In today's world, employment is a fundamental aspect of life for individuals, making it essential to understand and protect the rights of both employees and employers. Employment law in Malaysia serves as a critical framework for governing these rights, particularly in matters related to dismissals. By establishing clear guidelines and protections, Malaysian employment law ensures that both parties are treated fairly and justly within the workplace. This article delves into the nuances of dismissals; constructive and unfair dismissals, shedding light on the legal principles that safeguard employee rights while also outlining the responsibilities of employers.
1. Constructive Dismissal: An In-Depth Exploration
Constructive dismissal occurs when an employee resigns because an employer's conduct fundamentally breaches the terms of their employment contract. Unlike direct dismissals, where an employer explicitly terminates the employment, constructive dismissals arise from intolerable conditions that compel an employee to leave.
Legal Framework:
Section 20 of the Industrial Relations Act 1967: This crucial section allows employees who believe they have been dismissed without just cause to represent their case to the Director-General of Industrial Relations. It applies to both constructive and direct dismissals, providing a comprehensive avenue for redress.
To prove constructive dismissal, an employee must demonstrate that the employer's conduct was so severe that it fundamentally breached the employment contract, making it unreasonable for the employee to continue working.
Practical Implications of Employer’s Conduct:
Arbitrary Changes to Employment Terms: For instance, if an employer arbitrarily reduces an employee’s salary or demotes them without cause. Significant changes to the employee’s job role, location and working hours without consent.
Harassment or Abuse: Bullying, harassment, or creating a hostile work environment.
Hostile Work Environment: Orders that are unreasonable, unsafe, or violate the employee’s rights.
Tests for Constructive Dismissal:
Contract Test: This test evaluates whether the employer's conduct constitute a fundamental breach of the employment contract. A successful claim depends on demonstrating that the employer's conduct effectively severed the contractual relationship.
Reasonableness Test: Though less frequently utilized, this test assesses whether a reasonable person in the employee’s position would feel compelled to resign due to the employer’s conduct. “However, the applicability of this test has been overshadowed in light of the Federal Court's decision in Tan Lay Peng v. RHB Bank Berhad, which will be analysed further below.”
Recent Landmark Case Study :
Tan Lay Peng (in her capacity as the administratrix of the estate of Tan Leong Huat) v. RHB Bank Berhad (Civil Appeal No.01(f)-10-04/2023(P)): The decision in the Federal Court focused on the issue of constructive dismissal. Tan Leong Huat, who was initially employed as the Operations Head for RHB Bank's branch in Bangkok, contested his transfer back to Malaysia, asserting that it constituted constructive dismissal.
The Industrial Court had initially ruled in favor of Tan Leong Huat, finding that he was constructively dismissed and awarding him RM216,840. Following that, the on Judicial Review, the High Court dismissed the application. However, the Court of Appeal later quashed this decision, holding that the Industrial Court had wrongly applied the "reasonableness test" instead of the "contract test." This ruling was affirmed by the Federal Court, which clarified that the "contract test" is the proper standard, reaffirming that subjective notions of reasonableness are not sufficient for claims of constructive dismissal.
The main legal question before the Federal Court was whether the correct test for determining constructive dismissal is the “contract test” or the “reasonableness test.” The Federal Court ultimately upheld the “contract test,” which asks whether the employer’s conduct constitutes a fundamental or repudiatory breach that goes to the root of the employment contract. The Court found that while reasonableness can be considered, it is not the definitive legal standard for constructive dismissal cases.
This case sets a precedent by reinforcing the importance of the "contract test" in constructive dismissal cases, providing clarity for both employers and employees on the appropriate standard to be applied in such disputes.
The conclusion of the Federal Court’s Judgement is as follows:
‘There is a difference between the contract test and the reasonableness test. The appropriate test for determining a constructive dismissal case is the contract test. The reasonableness of the employer's conduct is a factor that may be taken into consideration in determining whether there is any fundamental breach of the contract of employment or an intention no longer to be bound by the contract.’
This case sets a precedent by reinforcing the importance of the "contract test" in constructive dismissal cases, providing clarity for both employers and employees on the appropriate standard to be applied in such disputes.
An important Legal Perspective to note is that the Federal Court had reiterated that resignation is essential to a constructive dismissal claim because it signifies the employee's decision to terminate the contract due to a fundamental breach by the employer.
2. Unfair Dismissal: Navigating Procedural Fairness
Unfair dismissal occurs when an employer terminates an employee without a valid reason or fails to follow the correct procedural safeguards.
Legal Framework:
Section 20 of the Industrial Relations Act 1967: Employees who believe they have been unfairly dismissed can file a complaint for redress, including reinstatement or compensation.
Elements of Unfair Dismissal:
Just Cause or Excuse: Employers must have a legitimate reason for dismissal, such as misconduct, poor performance, or redundancy.
Procedural Fairness: Employers must adhere to fair processes, including conducting thorough investigations and providing employees an opportunity to respond before termination.
Practical Examples:
Case Example: Industrial Court Award No. 226/2019: An employee was dismissed for alleged misconduct without a proper investigation. The court ruled the dismissal unfair due to the employer's failure to follow due process, establishing that employers must provide employees with adequate opportunities to defend themselves against allegations.
Performance Issues: Dismissing an employee for poor performance without prior warnings or opportunities for improvement is often considered unfair. Employers should document performance issues and provide feedback to give employees a chance to rectify shortcomings before resorting to dismissal. As per the case in Hong Leong Equipment Sdn Bhd v. Liew Fook Chuan & Anor [1996] 1 MLJ 481 where the courts held that poor performance can be justified if the employer can prove that the employee was given sufficient opportunity to improve but failed to do so.
3. Remedies Under Section 20
Employees who successfully prove constructive or unfair dismissal under Section 20 may be entitled to several remedies:
Reinstatement: The employee may be restored to their previous position without loss of benefits, effectively reversing the dismissal.
Compensation: If reinstatement isn't feasible, the court may order compensation, typically based on the employee's last drawn salary and length of service. Compensation aims to mitigate the financial impact of the dismissal.
Back Wages: Employees may claim back wages from the date of dismissal to the date of the award. The calculation of back wages is based on total hours worked at regular and overtime rates, minus any deductions. The amount owed is determined by comparing the calculated back wages to what was actually paid.
4. Key Differences Between Constructive and Unfair Dismissals
While both constructive and unfair dismissals provide avenues for redress, they differ fundamentally in nature and legal implications:
Initiation: In constructive dismissal, the employee resigns due to the employer's unacceptable conduct. In contrast, unfair dismissal is initiated by the employer’s decision to terminate the employee’s contract.
Legal Basis: Constructive dismissal focuses on the breach of the employment contract, while unfair dismissal centers around the lack of just cause and procedural fairness in the dismissal process.
Burden of Proof: In constructive dismissal claims, the burden is on the employee to demonstrate that the employer’s actions led to their resignation. Conversely, in unfair dismissal cases, the employer must justify the termination with valid reasons and evidence of following due process.
Conclusion
Constructive and unfair dismissals are integral aspects of Malaysian employment law that safeguard employees against unjust terminations. Section 20 of the Industrial Relations Act 1967 serves as a vital tool for protecting employee rights, offering remedies such as reinstatement and compensation. Employers must remain vigilant about their legal obligations, while employees should proactively seek guidance if they believe their rights have been violated. By understanding the nuances of these dismissal types, both parties can contribute to a fairer and more just workplace environment.
Authored by Vignash a/l Selvam
Kindly note that this legal article does not, and is not intended to, constitute formal legal advice by the Firm, instead all information, content and materials available on this site are for general informational purposes only. If readers require further clarification or legal advice, please email office@kevinwuassociates.com
