Work and Employee Relations: An Overview of Constructive Dismissal in Malaysian Employment Relations

By

Balakrishnan Muniapan
School of Business Curtin University of Technology, Sarawak, MALAYSIA Email: mbalakrsna@yahoo.com
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Abstract
This paper presents an overview of constructive dismissal in the context of Malaysian employment relations. 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. Constructive dismissals claims are creating a new challenge in employment relationship not only in Malaysia but also in other parts of the world. With a good understanding of the awards on constructive dismissals, it is expected that the employers will manage and treat their employees as their greatest assets and prevent claims of constructive dismissals from taking place.
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Overview
Dismissal and Termination The Law on Unfair Dismissal The Meaning of Workman Constructive Dismissal in Malaysia Burden of Proof Case Laws on Constructive Dismissal Managerial Implications Preventing Constructive Dismissal
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Methodology
1. 2. 3. 4. 5. 6. Qualitative Research Literature Review Statutes EA 1955 & IRA 1967 Case Laws Analysis www.cljlaw.com Criterion-based Sampling Feedback and Discussions
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Literature Review
1. Limited studies have been conducted in the area of Constructive Dismissal in Malaysia 2. However the number of studies have been increasing since 2000 3. Amminuddin (2003); Pathmanathan et al (2003); Thavarajah & Low (2003); Hew (2002), Anantaraman (2000); Cruz (1999); Gomez (1997) Ayadurai(1996); and Wu (1995) are among the authors who have written and writes about the Malaysian Industrial Law, which also includes Constructive Dismissal
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IC Awards on Dismissal Cases

Types of Termination Constructive 2000 2001 2002 2003 2004 2005

20

26

35

40

34

22

Misconduct

479

726

810

763

1638

2144

Retrenchment

21

41

52

61

61

16

TOTAL

520

793

897

864

1733

2182

Source: http://mp.mohr.gov.my/mp_baru/biver/Itemid68bi.htm
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Dismissal
1. Dismissal is one of the managerial prerogatives or managerial rights provided in the Section 13 (3) of the Industrial Relations Act 1967. 2. Dismissal is a kind of termination of employment contract by an employer due to the employees (workman) misconduct, which is not consistent with the expressed or implied terms of employment. 3. Section 14(1) of the Employment Act 1955 states that the employer may, on grounds of misconduct after due inquiry 1) dismiss without notice the employee 2) downgrade the employee and 3) impose any other lesser punishment as he deems just and fit.

Dismissal & Termination

1. All dismissals are termination, however not all terminations are dismissal. The effect and the result of both terminations and dismissals are the same. 2. Termination also includes retirement, resignation, breach of contract (EA 1955, Sec 15), frustration of contract, ending of a fixed term contract, non confirmation of a probationer & retrenchment. 3. Termination and dismissal are managerial rights, however it must be based on fair labor practices.
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Types of Dismissals
Wrongful dismissals - breach of the employment contract Unfair dismissals - breach of statute Constructive Dismissals - employee forced to resign In a case of a claim for wrongful dismissal, a workman may bring an action for damages at common law. Raja Azlan Shah CJ (as he then was) in Fung Keong Rubber Manufacturing (M) Sdn Bhd v. Lee Eng Kiat & Ors (1981) 1 MLJ 238
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The Law on Unfair Dismissal

Section 20 (1) of the Industrial Relations Act, 1967 states:"Where a workman, irrespective of whether he is a member of a trade union of workmen or otherwise, considers that he has been dismissed without just cause or excuse by his employer, he may make representations in writing to the Director General to be reinstated in his former employment; the representation may be filed at the office of the Director General nearest to the place of employment from which the workman was dismissed."
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The Meaning of Workman

A company..likened to a human body. They have a brain and a nerve center which controls what they do. They also have hands which hold the tools and act in accordance with directions from the center. Some people in the company are mere servants.and cannot to be said to represent the mind and will. Others are directors who representing the mind and will of the company. The state of the mind of these director are the state of the mind of the company, and is treated by law as such.. Lord Dennings in Bolton (Eng) Co Ltd v Graham & Sons Ltd (1956)
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The Meaning of Workman

Whether a person is the very brain of the company or the directing mind determining and formulating the companys policy Salleh Abas, LP in Inchcape Holdings Bhd v RB Gray & Anor, SC Award (1985) In Malaysian Industrial Law, all employees are workmen (within the scope of IRA 1967), however not all workmen are employees (if they not within the scope of EA 1955)
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Section 20 of IRA 1967

Section 20 of the IRA embodies the concept of security of tenure of employment a workman is entitled to keep his job and no employer may be allowed to throw a workman out of his employment without good reason. This provision gives a workman the right to claim reinstatement and this court may order reinstatement in the workmans former employment if his dismissal is considered to be without just cause or excuse. (Industrial Court in PG Pak Poy & Associates Sdn Bhd v Looi Sook Chan, 245/1986)
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Section 20 of IRA 1967

It is well established and well known that for an employer to dismiss any workman, there must be just cause or excuse. The just cause or excuse must be based on the facts of each case, either a misconduct, negligence or poor performance. The onus is on the employer to prove just cause or excuse

Industrial Court in Great Wall Shopping Sdn Bhd v Gan Shang Eng, 241/1988)

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Burden of Proof
In Stamford Executive Center and Dharsini Ganesan (Award 263 of 1985), the Industrial Court commented as follows:It may further be emphasized here that in a dismissal case the employer must produce convincing evidence that workman committed the offence(s) he is alleged to have committed and for which he has been dismissed. The burden of proof lies on the employer. He must prove the workman guilty, and it is not the workman who must prove himself not guilty. This is so basic a principle of industrial jurisprudence that no employer is expected to come to this court in ignorance of it. 15

Constructive Dismissal
an employer does not like a workman. He does not want to dismiss him and face the consequences. He wants to ease the workman out of his organization Generally speaking he will make life so unbearable of the workman so as to drive the latter out of employment

Dato Gopal Sri Ram, JCA in Quah Swee Khoon vs. Sime Darby Berhad (2000)
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Constructive Dismissal
.. The term constructive dismissal is only a convenient label to describe the conduct on the part on the employer which makes a workman consider that he has been dismissed without just cause or excuse, although there is no formal order of dismissal.

Dato Gopal Sri Ram, JCA in Ang Beng Teik v. Pan Global Textile Bhd., Penang (1996)

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Constructive Dismissal
The doctrine of constructive dismissal has been expounded in Western Excavating (ECC) Ltd. v. Sharp [1978] 2 WLR 344 , Lord Denning stated as follows: If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates his contract by reason of the employer's conduct. He is constructively dismissed. 18

Constructive Dismissal
The Supreme Court in the landmark case of Wong Chee Hong V. Cathay Organisation (M) Sdn. Bhd. [1988] 1 CLJ 298. In that case Salleh Abbas LP stated the principle underlying the concept of constructive dismissal as follows: The common law has always recognized the right of an employee to terminate his contract of service and therefore to consider himself as discharged from further obligations if the employer is guilty of such breach as affects the foundation of the contract or if the employer has evinced or shown an intention not to be bound by it any longer.
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Contract Test
In MPH Bookstores Sdn. Bhd. v. Lim Jit Sen Award No. 179 of 1987 .it was held that for a claim of constructive dismissal to succeed both limbs of the common law contract test must be present, that is, firstly, did the employer's conduct amount to a breach of the contract or had he evinced an intention no longer to be bound by the contract thereby entitling the workman to resign? Secondly, did the workman make up his mind and act at the appropriate point in time soon after the conduct of which he had complained of had taken place?
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Burden of Proof
In MPH Bookstores Sdn. Bhd. v. Lim Jit Sen Award No. 179 of 1987

It is a rule of industrial law that where the workman's claim for reinstatement under Section 20(1) of the Industrial Relations Act 1967 is founded on constructive and not actual dismissal, the onus of proving that the workman has been constructively dismissed by his employer lies on the workman himself.

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Unfair Dismissal & Constructive Dismissal

Unfair Dismissal - the employer must prove a

fair reason for dismissal.

Constructive Dismissal - the employee must

prove that the dismissal was constructive.

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Constructive Dismissal
The onus of proving there was a constructive dismissal or dismissal in the circumstances lies with the claimant. It is therefore necessary for the claimant to prove the following:
1. That the company by its conduct breached the contract of employment in respect of one or more of the essential terms of the contract; 2. That the beach is a fundamental one going to the root or foundation of the contract; 3. That the claimant has terminated the contract by reason of the companys conduct and the conduct is sufficiently serious to entitle the claimant to leave at once: 4. That the claimant , in order to assert the right to treat himself as discharged , left soon after breach.

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Burden of Proof
In the Informatics v. George Varkey Sebastian, IC Award 300, 2002 the claimant contended that the company has set unreasonable target and redesignation.
A contract test applied whereby judge held that in constructive dismissal claim, the onus is upon the claimant to establish on a balance of probabilities that the company by its conduct had breached a term or terms (express or implied) of the contract; that the breach is a fundamental one going to the root or foundation of the contract; that the claimant has terminated the contract by reason of the companys conduct and the conduct is sufficiently serious to entitle the claimant to leave at once; and that the claimant in order to treat himself as discharged left soon after the breach.

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Constructive Dismissal
Circumstances where the workman can classify employers action lead to constructive dismissal are:
1. Arbitrary reduction of wages, commission, allowance, etc. 2. Withdrawal of contractual benefits provided they are mentioned in the Contract of Service. 3. Altering or taking away facilities reflective of the position. 4. Demotion to a lower post, with or without reduction of salary, fringe benefits, etc. 5. Transfer to a different location if such transferability is not clearly stated in the Letter of Appointment.
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Constructive Dismissal
Circumstances where the workman can classify employers action lead to constructive dismissal are:
6. Substantial changes in the job function, especially if the employee in incapable of performing those functions. 7. Behavior by the employer, intended to humiliate the employee. 8. Acts of victimization such as setting unattainable deadlines, constant faultfinding and harassment. 9. Threatening with dismissal if the employee does not resign from the job.
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Contract Unilateral Changes

In Konnas Jet Cargo Systems Sdn Bhd v Cheah Cheong Tian (1995) 2ILR 800 the claimant was a general manager of the company and a memo from the company dated 3 February 1987 unilaterally altered his duties and responsibilities and also made him subservient to an assistant general manager brought in from the parent company. The breach of contract as alleged occurred on 3 February 1987 but the claimant only left his employment on 6 July 1987, more than five months later. Since the company insidiously committed a series of breaches inconsistent and incompatible with the claimant's functions, duties, status and dignity as general manager of the company only after its letter dated 3 February 1987, the court ruled that the delay was not fatal.

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Contract Unilateral Changes

Industrial Court in Cosdel Pte Ltd v. Ching Chooi Ham, Award 562, 2002 states the claimant had verbally agreed to be transferred to another location assuming that terms and conditions of employment similar to the current job. Upon receiving a new appointment letter with different terms, she agreed to accept the transfer provided the terms and conditions of her employment were not changed. The court held that this is an unjust dismissal whereby the company has altered the terms and condition of the employment
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Repudiation of Contract
In Plastic Tecnic Sdn Bhd v Saraswathy dlo Manickam & Ors (1991) 1 ILR 643 (Award No 173 of 1991), the company relocated itself from Petaling Jaya to Bangi promising its employees that a free transport service would be continuously provided. However, the bus service stopped after two months. The conduct of the company in stopping the bus service was held to be a repudiation of a fundamental term of the contract, and the employees were, therefore, entitled to regard themselves as having been constructively dismissed.
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Repudiation of Contract
In Kedah Cement Sdn Bhd v Ahmad Razif Abdullah [1998] 3 ILR 619 (Award No 570 of 1998), the claimant, who was a senior executive officer, was entitled to housing and he was allotted a semi-detached house. Later he agreed to give the house to a new comer on the condition that the company allocated an apartment to him. When one of the company's apartments became vacant, it was allocated to somebody else.

Having had his request refused on several past occasions, the claimant considered himself constructively dismissed and the court upheld his claim on the ground that the employer's conduct made continued employment impossible for the claimant.
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Salary
In Kilang Beras Ban Eng Thye Sdn Bhd v Yacob bin Noor Mohamed & Anor [1998] 51MLJ 195, two of its employees terminated their services on the ground that the company failed to pay their salary by 12 April 1994 whereas in accordance with s 19 of the Employment Act 1955, it should have been given on 7 April 1994. The High Court ruled that when the employer fails to pay their employees' salary within the due date, such a breach of contract .. unless satisfactory evidence to the contrary was given by the employer to rebut the inference. The employer explained that the delay was due to quarrels and misunderstandings at its managerial level. Since the court was not satisfied with this excuse, it upheld the claim of constructive dismissal

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Salary
In ATI Technologies (M) Sdn Bhd & Anor V. Jamilah Abu Bakar, IC Award 385/2002, the claimant was constructively dismissed when she was not paid monthly salary. The court held as unjust dismissed and ordered the claimant to be paid backwages and compensation in lieu of reinstatement ---------------------------------------------------------------In TKS Kitcheneering Studio (SA) Sdn Bhd V. Chia Mooi Keng IC Award 124/2002, the company had constructively dismissed the claimant via her demotion and the drastic salary reduction without giving any reasons
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Salary Unilateral Changes of Contract

In Maldo-Kaj Communications Sdn Bhd v Abdul Kadar bin Mohd (1995) 2 ILR 494, the claimant (who was an advertising manager) was not paid his December 1993 salary. The company did not pay his fixed monthly salary because it had decided to pay him on a commission basis. He claimed constructive dismissal and left his job. The Industrial Court decided that the company was guilty of a breach going to the root of the contract because the company's decision to pay him only on a commission basis was not found in the terms of contract.

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Transfer
In Dicklin Sdn Bhd v. Bathma Subramaniam (Industrial Court Award No 216 of 1991) , the court held that the transfer provision was only limited to transfer from one selection, division or associated company to the other and that under the contract of service, the company had no contractual right to transfer the claimant from West Malaysia to East Malaysia. The companys action was a mala fide given the fact there was an on-going retrenchment exercise and knowing transfer will force her to resign, therefore the company would not have to pay retrenchment benefits. The claimant worked in Subang Jaya as a receptionist and the company order her to go Sabah was a repudiation of the contract of employment.
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Transfer
In Funai Electric (Malaysia) Sdn Bhd Johore v Salliah Ahmad (1997) 2 ILR 1002, the claimant, an assistant manager (shipping) claimed constructive dismissal on the ground that her transfer to the service parts department resulted in erosion of her duties and responsibilities. She claimed constructive dismissal only after reporting to the new position and after being there for 12 days. The court allowed her claim of constructive dismissal notwithstanding the delay of 12 days on the ground that the claimant had to report to the new position and spending 12 days to find out whether it was indeed a demotion was not fatal to her claim.
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Transfer
In Titan Polyethylene (M) Sdn Bhd v Othman Busu (1997) 3 ILR 505 when the company demoted the claimant from the position of group human resource manager to assistant to the vice-president of human resource, he wrote to the managing director to reconsider his decision and reinstate him in his former position. Pending the outcome of his appeal, the claimant worked under protest for 2.5 months before claiming constructive dismissal. He explained that the delay was there because he wanted to give the company a chance to remedy the breach. The court did not hold the delay as amounting to affirmation of the new terms of his contract.
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Transfer
In Hotel Malaya Sdn Bhd v Say Lip Nyen (1994) 1 ILR 464, the action of the hotel in transferring its maintenance executive to the newly created job of car park executive without any indication of duties and functions was claimed by the claimant as both mala fide and a breach of contract.The Industrial Court found that the claimant's new job functions at the car park tantamounted to that of a car park attendant. . It upheld the claim of constructive dismissal and rightly ordered reinstatement to his former position in the maintenance department without any loss whatsoever.
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Transfer
In Harta Maintenance Sdn Bhd v Vanaja Chelliah & Ors (I999) 1 ILR 639, the claimants were cleaners in Kajang Hospital and because of their trouble with their supervisor they were transferred to Kuala Lumpur Hospital. Though the right to transfer was the prerogative of the employer, it should not entail a change to the detriment of the employees. The claimants accepted the cleaner's job in Kajang because the place of their work was just one block away from their homes. However, transfer was detrimental to the claimants as it caused them economic loss, an increase in traveling expenses, and a decrease in their monthly income in terms of overtime income. The court upheld their claim of constructive dismissal and ordered compensation to be paid to the claimants.
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Managerial Implications
1. Financial Expensive 2. Time & Stress Headache 3. Reputation will Tarnish Loss of Potential Customer, Competitor will Gain 4. Employee Morale and Motivation 5. Employee Trust, Commitment and Loyalty 6. Productivity and Growth

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Prevent, Constructive Dismissal

1. 2. Employee Selection Right Person for the Right Position is Crucial Bona-fide Exercise of Managerial Rights Transfer, Work Assignment, Promotion, Demotion, Rewards,Punishment, etc Do not Breach the Contract Expressed & Implied Do not Make Any Unilateral Changes to the Contract Do not Discriminate your Employees on the Basis of Race, Religion, Gender, Age, Political Ideology, Geography, etc) Avoid Victimization, Constant Fault-Finding and Do not Humiliate, Harass and Threaten Employees Avoid Putting Your Employee into Cold Storage Settlement of Employee Grievances or Dissatisfactions Leaders must Build Trust - Open Communication, Participative Management and Walk the Talk Create Harmonious Employee Relations or the Industrial Relations

3. 4. 5. 6. 7. 8. 9. 10.

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Conclusion
Remember, Prevention is Always Better than Cure Do Not Trouble Trouble Unless Trouble Troubles You (Sarang Tebuan Jangan Dijolok) _________________________________
You can foul up on almost anything, you will get another chance. But, if you screw up even a little bit on `people management` you are gone. Thats it. Top performer or not. And thats the `missing link` Productivity Through People The Missing Link by V.T. Shanbhag (cited in Dcruz, 1999)
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References
Anantaraman, V. (2000) The Doctrine of Constructive Dismissal, The Malayan Law Journal (MLJ), V3, July, Report 129-176 Ayadurai, D. (1996), Industrial Relations in Malaysia: Law and Practice, Malaysian Law Journal, Kuala Lumpur DCruz, M.N. (1999), Current Malaysian Labor Laws, Leeds Publication, Kuala Lumpur Gomez, A.B. (1997), Malaysian Industrial Court Precedent, AB Gomez, Petaling Jaya Hew, S.K. (2002), Dismissal: Salient Points to Ponder Before Industrial Court Proceedings in Malaysia, Leeds Publication, Kuala Lumpur Pathmanathan. N., Kanagasabai. S.K., & Alagaratnam.S (2003) Law of Dismissal, Capital Asia Pte Limited, Singapore. Thavarajah. T & Low, T.C (2001), Employment Termination Law & Practice in Malaysia, CCH Asia Pte Limited, Singapore
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