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Updated: Jan 11, 2021

1. What is Constructive Dismissal?

Constructive Dismissal occurs where there is no formal dismissal or termination but it refers to an act of the employee in terminating his employment due to a breach of the term of the contract committed by the employer. It leaves the employee no choice but to resign. By referring to the case of WONG CHEE HONG V CATHAY ORGANISATION (M) SDN BHD [1988] 1 MLJ 92, the Court stated that the common law has always recognised the right of an employee to terminate his contract and consider himself as discharged from further obligation, if the employer is guilty of such a breach as affects the foundation of the contract, or if the employer has evinced an intention not to be bound by it any longer.

The worker who brings a claim founded on constructive dismissal must establish his case as follow:-

(a) That the company by its conduct has breached a term or terms (express or implied) of the contract;

(b) That the breach is a fundamental one going to the root of the contract;

(c) That the worker has terminated the contract by reason of the company’s conduct and the conduct is sufficiently serious to entitle the worker to leave at once; and

(d) That the worker in order to assert his right to treat himself as discharged left soon after the breach.

2. Circumstances for an Employee to Claim Constructive Dismissal

(a) Failure to pay wages

In the case of FATIMAH BT BAHARI & ORS V INTERNATIONAL COLLEGE OF HEALTH SCIENCES [2014] 4 ILJ 150, the Court held that the Claimants were constructively dismissed where it was clear that the Employer committed a fundamental breach which went to the root of its employment contracts with the Claimant when it failed to pay their salary. The Court is of the view that the reinstatement, in this case, is not appropriate and thus awarding back wages and compensation in lieu of reinstatement.

(b) Demotion, redesignation, and transfer

In the case of FOO JEE HUAH @ FOO CHEE WAH V C-PAK CERGAS SDN BHD [2011] 4 ILJ 426, the Court held that the claimant was constructively dismissed by demotion and transfer to another department. In this case, the Claimant was found misconduct and the claimant had sufficiently been punished (such as given warning letter, no increment bonus for a year, etc) and the further demotion and transferring were unreasonable.

The court found that the remedy of reinstatement was inappropriate and awarded back wages and compensation in lieu of reinstatement.

(c) Reduction of wages or allowance

In the case of BSF AUTO & PARTS SDN BHD V TAN YAM HUAT [2005] ILJU 47, the Court held that the unilateral act of the Company of deducting the fixed allowance without the endorsement and mutual consent constitutes a significant breach of the fundamental term of the contract of the employment thereby satisfying the principle of law on constructive dismissal.

In this case, despite the Claimant has prayed for reinstatement but the Court awarded back wages and compensation in lieu of reinstatement as the Court finds that it is not conducive for the Claimant to be reinstated in view of the probable strained relationship between parties.

(d) Substantial changes in the duties and responsibilities

In the case of TAN KOOI LUANG V TOKIO MARINE INSURANCES (M) BHD [2011] 1 ILJ 87, the Court held that the Claimant was constructively dismissed as the redesignation from branch manager to manager, marketing operations had resulted in a substantial change in the duties and status of the Claimant and had breached the implied term in the contract of employment. As it went to the root of the contract which entitled the Claimant to regard himself as constructively dismissed after the breach.

3. Remedy

The worker may file a claim under Section 20 Industrial Relations Act 1967 if he feels that he has been constructively dismissed.

The primary remedy that the Court will award is reinstatement and back wages (limited to 24 months) provided that the reinstatement is suitable. In determining whether to grant reinstatement, the Court is required to take into account the following factors:-

i) The past record of the employee;

ii) The nature of his alleged lapse;

iii) The conduct of the workman (ie whether he had contributed to his own dismissal);

iv) Nature of relations between the employer and the employee;

v) The nature of duties performed by the employee; and

vi) The nature of the industrial establishment

(The case of Kumpulan Perangsang Selangor Bhd v Zaid bin Hj Mohd Noh [1997] 1 MLJ 789 is referred.)

However, if the Court finds that the reinstatement is not suitable (eg: the position is no longer exists) the Court shall order the workman to be paid compensation in lieu of reinstatement by the employer, as may be determined by the Court and back wages.

The compensation in lieu of reinstatement normally at the rate of one month for each year of completed service. For example, if a workman has been employed for 3 years then the compensation in lieu of reinstatement is calculated as 1 month’s salary x 3. However, this compensation will be subjected to deduction as follows:-

i) Mitigation;

ii) Post dismissal earning;

iii) Contributory conduct.

(S 20 IRA 1967 & Practice Note No. 3 of 2019 is referred)

In the case of HONG LEONG BANK BHD V PHUNG TZE THIAM JOHN PHUNG [2008] 2 MLJ 785, the Industrial Court found that it was not practical for the industrial harmony to reinstate the respondent and awarded compensation in lieu of reinstatement, the reason being the respondent held a reasonable high ranking position and the Court found that the mutual trust and confidence is lacking between parties. Hence there is no useful purpose, for the reason of industrial harmony to thrust the respondent upon the appellant.

4. Conclusion

From the cases abovementioned, despite the primary remedy for constructive dismissal is reinstatement but the Court will normally award back wages and compensation in lieu of reinstatement reason being the remedy of reinstatement is usually inappropriate.


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