Malaysian employment law requires employers to have “just cause and excuse” before dismissing their employees. Under Section 20 of the Industrial Relations Act 1967, an employee who feels that he has been unfairly dismissed without just cause or excuse by his employer, may lodge a representation to the Director General of Industrial Relations within 60 days from the date of his termination. In the event the employee and employer fail to come to an amicable settlement, the matter will be referred to the Minister of Human Resources who will then consider and decide whether the representation is fit to be referred to the Industrial Court for determination (Read our full article titled “Unfair Dismissal – From Termination to Industrial Court Award”).
This recourse under Section 20 also includes the situation where an employee believes that he was constructively dismissed by the employer.
What is Constructive Dismissal?
Briefly, “constructive dismissal” is a situation where the employee was left with no choice but to tender his resignation due to the actions, decisions and/or policies imposed by the employer on the employee resulting in a fundamental breach of contract by the employer even though there is no direct dismissal of the employee by the employer.
Elements to Prove Constructive Dismissal
First and foremost, the burden of proof is on the employee to prove that there was constructive dismissal by the employer. There are several elements or requirements that the employee must satisfy before constructive dismissal can be established.
The Court of Appeal in Anwar Abdul Rahim v Bayer (M) Sdn Bhd  2 CLJ 197 held that the test to be applied when determining whether there was constructive dismissal is the ‘contract test’ and not the ‘unreasonableness test’:
“It has been repeatedly held by our courts that the proper approach in deciding whether constructive dismissal has taken place is not to ask oneself whether the employer’s conduct was unfair or unreasonable (the reasonableness test) but whether the conduct of the employer was such that the employer was guilty of a breach going to the root of the contract or whether he has evinced an intention no longer to be bound by the contract.”
The Court of Appeal in the case of Anwar Abdul Rahim v Bayer (M) Sdn Bhd further held that in order to succeed in a claim for constructive dismissal, the employee must establish the following:
(i) That the employer, by its conduct, had breached a term or terms of the contract of employment or has evinced an intention no longer to be bound by the contract;
(ii) The breach must be a fundamental breach going to the root or foundation of the contract;
(iii) The employee must leave in response to the breach and not for some unconnected and ancillary reason; and
(iv) The employee did not delay too long in terminating the contract in response to the employer’s breach, otherwise, he may be deemed to have waived the breach.
The High Court in the case of Govindasamy Munusamy v Industrial Court Malaysia & Anor  10 CLJ 266 also held that in order to succeed in a case of constructive dismissal, it is sufficient for the employee to establish that:
(i) The employer has by its conduct breached the contract of employment in respect of one or more of the essential terms of the contract;
(ii) The breach is a fundamental one going to the root or foundation of the contract;
(iii) The employee had placed the employer on sufficient notice period giving time for the employer to remedy the defect;
(iv) If the employer, despite being given sufficient notice period, does not remedy the defect then the employee is entitled to terminate the contract by reason of the employer’s conduct and the conduct is sufficiently serious to entitle the employee to leave at once; and
(v) The employee, in order to assert his right to treat himself as discharged, left soon after the breach.
The Industrial Court’s determination of constructive dismissal will depend on a case by case basis as each and every case has its own peculiar set of facts and circumstances. Here are a few examples of successful constructive dismissal claims:
In the case of Khoo Ee Peng v Galaxy Automation Sdn Bhd  2 LNS 0656, the Industrial Court determined that there was constructive dismissal by the employer against the employee based on the following facts:
(a) On 4.4.2005 after a meeting with a client, the employer’s Branch Manager brought the employee in his car to a hotel with the excuse that the Branch Manager was tired and invited the employee to share a room with him, even after the employee informed several times that she wanted to go home to her family. The employee rejected the branch manager’s advances and pleaded with the Branch Manager to respect her self respect. However, the Branch Manager switched off the car engine and tried to pull the employee out of the car. The Branch Manager eventually drove the employee back to where she had parked her car. During the trip, the Branch Manager talked a lot about sex and also tried to fondle the emploee while inside his car.
(b) Before this incident, the Branch Manager had tried to touch the employee a few times and asked her to share a car with him to meet a customer but she had rejected his invitation.
(c) On 5.4.2005, the Branch Manager texted the employee declaring his love for her.
(d) On a separate incident, the Branch Manager remarked that even if the employee were to complain, nobody would believe her as he was her superior officer.
(e) After the incident, the employee’s petrol allowance was withdrawn and she was assigned work she did not want to do.
(f) On 18.11.2005, the Branch Manager asked the employee for an explanation on why she went on leave without filling in the leave application form. He later demanded for the return of the company’s sales documents and property, telling her that he had dismissed her.
(g) On 21.11.2005, the employee wrote to the employer claiming constructive dismissal.
The Industrial Court held that:
“The employer by the lewd behaviour of the Branch Manager had destroyed the implied contractual term of mutual trust and confidence between the parties as employer and employee subjecting the Claimant to humiliation and distress. The Company had breached the root of the contract by his conduct.”
The Industrial Court reinstated the employee to her former position with the employer without any loss of seniority because the Branch Manager was no longer working for the employer.
Failure to Pay Salary and Statutory Deductions
In the case of Noor Hazlina Kamarudin v Nusapetro Sdn Bhd  2 LNS 2846, the employer failed to pay the statutory deductions from the employee’s monthly salary to EPF, Zakat, LHDN and SOCSO from April 2017 until January 2018. The employer also then failed to pay the employee’s monthly salary from February 2018 until 15 May 2018. The employee had on numerous occasions approached the human resources department and management but the issue was not resolved. The employee was left with no option but to tender her notice of resignation on 16.4.2018 and left the job on 15.5.2018. The Industrial Court held that there was constructive dismissal:
“27. Applying the law to the facts of the instant case, the Court is convinced that: –
(i) The non-payment of salaries for the said period, combined with the failure of the Company’s obligation to pay the relevant statutory authorities for the deductions made tantamount to a breach of fundamental terms of the employment contract of the Claimant. As such the Claimant has been constructively dismissed.
(ii) In addition to the above, the Company also failed to rebut the Claimant’s contention that her claim of constructive dismissal as the Company’s representative was absent.”
Demotion, Change of Job Description and Transfer
In the case of Rahayu Binti Razalli v Matrix Power Network Sdn Bhd (Award No.: 3143 of 2019), the employee worked in the employer’s premises in Bangi at all material times. The employee was then promoted to Manager of the Finance and Accounts Department effective on 1.3.2017. However, by a letter dated 9.3.2017, she was demoted to Assistant Manager of Sales Project Monitoring & Administrator and transferred to Group Sales & Marketing and Business Development with retrospective effect from 1.3.2017. On 8.5.2017, the employer issued a letter to the employee to transfer her to the employer’s branch in Ipoh effective 26.5.2017. Thereafter, the employee tendered her resignation on 25.5.2017. The Industrial Court found that:
(a) The transfer appears to be vindictive, unjustified and a violation of the terms and conditions of the employee’s employment, even after considering that the management has certain management prerogatives. The management prerogative was wrongly applied and unreasonable in the circumstances.
(b) The employer cannot hide behind its terms and conditions of employment to make decisions which are unfair and unreasonable.
(c) The purported transfer to Ipoh was made mala fide, for the purpose of victimising or harassing her. The employee has also promptly protested the transfer. There was no inordinate delay. Most importantly, the employer has failed to show that the transfer was out of necessity.
(d) Similarly, the transfer of the employee to the Sales and Marketing Department was unreasonable and mala fide. The demotion and/or regression of her position to Assistant Manager was unreasonable and unnecessary at best.
(e) The new job description of the employee put her in a situation where everything would be new to her. Instead of being able to help in the employer’s restructuring, she would be a weak link to the success of the employer’s attempt at restructuring because her entire experience with the employer was in the Finance and Accounts Department.
(f) While it is true that the employer has the right or prerogative to transfer its employees, it must be done without malice, bona fide and with a clear intent to benefit the employer by using the employee’s expertise and experience as the justification. In this case, the transfer was not merely across department but to a company that is in Ipoh and far from Bangi where she has been based all this while.
In the case of Najah Binti Ahmad v Consist College Sdn Bhd (Award No.: 1301 of 2019), the Industrial Court held that there was constructive dismissal by the employer against the employee due to the following circumstances:
(a) From 1.3.2016 to 2.5.2016, the employee was on maternity leave for her first pregnancy.
(b) On 11.05.2016, employer relocated the employee from Level 5 to a small room on Level 3 which was congested, with a diminished level of privacy, without a computer, and was inadequate to conduct counselling sessions in the discharge of her duties.
(c) On 19.09.2016, the employee’s position was changed from Manager of International HSE Programme (Tier 2) to HSE Counsellor (Tier 3) The employee’s job scope was completely changed and reduced from being directly responsible in running and ensuring that the HSE International Program was up to standards to doing things like organizing workshops and providing information during meetings.
(d) The employee was asked to make a weekly report of the activities, achievements expected from students and the following week’s planning. The contents of weekly reports were changed from time to time to include more content. Eventually, the employee was asked to record her hourly activities in the time log sheet provided.
(e) After she announced her second pregnancy, there was a sudden surge in complaints by the employer against the employee. Within three months from late December 2016 to March 2017, she was issued with many warning letters and memos.
(f) On 6.3.2017, the employer abolished the employee’s position as HSE Counsellor and demoted her to the position of HSE Assistant. The Claimant’s salary was also reduced substantially from RM6,000 to RM1,500.
(g) On 8.3.2017, the employee was instructed to move her office from Level 3 to the Ground Floor beside the motorcycles parking area that was exposed to noises and fumes emitted from the motorcycles which was a risk to her health and pregnancy.
The Industrial Court concluded that:
“The demotion to HSE Assistant and substantial pay cut were clearly a fundamental breach of the Claimant’s contract of employment. The Company have acted or conducted in a manner which calculated or likely to destroy or seriously damages their relationship of trust and confidence by demoting the Claimant to HSE Assistant and reducing her salary substantially …”
”It is obvious from the Company’s series of actions that the Company had wanted to get rid of the Claimant as she was not able to commit to her work, validly or otherwise. The Claimant was pregnant and had issues with her health at the material time which caused her to be absent from work frequently. These would have prompted the Company to endeavour to remove the Claimant. Notwithstanding the Claimant’s inability to commit to her work, it was certainly not a valid reason for the Company to attempt to oust her from the Company.”
It is always important and prudent for employers to ensure that all their administrative and HR decisions are fair, reasonable, well planned, transparent and in compliance with the terms and conditions of their employees’ contracts of service. This will help protect the employers from possible allegations and actions of constructive dismissal from their employees. At the same time, employees should always be well versed with the terms and conditions of their employment contract, aware of any victimisation by their employers and stand up for their rights.
By John Chan
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.