Constructive Dismissal is where an employee leaves his employment as a result of the employer breaching a fundamental term of the employment contract, or where the employer displays an intention to no longer be bound by the employment contract. In short, the employee quits because of the breach, but in law this is treated as a “dismissal” by the employer (hence the phrase, “constructive” dismissal).
The question then arises, when should an employee quit if they want to claim constructive dismissal?
When a fundamental breach of an employment agreement has occurred, it is very likely that the employee will be aware of it. An example of a material breach would be, for example, a unilateral reduction in salary, or a demotion for no reason.
Once the breach is discovered, the employee must act promptly to protest against the breach. Prompt action is an important element in establishing a case of constructive dismissal. The Courts have taken the view that if the employee did not do anything despite being aware of the breach, it will be regarded as condoning the breach and accepting a variation of the contract of employment. For example, if the employer has unilaterally reduced an employee’s salary for no reason and the employee does not protest but in fact continues working in the Company, the employee could be deemed as having accepted the lower salary.
The next issue is therefore: how do you define what is “prompt” action? Is there any fixed timeline within which an employee must act?
Under Malaysian law, there is no fixed time period in which an employee must protest against the breach. There are many cases in Malaysia where the employee has delayed in complaining against the Company’s breach. In these cases, the general view of the Courts has always been that the employee must make up his mind soon after the breach has occurred. There have been cases where, even a delay of 1 month can be considered as a waiver of rights, resulting in the employee having been deemed to accept the breach as a new term of his contract, losing his right to claim constructive dismissal.
We have two examples of cases which highlight the importance in acting swiftly on the Company’s breach. The first is Pexxon Sendirian Berhad v Sia Qui Yau Johore where in this case the Claimant had waited more than a month to express his objection, the Court held:-
So the length of time is a crucial factor by which the Claimant must act to repudiate the contract based on the breach that goes to the root of that contract. The period of one month has been held to be unreasonable for the Claimant not to have acted against his employer. It seems that once an employee has discovered that there is substantial breach or breaches of employment that goes to the root of the contract of the employment he must so act immediately either by protesting or giving notice to the employer and walking out of the job, otherwise he might be said to have affirmed the new term of the contract, thereby accepting it with the terms added. All this is to be decided on the facts of each case.
Likewise, in Kontena Nasional Berhad v Hashim bin Abdul Razak, the learned Judge quoted an excerpt from Lord Denning in Western Excavating v Sharp, which held:
…he must make up his mind soon after the conduct of which he complains; for; if he continues for any length of time without leaving, he will lose his right to treat himself as discharged. He will be regarded as having elected to affirm the contract.
- There must first be a breach of a fundamental term of an employment contract that is serious enough to justify the employee leaving;
- The employee, upon discovering the Company’s breach, must act fast in deciding whether he wishes to leave the Company and claim constructive dismissal;
- If the employee continues to stay on in the Company despite the breach, he may be regarded as having accepted or condoned the breach.
It must be remembered that in the event a constructive dismissal claim is referred to the Industrial Court, the burden of proof lies on the employee to establish the necessary criteria. While speed is a factor in a constructive dismissal claim, it is equally important for employees to analyse their situation thoroughly, seek legal advice, and not act too rashly. Leaving too soon before a breach has occurred may result in other unintended consequences such as a civil claim by the employer for abandonment of employment and failing to make payment in lieu of notice.
About the author: Zi-Han Lim is an associate in the dispute resolution practice group at Donovan & Ho. He is experienced in dispute resolution, focusing on employment and industrial relations, administrative law and commercial litigation.
Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, family law and real estate/conveyancing. Have a query? Contact us.