What exactly is constructive dismissal?

What exactly is constructive dismissal?

In Malaysia, the term “constructive dismissal” refers to an act of an employee in terminating his employment due to a breach of contract committed by the employer. The breach committed must have been so severe that it had altered the essential terms of an employee’s employment contract, leaving the employee no choice but to resign.  In such a case, although there is no direct dismissal by the employer, it could still amount to unfair dismissal due to the actions of the employer (hence the word “constructive” in “constructive dismissal”).

What exactly amounts to a legitimate breach of contract by the employer that would fall under the ambit of constructive dismissal? For example, could ill-treatment by an employer be considered something that could lead to constructive dismissal?

Whenever there is a claim of constructive dismissal that is referred to the Industrial Court for determination, the Court will usually examine whether these 4 essential elements are proven in order to establish constructive dismissal:

  • There must be a breach of Contract by the Employer

In law, the threshold for constructive dismissal is governed by the “contract test” which essentially states that the breach committed by the employer must have been so severe that it goes to the very heart of the employment contract. This would include taking into account whether the responsibilities and duties of an employee have been significantly altered that it constitutes a fundamental breach of an Employment Contract.

The test is not a test of “reasonableness“. In other words, unreasonable conduct of an employer may not necessarily give rise to a valid claim for unfair dismissal, especially if there is no breach of contract.  Otherwise, it would be virtually impossible for an employer to run their business or to exercise their management prerogative,  if employees could claim constructive dismissal every time they view an employer’s conduct to be unreasonable. The main thing that will be examined by the Court is whether the employer had breached a fundamental term of the employment contract.

  • The breach must be sufficiently important to justify the employee resigning

Even if there is a breach of the employment contract, the breach committed must be significant enough to justify a claim of constructive dismissal.  Petty arguments or disagreements with one’s superiors cannot be seen as a grave breach. The severity of each breach will be examined on a case by case basis but the case laws have pointed several circumstances that have been identified as examples of significant breaches:-

  1. Deliberate substantial reduction of wages, commissions, allowances or benefits without good reason.
  2. Failure to provide a safe working environment
  3. “Forced resignations” – ie resignations clearly made pursuant to threats or duress
  4. Non bona-fide reduction of duties or change to job scope
  • The employee must leave in response to the breach and not for any other unconnected reasons

Where there is a constructive dismissal claim, the employee must leave or resign due to the breach. Prior to leaving employment, it is essential that an employee sets out the exact reasons for their resignation and the cause of the resignation. The employee’s reason for departure must coincide with the breach alleged. If at the material time, the employee provides a different reason for resignation (eg: better job offer elsewhere, relocating to another city), it may be difficult for them to later claim that they left due to the breach by the employer.

  • The employee must not delay 

The length of time in filing a claim for constructive dismissal is a crucial factor. When the breach occurs, the employee is expected to take immediate action by either protesting, writing a notice to the employer or resign from their post. By staying on board, an employee may be seen as having accepted the breach committed and waiving their right for legal recourse. In some cases, a delay of one month to act was even held to have been too long to entitle an employee to claim for constructive dismissal.

Constructive dismissal allegations are not a matter to be taken lightly as the law places a high threshold to be met for constructive dismissal. As the law requires employees to prove the alleged breach committed by the employers, one should contemplate hard to make sure the above elements are ticked off before deciding to jump ship and wage war against their employers.  A poorly thought out claim of constructive dismissal could backfire as an employee may find themselves being sued for payment in lieu of notice.

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About the author: Amirul Izzat Hasri is an associate in the dispute resolution practice group at Donovan & Ho. He has experience in a diverse area of practice, including general civil and corporate litigation, judicial reviews, land related matters, defamation, debt recovery, and shareholder and boardroom disputes. He has also appeared in Industrial Court proceedings, having represented both employers and employees in unfair dismissal claims.

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