bhd v Sebastian Joseph Fernandez [1991] 1 ILR 99a(IC), the Industrial Court held that when the conduct of an employeris outrageous and makes continued employment impossible for aworkman, he/she need not tolerate it and can treat himself or herselfas dismissed.

BACK WAGES AND COMPENSATION FOR CONSTRUCTIVEDISMISSAL

Section 20(1) of the Industrial Relations Act 1967 providesemployment protection for workmen. The section provides:

Where a workman, irrespective of whether he is a member of a tradeunion of workmen or otherwise, considers that he has been dismissedwithout just cause or excuse by his employer, he may makerepresentations in writing to the Director General to be reinstated in hisformer employment; the representations may be filed at the office of theDirector General nearest to the place of employment from which theworkman was dismissed.

As for the back wages and compensation for constructive dismissal,there is no set formula to be followed. In Holiday Inn Kuching v LeeChai Siok Elizabeth [1992] 1 MLJ 23 (HC), the claimant foundemployment after her dismissal, therefore requested forcompensation in lieu of reinstatement. The court held that theclaimant did not want the job back, thus there is no basis forawarding damages or compensation in lieu of reinstatement. Lately,there have been delays in obtaining a hearing date and this createsconsiderable problems to claimants who seek reinstatements. Thusunder such circumstances, back wages or compensation in lieu ofreinstatement will be the only remedy provided by the ordinarycourt for wrongful dismissal. In Sibu Steel (Sarawak) Sdn Bhd vAhmad Termize Bujang [1996] 2 ILR 885 (IC), the social objectiveof s 20 of the Industrial Relations Act 1967 was pointed out by thecourt as follows:

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The remedies of reinstatement or compensation in lieu thereof areconsequential to the substantive right conferred upon workmen of theirentitlement to security to tenure which is translated into the practicalassurance that no employer can dismiss or even contractually terminatethe service of his employee without just cause or excuse … the complaintof unjust dismissal solely on the ground that the remedy of reinstatement isno longer expedient or otherwise inappropriate.

ESTABLISHING CONSTRUCTIVE DISMISSAL

In Ang Beng Teik v Pan Global Textile Bhd, Penang [1996] 3 MLJ 137(CA), where Tun Salleh Abas LP had observed that in provingconstructive dismissal, the claimant has to establish:

(a) that the company, by its conduct had breached the contract ofemployment in respect of one or more of the essential terms ofthe contract;

(b) that the beach is a fundamental one going to the root orfoundation of the contract;

(c) that the claimant had terminated the contract by reason of thecompany’s conduct and that the conduct is sufficiently seriousto entitle the claimant to leave at one; and

(d) that the claimant, in order to assert the right to treat himself asdischarged, left soon after the breach.

He further commented that when the claim for reinstatement unders 20(1) of the Industrial Relations Act 1967 is based on constructiveand not actual dismissal, the onus of proving that he has beenconstructively dismissed lies on the workman himself. Therefore ifthe workman leaves the company where these conditions are notmet, he may be considered as having resigned.

The evidence of the employer’s conduct and the events determinewhether the claimants have been dismissed or constructivelydismissed by the company. Dato Gopal Sri Ram JCA in Ang Beng Teikv Pan Global Textile Bhd, Penang [1996] 3 MLJ 137 (CA) said that‘the term ‘constructive dismissal’ is only a convenient label todescribe the conduct on the part on the employer which makes aworkman consider that he has been dismissed without just cause orexcuse, although there is no formal order of dismissal’.

SOME RECOMMENDATIONS TO REDUCE CONSTRUCTIVEDISMISSAL CASES

Thavarajah (2008) asserted that under the broad concept of‘constructive dismissal’, the courts are imposing further

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responsibilities on organisations and employers. Therefore,employers whether domestic or multinational, would have toshoulder greater responsibility towards their employees. Forexample, an employer who ignores a complaint by a female employeethat she has been sexually harassed may have to defend his/herinaction before the Industrial Court pursuant to a complaint by thefemale employee that she had been constructively dismissed.

With the increasing claims on constructive dismissal, themanagement of human resources becomes more challenging withlegal implications for organisations and employers. As a result, fromthe perspectives of the author, the following recommendations andsuggestions can be a useful guide to reduce claims of constructivedismissal. These recommendations are not difficult to implement asthey are simple strategies based on the human dimension ofmanagement. These include the creation of harmonious employmentrelations, a consultative management approach, effective and efficientgrievance handling machinery and effective human resourcestrategies (Muniapan, 2006). These recommendations are also usefulfor the effective management of employment in any industry, societyor country.

The creation of harmonious employment relations is essential.Employees are considered as the most important resource of theorganisation because they contribute to the growth and success of theorganisation. Like any other resource in the organisation, they wouldneed to be managed; but unlike any other physical resource,employees are human beings that have feelings, freedom of thoughtsand freedom to make choices, the liberty to act, or not to act, in acertain manner, etc. Because employees are considered as a uniqueand vital organisational resource, they would need to be managedproperly. Industrial relations or employment relations essentially are‘human relations’ and understanding the ‘humane’ and ‘human’aspect of management is the first step in creating harmoniousemployment relations. The constructive dismissal cases that werehighlighted earlier indicate poor human management and are one ofthe sources of the claims made by employees. Therefore, theorganisations would need to play a strategic role in creating andmaintaining harmonious employment relations.

Moreover, both employers and employees should regard eachother as partners to build lasting relationships. They would need toadopt a consultative approach in resolving issues through dialogue,taking into consideration the needs and concerns of both parties. Theemployers or the management should also provide effectiveleadership and direction in the overall interests of all parties. Theyshould lead by example and accept responsibilities. The employers

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should adopt a more participative management style, participativemanagement style is more suitable to the current managementenvironment in Malaysia as several research studies indicates that theauthoritarian or directive management styles is not suitable for manyorganisations in the current business environment. Participativemanagement is an open form of management where employees havea strong decision-making role. A participative management systemneeds to be developed by the management especially in a non-unionised environment to actively seek a strong cooperativerelationship with their employees. Besides reducing the constructivedismissal claims, the advantages of participative management includeincreased productivity, improved quality, and reduced costs.

The handling of employee grievance with an effective grievancehandling machinery is a must to resolve any disputes at supervisorylevel. A grievance is like a small fire; the earlier you put it out, thebetter. The grievance should be studied thoroughly and objectively,and due consideration should be given to the social and culturalaspects of the grievance and the parties involved. The grievancehandling procedure of the organisation can affect the harmoniousenvironment of the organisation. The grievances of the employeesare related to the contract, work rules, policy or procedure, healthand safety regulation, individual complaints, wage, bonus and otheremployment related issues. Here, the attitude on the part of theorganisations in their effort to understand the problems ofemployees and to resolve the issues amicably have a betterprobability in maintaining a culture of high performance (Kumar,2006). The grievance handling process must be done in a fair andequitable solution for all parties; both the employer and employees.The solution should be just (firm), but justice should be temperedwith compassion wherever possible. Finally, the solution to thegrievance should not only be effective in redressing the presentgrievance but it should also be effective in avoiding recurrence ofsuch grievances in the future (D’Cruz, 1999). Therefore,organisations need to educate their managers about the importanceof the grievance procedures as the effective grievance handling is anessential part of cultivating good employee relations and running afair, successful, and productive workplace.

Effective human resource management and employment relationsstrategies in terms of employee selection, induction, training anddevelopment, performance management and appraisal, compensationmanagement and employee relations are also essential. As previouslystated employers should regard their employees as their most importantasset as it is not great products or services that make an organisationgreat but the people. Investment in their employees and developing

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them is also a must for the organisations to remain competitive in themarketplace. Every manager manages employment relations, althoughnot every manager is an employment relations manager in theorganisation. As the current expectation on human resources is shiftingfrom managing the organisation of the business to managing thebusiness of the organisation (Yong, 2005), it is essential fororganisations operating in Malaysia to manage their human resourceseffectively.

CONCLUSION

Constructive dismissal claims and cases are creating new challenges inhuman resource management and it is indeed one of the importantand emerging patterns of employment relations in Malaysia. The casesof constructive dismissal provided and the recommendations will bea helpful guide to organisations and human resource practitioners inMalaysia to prevent constructive dismissal claims from beingpracticed in their respective organisations. They will also be able toavoid some of the common mistakes as found from the analysis of thecase laws related to constructive dismissal. Thus this will help inreducing the number of claims and cases of constructive dismissalwhich will be referred to the Ministry of Human Resources under s 20of the Industrial Relations Act 1967. With a good understanding of theawards on constructive dismissals, it is expected that organisationswill manage and treat their human resources as their greatest assetsand prevent claims of constructive dismissals from taking place. Thiswill eventually help to improve and maintain harmoniousemployment relations.

REFERENCES

(1) Aik Poh Rubber Industries Sdn Bhd v Goh Seng Hooi [1991] 2ILR 849a, (1991) Industrial Court Award No 251/1991.

(2) Aminuddin, M (2008) Human Resource Management: Principlesand Practices, Oxford University Press, Kuala Lumpur.

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(27) Industrial Court (Malaysia), available at http://www.mp.gov.my/.

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