In today’s fast-paced business environment, companies frequently undergo restructuring to improve efficiency and better align resources with their goals. As part of these changes, reporting lines may shift, which is often necessary for the company’s growth. However, these changes can sometimes lead to employee concerns, including claims of constructive dismissal.
Case law consistently supports that a mere change in reporting lines does not amount to a demotion or constitute a fundamental breach of an employment contract.
The courts have clarified this position through several decisions:
1. No Demotion in Status
A change in reporting lines alone does not signify a demotion in status or a fundamental breach of the employment contract. A company has the right to change an employee’s reporting line without changing the terms and conditions of employment (See Tokio Marine Insurans (Malaysia) Berhad v Tan Kooi Luang & Anor [2014] 4 CLJ 1839 and Aini Suzana Ariffin v. SIRIM Berhad & Anor [2022] CLJU 403).
In First Travel & Tours (M) Sdn Bhd v Audrey Ho Ah Kim [2003] 2 ILR 283, it was decided that the claimant’s grievance about reporting to a junior colleague who was redesignated to a higher position did not qualify as a breach, as her job scope and responsibilities remained unchanged. It was not a demotion. Thus, the Industrial Court dismissed the claim for constructive dismissal.
2. Employer’s Prerogative to Reorganise Based on Business Needs
Employers have the right to decide who is best suited for a particular role and to reorganise structures in good faith to meet their business needs. Reorganising reporting lines is within the employer’s management prerogative, provided such decisions are made in good faith and the employee’s fundamental terms and conditions of employment remain unchanged (see the High Court decision of Talasco Insurance Sdn Bhd v Industrial Court of Malaysia & Anor [1997] 4 CLJ 97, which was later upheld by the Court of Appeal in Shahabudin Abdul Rashid v Talasco Insurance Sdn Bhd [2004] 4 CLJ 514).
3. Loss of Pride Insufficient
Courts have also dismissed claims based solely on loss of pride or esteem resulting from a change in reporting lines. In Talasco Insurance Sdn Bhd v Industrial Court of Malaysia & Anor [1997] 4 CLJ 97, the High Court held that loss of pride alone (of having to report to a new recruit) would not constitute a dismissal.
Practical Considerations for Employers
From a practical perspective, changes to reporting lines are often seen as strategic decisions to enhance business operations. For example, assigning additional managerial responsibilities to an employee deemed better suited for the role can be viewed as a promotion for one employee rather than a demotion for other employees who were previously peers. Regardless, such decisions should be carefully managed and communicated to avoid the perception of bias or unfair treatment.
To minimise the risk of disputes, employers can also include clauses in employment contracts reserving the right to make changes to the employee’s reporting line during their tenure. This reinforces the company’s prerogative while managing employee expectations.
While employees may perceive changes in their reporting lines as unfavourable, the courts have consistently upheld that such adjustments, when made in good faith and without altering the terms and conditions of employment, do not constitute constructive dismissal. Employers should still act transparently and document changes appropriately to foster trust and mitigate potential disputes.
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This article was written by Adelyn Fang (Associate) from Donovan & Ho’s employment law practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.
