Employers are generally understood to have managerial prerogative to transfer its employees. When the prerogative is exercised, it is typically for reasons relating to business efficacy, and in other times, it could sometimes be exercised as a form of disciplinary punishment for misconduct. The source of this right is not necessarily derived from contract as the right can exist without it: it is an implied right that courts seldom disturb (unless there is a contract to the contrary).
Having said that, there are restrictions as to how employers might exercise the right to transfer employees, and such restrictions have been frequently explained by courts as follows:
(a) There is nothing to the contrary in the terms of employment;
(b) The management has acted bona fide and it is in the interest of its business;
(c) The management is not actuated by any indirect motive or any kind of mala fide;
(d) The transfer is not made for the purpose of harassing or victimizing the workman; and
(e) The transfer does not involve a change in the conditions of service.
In short, employers reserve a wide discretion to transfer its employees, unless the transfer is contrary to the employees’ contractual terms or where it is actuated by motives that no court would endorse.
The transfer must not be contrary to the employees’ contractual terms
This means that the transfer must not operate to the prejudice or detriment of the employee. Any reduction in benefits or changes to the conditions of service must be expressly authorized by contract. Hence, an employer is entitled to require his employee to work in a different locality, or to transfer from one department to another, so long as the transfer is on the same favourable terms.
Whether the transfer entails a detrimental change to the terms of employment depends on the facts of the case. Generally, this can be ascertained by considering whether it occasions in economic loss in wages, bonus or other monetary benefits. However, it is not always straightforward and can only be determined by considering the circumstances of the transfer as a whole. For example – is it detrimental if an employee is transferred from Kuala Lumpur to Klang? What about moving from one department to another?
In Yee Song Joo v PM Securities Sdn Bhd  MELRU 1511, although there was no evidence of demotion, the court nonetheless found that the employee’s transfer, or “re-designation”, to another department was a fundamental breach of the employee’s term of employment (which constituted constructive dismissal) as the employee’s duties and responsibilities were shifted from dealing with matters pertaining to IT to business development and management of the branch (the employee was re-designated from Head of IT to Head of Branch). In such a case, the employee’s consent was required as the court said the company cannot arbitrarily and unilaterally transfer and re-designate the employee to other position materially different from the contract of employment.
Similarly, consent is usually required (in the absence of a contractual term) in cases involving transfers to another legal entity, for example in cases of reorganisations or mergers and acquisitions. In some cases, transfer of an employee to another legal entity without their consent could potentially result in a claim of constructive dismissal. In Barat Estates Sdn Bhd & Anor v. Parawakan Subramanian & Ors  1 MLRA 404 the Court held that transfer to a new entity without consen may be a violation of the Federal Constitution: “[b]y its spirit and intendment it [Article 6 of the Federal Constitution] vests in an employee the right to be employed by an employer of his choice…compelling an employee to work for a particular employer, without affording him a choice in the matter, is merely one form of forced labour.”
Exceptions may apply if the transferor entity and transferee entity have a unity of a group enterprise (ie: if they function as a single industrial establishment or constitute one integrated whole).
In other cases where the transfer is indeed within the employer’s managerial prerogative, employees do not have the right to protest against the transfer and their refusal may amount to insubordination justifying disciplinary action, including dismissal.
The transfer must not be actuated by ulterior/mala fide motive
An example of mala fide motive is where it was made to punish an employee for his trade union activities. The burden of showing mala fides and victimisation is on the employee, and it is not a burden that is easily dispensed with, given that courts are generally reluctant to interfere with the employer’s business affairs. In most cases, however, employees would rely on evidence of material change of employment terms, such as reduction in benefits, change in scope of responsibilities, etc. as grounds for challenging the transfer.
This article was written by Donovan Cheah (Partner) and Adryenne Lim (Legal Executive). Donovan has been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific 2017 and 2018. He has written for publications such as the The Edge and the Star, as well as for the Malaysian-German Chamber of Commerce and Industry.
Have a question? Please contact us.