CONSTRUCTIVE DISMISSAL – A WALKOUT OR A DISMISSAL ?

INTRODUCTION

The topic that I have been assigned rightly identifies in a nutshell, a common dilemma
that is faced by many an employer and by many more a human resource practitioner. It is
a dilemma, that arises from a basic issue as to the extent to which an employee may be
permitted to terminate his own employment summarily and to thereon trigger the rigorous
employment protection regime under the Industrial Relations Act 1967.

At the heart of the issue lies an important legal question, that is: What is the actual
sphere of protection that Parliament had intended to confer upon
employees under Section 20 of the 1967 Act and in what circumstances ?.
It is not an easy issue to grapple with and very often the determination of whether or not
the conduct and actions of the employer is such that it may reasonably be said to amount
to a dismissal tends to be a controversial issue which requires the examination and
investigation of numerous contentious and controversial facts.

SECTION 20 OF THE INDUSTRIAL RELATIONS ACT 1967 AND THE

ORIGINS OF CONSTRUCTIVE DISMISSAL

In most common law jurisdictions including Malaysia, protection of security of tenure is

a creation of statute. In the Malaysian context it is principally attributable to the Industrial
Relations Act 1967 which among others established the Industrial Court of Malaysia.
Since 1969 the Act has in some form or another contained provisions governing
representations for reinstatement. In the early years it allowed for a representation for
reinstatement to be made to the Honourable Minister, who was empowered to make
orders for reinstatement or compensation in lieu thereof. In 1975, the law was amended.
This time, it allowed for representations for reinstatement to be adjudicated upon by the
Industrial Court of Malaysia if conciliatory efforts failed. The Minister became a referral
authority to the Industrial Court. The legislative advance in the protection of security of
tenure was set out in the leading decision of His Lordship Dato’ Gopal Sri Ram JCA in
Hong Leong Equipment Leasing Sdn. Bhd. v Liew Fook Chuan [1996] 1 MLJ 481:

“When the Act was first passed in 1967, it did not carry any provision akin
to the present s 20. The Minister’s power to refer trade disputes to the
Industrial Court was confined to disputes between a trade union and an
employer. Non-union workmen were left to the harsh consequences of a
common law founded upon outdated concepts. Parliament saw and
recognized the injustices meted out to non-union workmen. It acted.
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By an amendment passed in 1971, there was introduction into the Act s 16A
under which the power to deal with complaints of dismissal by non-union
workmen and to give them relief was vested in the Minister. A further
amendment to the Act deleted s 16A and introduced s 20, but not in its
present form. For the first time, the beneficial provisions of the Act were
made available to a non-union workman who considered himself to have
been wrongfully dismissed.”

The result of the above legislative initiatives was that protection of security of tenure
became firmly engrained in the Industrial Relations Act 1967, the legislative commitment
being captured by these enduring phrases in Section 20(1) : “Where a workman,
irrespective of whether he is a member of a trade union of workmen or
otherwise, considers that he has been dismissed without just cause or
excuse by his employer, he may make representations in writing to the
Director General to be reinstated in his former employment ….”
With these provisions in place, employers had to accept that right to hire and fire as well
as the right to terminate employment at will by the issuance of notices of termination
were now subordinated to the a regime of statute guaranteed security of tenure.
Unsurprisingly, these legislative initiatives were met by equally creative attempts to
circumvent such regulation over managerial prerogatives. As Lord Denning observed in
Seaford Court Estates Ltd v Asher 1949 2 KB 481:

“It must be remembered that it is not within human powers to foresee the
manifold sets of facts which may arise, and even if it were, it is not possible
to provide for them in terms free from all ambiguity.”

These efforts sometimes took the form of fixed term contract arrangements or attempts to
couch what was in reality an eviction of an employee who had incurred the employer’s
displeasure.

On other occasions it was less refined. It took the form of a series of actions which
ingeniously fell short of a formal dismissal order. However, even so, its sheer magnitude
and impact upon the employee was such that any employee would regard the act as being
calculated to drive them out of employment. In that, the actions objectively assessed
amounted to a radical change in the contractual obligations as objectively understood by
the parties when the contract of employment was incepted. The issue that presented itself
was whether or not an employee confronted with such adverse circumstances could seek
recourse under Section 20 of the 1967 Act even without a formal dismissal order. It is
today accepted that such an employee can do so. This acceptance involved giving the
phrase “considers himself dismissed without just cause or excuse” the widest
possible meaning i.e. one which would not only encompass a direct dismissal or
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termination at the instance of the employer but also one which would capture any act or
series of acts which would compel an employee to end his own contract.

In legal jargon, the law recognized a dismissal to exist either if an employer terminated
an employees contract of employment or if the employer committed a repudiatory breach
of contract which the employee in turn accepted by walking out and considering himself
dismissed. There are many terms which have been used to describe this. They include
implied dismissal, indirect dismissal or more commonly constructive dismissal.

CONSTRUCTIVE DISMISSAL TODAY

In modern Industrial Law, constructive dismissal lies rooted in the well known and often
quoted case of Wong Chee Hong v Cathay Organisation (M) Sdn. Bhd.
[1988] 1 MLJ 92. Wong was a senior employee of Cathay. He had joined the services
of Cathay as a Junior Executive Assistant, he then rose in the ranks to become the
Personnel and Industrial Relations Manager. In that capacity Wong negotiated and
concluded a collective agreement with the Union. Shortly after that he received a transfer
order to the Overseas Union Garden Cinema, Operations Department. He was to take
charge of that Cinema. The transfer order made it clear that his terms and conditions of
employment would remain unchanged. Wong was aware that this was a position which
he had previously occupied some 16 years prior. Therefore although, there were no
changes in his terms and conditions Wong considered himself dismissed and made a
representation for reinstatement under Section 20 of the 1967 Act. The Industrial Court
ruled in his favour. Harun J (as he then was) however, quashed the Award. It was his
view that “constructive dismissal is not within the ambit of Section 20(1) of
the Industrial Relations Act. Industrial Court therefore had no
jurisdiction”.
The case therefore came before the Supreme Court of Malaysia. Tun Salleh Abbas L.P.
noted the importance of the issue that he and his brethren were being called upon to
address:

“This is an appeal from the decision of Harun J. issuing an order of

certiorari quashing an award made by the Industrial Court. The case, we
were told, raises an important question of law as to whether or not the
doctrine of constructive dismissal is applicable in the interpretation of
section 20 of our Industrial Relations Act 1967.”

His Lordship then went on to observe inter alia as follows:

“Thus it is clear that even in England, “constructive dismissal” does not

mean that an employee can automatically terminate the contract when his
employer acts or behaves unreasonably towards him. Indeed if it were so, it
is dangerous and can lead to abuse and unsettled industrial relations. Such a
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proposition was rejected by the Court of Appeal. What is left of the

expression is now no more than an employee’s right under the common law,
which we have stated earlier, and goes no further. Alternative expressions
with the same meaning, such as “implied dismissal” or even “circumstantial
dismissal”, may well be coined and used. But all these could not go beyond
the common law test.”

However, once the Industrial Court found a constructive dismissal to exist it then had to
satisfy itself that the employer’s actions did not admit “just cause or excuse”.

THE DIFFICULTIES IN THE APPLICATION OF THE CONTRACT TEST AND

THE ADVANCE OF THE IMPLIED TERM

There were obvious difficulties in the application of the contract test. In most cases where
an employee alleged constructive dismissal there was rarely if ever a breach of any
express term of the contract of employment. Nevertheless in very many such cases, it was
equally plain that the employer’s actions were of such nature and quality that it had the
effect of driving an employee out of service.

Employment law is an area of law where implied terms play a real and dominant role
whereby the implied terms which have evolved alongside the broader principles of
industrial adjudication have operated so as to regulate and control the exercise of
managerial prerogatives and even those managerial prerogatives which are enshrined
through express provisions in the contract of employment. Gajendragadkar J in
R.B. Diwan Badri Dass & Ors v Industrial Tribunal, Punjab, Patiala &
Ors. AIR (1963) SC 630:
“The broad and general question raised …on the basis of the employer’s
freedom of contract has been frequently raised in industrial adjudications;
and it has consistently been held that the said right is now subject to certain
principles which have been evolved by industrial adjudication in advancing
the cause of social justice….

The doctrine of the absolute freedom of contract has thus to yield to the
higher claims for social justice…..”

FROM A SHEILD TO A SWORD

It is as a result of the advance in the implied term and as a result of a claim in

constructive dismissal being founded upon a fundamental breaches of implied terms
many a person would be inclined to think, that what is in reality a walk out is now being
turned into a legal action guised as constructive dismissal.
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Viewed differently, what started out as an effort to shield an employee from wrongful
actions by an employer who is desirous of circumventing the employment protection
regime has now become transformed into a sword which lies at the employee’s disposal
by which he may combat any act of employer which earns his displeasure.

There are cases up and down the country where constructive dismissal has been
employed in order to oppose transfers, departmental reorganizations, changes in duties
and responsibilities, alterations in reporting structures, the issuance of a suspension order
and so forth. Obviously, at one end of the spectrum there were indeed cases like unto
Wong’s case where the employer’s actions could reasonably be said to drive the
employee out of his post. But on the other hand there are clearly cases where accusations
are made as to underlying motives or bona fides of an otherwise normal course of action
by an employer. In these cases the employee would be heard to say that there was in its
final analysis a breach of the implied terms of his contract as he had been relegated to a
position of lesser importance or that his powers were curtailed and such like.

Whether or not these allegations are true or otherwise, is a question of fact and of degree.
An officer at a conciliation level will not be able to undertake an evaluation of this
evidence nor would he be able to. As the Court of Appeal observed in the Hong Leong
Case:

“The way in which the Act is constructed makes it clear that it is only the
Industrial Court which is conferred with an adjudicatory function. The two
precedent powers, namely, the Director General and the Minister, cannot
therefore assume a function expressly reserved to the third.”

Where does this leave the employer? The employer must be prepared for a situation
where an allegation of constructive dismissal or of victimization is made against a certain
course of action which it has taken even though that employer may perceive it to be well
within the realm of its managerial prerogative or even its contractual authority (eg.
transfer) . An employer must therefore be prepared for a situation where it will be put to
proof and scrutiny even in regard to a perfectly normal course of action taken in the line
of carrying on its trade, business or calling. For example an employer who initiates a
transfer and is confronted with an allegation of constructive dismissal will, upon a
reference to the Industrial Court be subjected to a scrutiny of its decision and the
underlying motives thereof.

Therefore, an employee now has at his disposal an avenue by which he can draw a
managerial decision into the scrutiny of the Industrial Court by alleging that, although
there has been no breach of his express terms of his contract and although there are
provisions in his contract to validate and sanction that course of action, there has
nevertheless been a fundamental breach of contact by reason of a breach of the implied
terms thereof.
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Left unchecked, a situation could arise whereby any and every managerial decision has to
be proved and cleared by the Industrial Court because of allegations of constructive
dismissal, the merits or otherwise of which can only be ventilated by the Industrial Court.

HALTING THE ADVANCE OF CONSTRUCTIVE DISMISSAL

The burden of proof

The most effective tool that is available in employer’s armory to rebut an allegation of
constructive dismissal is the burden of proof principle. Unlike those cases where, the fact
of dismissal is not in dispute and the only issue to be determined is whether or not the
said dismissal admits just cause or excuse in a constructive dismissal case the employee
carries the primary burden of establishing that there was a fundamental breach of
contract. In Malayan Banking Bhd v Association of Bank Officers,
Peninsular Malaysia 1988 3 MLJ 204, Abdoolcader SCJ held as follows:
“A line of cases has recently emerged which asserts a judicial power to
review decisions upon the ground that they lack of rationally probative basis
in fact. The first case was Reg v Deputy Industrial Injuries Commissioner,
ex p Moore in which Diplock LJ stated (at p 488) that natural justice
requires decision-makers to base their decisions ‘upon material
which tends logically to show the existence or non-existence of
facts relevant to the issues to be determined, or to show the
likelihood or unlikelihood of the occurrence of some future
event which would be relevant. It means that (the decision-maker)
must not spin a coin or consult an astrologer…’ Ex p Moore has been
approved in Australia in Minister for Immigration and Ethnic v Pochi (at pp
688-690 per Deane J).

Even an employee who alleges victimization carries the heavy burden of satisfying the
courts that there is substance in the allegation. In Intra Marine (PK) Sdn Bhd v
Thomas a/l Pappu [1995] 1 ILR 654 , the Industrial Court held the following
view:

“He cited B.R. Ghaiye on Law and Procedure of Department Enquiries (In
Private & Public Sections). The learned author said at p. 1461:

10. Procedure in case of victimization or mala fide.

(a) The burden of showing mala fides and victimization is on the

employee – The onus of proving victimization is on employees on
the accepted rule that a person has to prove the affirmative and it is
not for the other person to prove the negative. The allegations of
mala fide conduct is easy to make but not always easy to prove.
When allegations are made on one side and denied by the other the
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mala fides are not proved. Victimization is a serious charge

and must be properly and adequately pleaded giving all
particulars upon which the charge is based to enable
the employer to fully meet the same. Onus of establishing
the charge is upon the person pleading it and he has to establish the
same by safe and sure evidence.

It is now well-established that a finding of mala fide

should be reached by Industrial Adjudication only if
there is sufficient and proper evidence in support of the
finding. Such finding should not be made either in a
casual manner or light heartedly.”
Obviously in clear cases such as Wong’s case this will not be a problem for the
employee. However, in the instance of a genuine employer acting in good faith, it may
not be easy for an employee to discharge the burden of establishing that what has come to
pass was indeed a fundamental breach of contract:

i. In UMW Engineering Sdn Bhd v Fong Pak Fai [1995] 2 ILR 782,
Tuan Tan Kim Siong held as follows:
“The claimant’s impression or fear in his new position has bene
misconstrued and has presupposed the company’s ultimate
intention to ship him out from his new assignment. The
assertion of the claimant as a result of a series of words and
actions by the top executive of the company, is, in my view,
more indicative of the state of his mind that the state of the
company’s intention to force him out of his employment. The
claimant ought to have acquiesced to the transfer
and should have waited until the picture was
brighter. There is a lot of smoke but no fire. The
claimant should have reported for work at his new
position and if his fears were proved right, there
would have been plenty of time for him to walk out
of his job. Constructive dismissal is not something
an employee stumbles across, like the answer to a
riddle or the prize in a treasure hunt. It is the duty and
function of this Court the label is not loosely used lest the
meaning loses its effect and direction. The unique pattern of
constructive dismissal is that the employee abandons his
employment and holds his employer responsible for his
abandonment. It is something like ‘I resign and I say your
action makes me do so.’
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ii. In Anwar Bin Abdul Rahim v Bayer (M) Sdn Bhd [1988] 2 MLJ
599, His Lordship Dato’ Mahadev Shanker JCA was also
confronted with a workman who contended that he had been constructively
dismissed. His basis for so alleging was that the introduction of a new
managing director coupled with his move to a smaller room indicated to him
that the Company wanted to drive him from employment. He even accused
the Managing Director of asking him to leave. The Court of Appeal held as
follows and their decision has since been upheld by the Federal Court:

“It has been repeatedly held by our courts that the

proper approach in deciding whether constructive
dismissal has taken place is not to ask oneself whether
the employer’s conduct was unfair or unreasonable
(the unreasonableness test) but whether ‘the conduct
of the employer was such that the employer was guilty
of a breach going to the root of the contract or whether
he has evinced no longer to be bound by the contract.”

“At its very highest, it was only Anwar’s impression that Bayer
(M) wanted to get him out. Indeed, Anwar’s evidence was that he
pointedly asked Mr Herzer if it was Mr Herzer’s intention to ask
him to leave and Mr Herzer said no.”

iii. In Talasco Insurance Sdn Bhd v Industrial Court of Malaysia &

Anor (OM No. R1-25-141-94), the workmen attempted to make out a
case of constructive dismissal based on similar grounds i.e. a change in his
reporting line and the shift to a smaller room. His Lordship Dato’ Hj
Abdul Kadir Bin Sulaiman quashed the Industrial Court Award and
held as follows:

“It is the Applicant’s prerogative to decide who is more

suitable for a particular job for so long as in the making
of the decision, it acted in good faith and that the 2nd
Respondent’s responsibilities, salary and all other terms
and conditions of service with the Applicant remained
unchanged. It may result in the loss of pride for the 2nd
Respondent to be the subordinate of the newly
appointed immediate superior. But this loss of pride
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alone would not constitute a dismissal of the 2nd

Respondent by the Applicant.”

“…The obdurate refusal of the Appellant to accept

conditions very properly and sensibly being sought to be
imposed upon her was unreasonable. Watkins LJ held
at page 702 that :

“Employers must not, in my opinion, be put in

a position where, through the wrongful
refusal of their employees to accept change,
they are prevented from introducing improved
business methods in furtherance of seeking
success for their enterprise.”
This is a fact that becomes even more apparent, when the employer takes the affirmative
step of reassuring the employee of his position and asks him to return to work. Where an
employee declines to do so he declines to do so at a severe risk. Because in many
instances where the allegation of constructive dismissal is made by an employee who
declines a transfer or by one who opposes a new posting or by one who opposes a
reorganization, it may not be possible to him to substantiate his case by rational or
probative evidence without having to try out the position first. Without so doing, any
allegation that is made is bound to be hypothetical in nature in most cases.

i. In Klang Port Management Sdn Bhd v Mohd Zulkifle Bin

Jamalun [1995] 2 ILR 613, Tuan Haji Yussof Ahmad held as
follows:

“The fact that the claimant was scolded on one occasion is not
sufficient to found a claim that the company had committed a
fundamental breach of the contract of employment or that the
company had shown an intention no longer to be bound by the
contract. In fact the company had shown every
intention to be bound by the contract by going as far
as writing to the complainant denying constructive
dismissal and asking him to come back to work. There
is no justification for the claimant to refuse to come back to work
because the letter did not specifically say what position he was to
occupy in the event he came back. If he really wanted to
know he could have asked the company. The least he
could do was to come and discuss the matter. He did
none of these.”
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ii. In Robert Yesudian a/l Devairakam v Menteri Sumber Manusia

& Anor (OM NO. R1-25-159-96), His Lordship Dato’ Hj Abdul
Kadir Bin Sulaiman took the following view of the refusal by the
workman to report for duty when directed to do so by it when he alleged
constructive dismissal:

“If this is the attitude of workmen towards their

employers on the pretext of their rights to livelihood as
a guarantee in the Federal Constitution, how can we
expect industrial harmony to subsist. The 1967 Act is not
made for the workmen alone without any interest for the
employers. It is for the purpose of maintaining harmony in
industries and to avoid industrial disputes.”

“This is so because upon his allegation he required reinstatement

in his former employment as an Assistant Manager. He was so
offered by the Second Respondent on several occasions despite
his excuse for not going back to his former employment as such.
But with all the efforts made by the Second
Respondent to resolve the dispute, he never gave the
chance to the Second Respondent to show its sincerity
in resolving the dispute. He harassed the Second
Respondent with his excuses. If the Applicant was
really sincere with his claim he could at the earliest
opportunity accept the offer by the Second Respondent
and see the result. This is yet another example of
egoistic feeling poured out at the wrong occasion
which resulted to his detriment.”

Confronted with such a situation, where the evidence that is adduced is consistent with
more than one hypothesis, then evidence law would dictate that the party bearing the
burden of proof loses.

iii. In Morris v London Iron and Steel Co Ltd [1987] 3 WLR 836, the
Court of Appeal ruled to similar effect in a case where an employee alleged
that he was forced to resign:

“In any event, where the ultimate decision can only be between
two alternatives, for instance negligence or not, or, as in the
instant appeal, dismissal or resignation, then when all the
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evidence in the case has been called the judge or the tribunal
should ask himself or itself whether, on the totality of the
evidence, on the balance of probabilities, drawing whatever
inferences may be thought to be appropriate, the alternative
which it is necessary for the plaintiff to establish in order to
succeed is made out. If it is not, then the operation of the
principle of the burden of proof comes into play and
the plaintiff fails.

“In my opinion that is what the industrial tribunal did

in the instant case. It was entitled, if it found itself
unable to decide which party’s evidence is preferred
on the balance of probabilities, ultimately to fall back
on the onus of proof which lay upon the employee to
prove that he had in fact been dismissed. I do not find
that the criticisms which the majority of the appeal tribunal made
of the industrial tribunal’s findings on this particular point can be
substantiated. There was, as I have indicated, no absolute
obligation upon the industrial tribunal to reach a finding of fact.
If at the end of the day it found itself unable to reach
a conclusion which was to be preferred, it was
entitled to state and thereafter to decide the
application applying the onus of proof.”

Recognition for managerial prerogatives & strict observance of the contract test

Another factor which moves towards restraining the over expansion of constructive
dismissal is the firm recognition of the managerial prerogative, which ought only to be
displaced where clear evidence of repudiatory conduct is led. In many cases, employees
have been able to succeed in constructive dismissal claims based upon facts which in
substance is nothing other than evidence of unreasonableness per se.

This has been one of the greatest challenges on the Industrial Court of Malaysia. With the
advance of the implied term, it is not always easy to draw a firm line between a
fundamental breach of contract and mere unreasonableness. After all many of us would
tend to identify conduct to be repudiatory in nature based on the reasonableness or
otherwise of that course of conduct. In recent time a series of decisions of the High Court,
Court of Appeal and Federal Court appeared to have firmly entrenched the contract test
as the test in cases of constructive dismissal. In the case of Bayer (M) Sdn Bhd v Anwar
bin Abdul Rahim [1996] 2 CLJ 49 at 54, His Lordship Dato’ Low Hop Bing JC (as
he then was) noted that although the Industrial Court had found as a fact that there had
been a constructive dismissal, its conclusion was based on factors which were suggestive
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of unreasonableness rather than a fundamental breach of contract. Accordingly, His

Lordship quashed the Award:

“The Industrial Court, in making the impugned award, has erred in law in
failing to apply the proper legal test governing a case based on
constructive dismissal. The Industrial Court’s finding that the conduct of
the applicant was “not justifiable”, “not bona fide” and so constitutes
“embarrassment” clearly shows that it had erroneously applied “the test of
reasonableness” and not “the contract test”, and so has acted in excess of
jurisdiction constituting an error of law. In the circumstances, I grant an
order in terms of this motion.”

CONCLUSION

The controversies of having to draw a line between mere unreasonableness and breach of
contract will never be at an end. Within the current framework of the law, it is likely to be
a feature of Industrial Relations in Malaysia. The Courts will continue to be vested with
the onerous task of having to scrutinize management decisions to determine whether they
constitute a constructive dismissal.

What is the way forward? It is certainly preferable to work towards a system where
grievances are resolved at the lowest possible level. Surely any employer would prefer
his employee to comply with a transfer order and other such instructions and to then raise
a specific grievance that he may have on any specific dissatisfaction. This would be
preferable rather than to decline compliance altogether by alleging constructive dismissal.
In my opinion this is an end which is entirely achievable. After all there is no shortage of
provisions in the Code of Conduct of Industrial Harmony which calls for the
establishment of dispute resolution mechanisms and which advocate the early resolution
of disputes. With the advent of Section 30(5A) of the 1967 Act and the recent line of
decisions commencing with the Federal Court decision in Said Dharmalingam
Abdullah v Malayan Breweries (M) Sdn Bhd 1997 1 MLJ 352, Bayer (M) Sdn Bhd
v Ng Hong Pau (Award No. 460 of 1997) and Credit Corporation (M) Berhad v
Choo Kam Sing (Award No. 465 of 1997) one may suggest that in the absence of due
compliance with these requirements an employee ought not to presume repudiatory
conduct on the part of the employer. Or put differently, a Court ought not to enter a
finding of repudiatory conduct where internal dispute resolution mechanisms have not
been exhausted.

Aside from judicial innovations there is much that employer’s can do to help themselves.
Obviously an employer who acts quickly and effectively on a grievance which culminates
in a constructive dismissal will stand in a far better position in comparison with one who
allows grievances and allegations to pass unanswered. Effective steps taken at the early
stages of a dispute will certainly shed light on the employer’s true motives and intentions
and it will certainly influence the analysis of the facts of the case by the Industrial Court
of Malaysia.
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