Constructive dismissal and its HR implications

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Constructive dismissal and its HR implications

  1. 1. il ɑ ol`.fm a e clxxxix θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management clxxxix in Malaysia THE LAW OF CONSTRUCTIVE DISMISSAL AND ITS IMPLICATIONS TO HUMAN RESOURCE MANAGEMENT IN MALAYSIA by BALAKRISHNAN MUNIAPAN1 School of Business & Design Swinburne University of Technology (Sarawak Campus) Abstract This paper specifically analyses some of the constructive dismissal awards and its implication to human resource management in Malaysia. The methodology employed in this paper is the analysis of case laws using criterion-based sampling from the Industrial and Superior Court awards on constructive dismissal. With a good understanding of the constructive dismissal awards, it is expected that organisations will manage and treat their human resources as their greatest assets and prevent constructive dismissal claims from taking place. This will eventually help to improve and maintain harmonious employment relations. Key words: human resource management in Malaysia, dismissal, constructive dismissal, employment law, employment relations and comparative industrial relations. INTRODUCTION Constructive dismissal is creating a new challenge to human resource management in Malaysia. This is due to the increasing number of awards on constructive dismissal made by the Malaysian Industrial Court over the last nine years. From the years 2001 to 2009, the 1 Balakrishnan Muniapan is a Senior Lecturer in HRM at the School of Business & Design, Swinburne University of Technology, Sarawak Campus, in Kuching (Malaysia). He had previously taught HRM at Curtin University of Technology, Sarawak Campus in Miri, Hertfordshire University program at BIMC in Beijing (China), and Economics for British and Australian Universities program in Penang. He has more than 45 publications which include journal articles, book chapters and conference proceedings (refereed and non-refereed). He has also presented HRM papers at academic conferences in several countries within Asia, Australia and Europe. Email: mbalakrsna@yahoo.com.
  2. 2. il ɑ ol`.fm a e cxc θuesday, ʃeptember ´`, ´ ` ` cxc ɑ Industrial Law Journal [2010] 1 ILJ Industrial Court has made 562 awards on constructive dismissal, mostly against employers. With compensation awarded to each employee amounting to as much as 24 months of back-pay salary plus a month’s pay for every year of service, employers can no longer neglect this pressing issue. The concept of constructive dismissal falls within the purview of s 20 of the Industrial Relations Act 1967. Constructive dismissal is a ‘deemed dismissal’ if an employer is guilty of a breach of the employment contract which goes to the root of the contract. It arises when a workman terminates his/her contract of employment and considers himself/herself discharged from further obligations because of the employer’s conduct. LITERATURE REVIEW In the context of Malaysian human resource management, studies on employment laws especially on constructive dismissal are limited as it is considered as a new area and a specific area of study. Over the years, some of the authors who have written about Malaysian employment laws are Muniapan (2006; 2007), Muniapan and Parasuraman (2007), Ramasamy (2006), Mohammad (2006), Pathmanathan et al (2003), Thavarajah (2008), Thavarajah and Low (2003), Aminuddin (2007; 2008), Ayadurai (1996), Anantaraman (1997; 2000), D’Cruz (2007), Kiong (2002), Idid (1993), Gomez (1997) and Wu (1995). Except for the studies done by Anantaraman (2000) and Thavarajah (2008), none of the studies have specifically dealt with constructive dismissals in depth. This paper therefore hopes to fill the existing gap in the literature, to highlight some of the recent awards and lessons to prevent constructive dismissal claims from taking place and generally to contribute to the constructive dismissal and employment laws literature in Malaysia. METHODOLOGY Research in employment law involves the analysis of statutes and case laws. The statutes are the primary sources while the case laws are the secondary sources. However, none of the important statutes related to employment law in Malaysia, such as the Employment Act 1955, Industrial Relations Act 1967 and Trade Unions Act 1959 have defined the term ‘constructive dismissal’, although constructive dismissal comes within the scope of ‘dismissal’ in s 20 of the Industrial Relations Act 1967 as per the landmark judgment made by Tun Salleh Abbas LP in Wong Chee Hong v Cathay Organization (M) Sdn Bhd [1988] 1 MLJ 92 (SC). This paper therefore is based on case analysis of some of the constructive dismissal awards made by the Industrial Court and
  3. 3. il ɑ ol`.fm a e cxci θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia cxci the superior courts by using criterion based sampling, and a review of existing literatures in the field of constructive dismissal in Malaysia. The author is familiar and has been involved in the field of employment law in Malaysia as a lecturer, trainer and consultant and is familiar with employment laws such as the Employment Act 1955 and the Industrial Relations Act 1967. EMPLOYMENT RIGHTS IN MALAYSIA Employment laws in Malaysia provide security of employment for workmen2 as employment is considered to be a constitutional right and is protected by the Federal Constitution under arts 5(1)3 and 8(1).4 This was clearly highlighted by the Industrial Court in Award 20/1997 (cited in D’Cruz, 2007), as follows: The right to livelihood is a right protected by Part II of the Federal Constitution. In consonance with the concept of social justice which is firmly entrenched in industrial jurisprudence is the principle that the security of tenure of an employee is akin to a right of property and is not to be treated lightly by a dismissing authority. This is also evident in Kuching Plywood Bhd v Ng Tiong Hie (1994), whereby the dictum from the Supreme Court of India in Delhi Transport Coporation v DTC Mazdoor Congress (1990) was cited, and the learned chairman of the Industrial Court made the following observation (cited in D’Cruz, 2007): 2 3 4 The term workman is different from term ‘employee’ as defined in the Employment Act 1955. Employee as defined in the Employment Act, s 2(1) as any person, irrespective of his occupation, who has entered into a contract of service with an employer under which such person’s wages do not exceed ringgit Malaysia one thousand and five hundred (RM1500). In the Industrial Relations Act 1967, the term ‘workman’ is defined as ‘any person, including an apprentice, employed by an employer under a contract of employment to work for hire or reward and for the purposes of any proceedings in relation to a trade dispute …’. In this paper, both the terms ‘employee’ and ‘workman’ are used interchangeably depending on the context of statutes applied (Employment Act and Industrial Relations Act). The Federal Constitution of Malaysia is the supreme law of the country. Article 5(1) provides that no person may be deprived of life or personal liberty save in accordance with law. Article 8(1) provides that all persons are equal before the law and entitled to its equal protection. However in practice, this can be debated as in the case of art 8(2) which allows no discrimination against any citizens on the grounds of religion, race, descent or place of birth.
  4. 4. il ɑ ol`.fm a e cxcii θuesday, ʃeptember ´`, ´ ` ` cxcii ɑ Industrial Law Journal [2010] 1 ILJ The right to life includes the right to livelihood. The right to livelihood therefore cannot hang on the fancies of individuals in authority. Employment is not a bounty from them nor can its survival be at their mercy. Income is the foundation of many fundamental rights and when work is the sole source of income the rights to work becomes as much fundamental. Fundamental rights can ill afford to be consigned to the limbo of undefined premises and uncertain applications. That will be a mockery of them. From an international context, the International Labour Organization (‘ILO’) Convention No 158 of 1982, Article 4 of the ‘Convention Concerning Termination of Employment at the Initiative of the Employer’ (cited in Muniapan, 2007) made the following provision: The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirement of the undertaking, establishment or service. In employment law, it is a well established fact that the termination of employment is not an absolute right of employers. Practically, it can be a very traumatic and costly exercise and proper care and conduct must be exercised by the employer when effecting or embarking on such course of action (Thavarajah, 2008). Dismissal is just one of the types of termination of the employment contract; other types of termination include resignation, retirement, frustration of contract, termination due to breach of contract, non-confirmation of a probationer, ending of a fixed term contract and termination due to redundancy (retrenchment). Dismissal is commonly associated as an act of an employer firing or terminating an employee from employment. Dismissal is normally due to the workman’s misconduct, which is not consistent with the expressed or implied terms and conditions of employment. The Industrial Relations Act 1967 and the Employment Act 1955 regulate the dismissal of a workman and an employee in the context of Malaysian employment laws. Dismissal is also one of the managerial prerogatives or managerial rights provided within the legal context. The Industrial Relations Act 1967, s 13(3), recognises the following managerial prerogatives or management rights: (a) the right to promote by an employer any workman from a lower grade or category to a higher grade or category; (b) the right to transfer by an employer a workmen within the organisation of an employer’s profession, business, trade or work, provided that such transfer does not entail a change to the detriment of a workman in regard to his terms of employment;
  5. 5. il ɑ ol`.fm a e cxciii θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia cxciii (c) the right to employ by an employer of any person that he may appoint in the event of a vacancy arising in his establishment; (d) the right to terminate by an employer of any workman by reason of redundancy or by reason of the reorganisation of an employer’s profession, business, trade or work or the criteria for such termination; (e) the right to dismiss and reinstate a workman by an employer; and (f) the right to assign or allocate by an employer duties or specific tasks to a workman that is consistent or compatible with the terms of his employment. However, the right to dismiss an employee by an employer or any other management prerogatives is not absolute. This needs to be made clear to employers as the Industrial Court in Lim Sim Tiong v Palm Beach Hotel (1974) stated: It is the basic principle of industrial (employment) law that a court would be wrong to interfere with bona fide exercise of powers which are given to management by common law and by contracts of service or which are inherent in management. If there has been no abuse of discretion, no discrimination, no capricious or arbitrary action, if management has acted in goods faith and upon fair investigation, an arbitrator should not disturb the decision taken by the employer. However as a court of equity and good conscience, this court will interfere not only where there has been victimisation, but also where it is of opinion that upon the substantial merits of the case the action taken by the management was perverse, baseless or unnecessarily harsh or was not just or fair, or where there has been a violation of principles of natural justice, or where there has been unfair labour practice or other mala fide action on the part of the management in the exercise of its powers. For employers, s 14(1) of the Employment Act 1955 further states that the employer may, on grounds of misconduct inconsistent with the fulfilment of the express or implied conditions of his service, after due inquiry: (a) dismiss without notice the employee; (b) downgrade the employee; and (c) impose any other lesser punishment as he deems just and fit. It is an established principle of employment law that an employer must establish sufficient circumstances justifying dismissal such as misconduct. His Lordship Mohd Azmi FCJ stated in the case of Milan Auto Sdn Bhd v Wong She Yen [1995] 3 MLJ 537 (FC) that the function of the Industrial Court in dismissal cases on a reference under s 20 of the Industrial Relations Act 1967 is two-fold, namely: ... first, to determine whether the misconduct complained of by the employer has been established, and secondly whether the proven
  6. 6. il ɑ ol`.fm a e cxciv θuesday, ʃeptember ´`, ´ ` ` cxciv ɑ Industrial Law Journal [2010] 1 ILJ misconduct constitutes a just cause or excuse for the dismissal … Thus the two questions, which the court had to ask itself, are: (i) was there a dismissal; and (ii) if the answer to (i) is in the affirmative, was the dismissal with or without just cause or excuse. Therefore in any dismissal made by the employer, the burden of proving the misconduct falls in the hands of the employer (not the employee) to provide the reasonable reasons for the dismissal. This was also clearly established by the Industrial Court in Stamford Executive Centre v Dharsini Ganesan [1986] 1 ILR 101 (IC). The court commented: It may further be emphasised here that in a dismissal case the employer must produce convincing evidence that the workman committed the offence(s) he is alleged to have committed and for which he has been dismissed. The burden of proof lies on the employer. He must prove that the workman guilty, and it is not the workman who must prove himself not guilty. This is so basic a principle of industrial jurisprudence that no employer is expected to come to this court in ignorance of it. As a result, due inquiry based on the rules of natural justice is a must before dismissing an employee who is within the scope of the Employment Act 1955. The due inquiry is also necessary for a workman who is not within the scope of the Employment Act 1955 to fulfil the requirement of natural justice.5 Dismissal is the most severe punishment, which can be awarded to a delinquent workman by his employer mostly for some act of misconduct which had to be proven after the due inquiry. However in employment law, just as the employer has the right to dismiss the employee, the employee also has the right to dismiss the employer if there has been a fundamental breach of the employment contract by the employer, which goes to the root of the contract. In some circumstances, the employer’s act of 5 The concept of natural justice has two basic components: (1) the rules of audi alteram partem and (2) the rule against bias. The of audi alteram partem rule, or the rule requiring a fair hearing is of importance and can be used to construe a whole code of administrative procedural rights. The rule against bias is also of equal importance for a man should not be judged in his own cause and justice must not be done but seen to be done. An adjudicator should not be a party to the dispute if he has some interest therein and it is not necessary to prove that a particular decision made by the adjudicator was in fact influenced by biasness. It is sufficient if there is a reasonable suspicion about his fairness. He must not only be free from biasness, but there must not even be an appearance of biasness. Source: Eastern Plantation Agency (Johore) Sdn Bhd v Association of West Malaysian Plantation Executives, Seremban (1985).
  7. 7. il ɑ ol`.fm a e cxcv θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia cxcv unilateral changes in the terms and condition of the employment contract, forces the workman to terminate the contract with or without notice. This kind of unfair dismissal is popularly known as ‘constructive dismissal’. The constructive dismissal awards made by the courts over the years have great implications to human resource management in Malaysia. CONSTRUCTIVE DISMISSAL Constructive dismissal is a ‘deemed dismissal’ if an employer is guilty of a breach of the employment contract which goes to the root of the contract. It arises when a workman terminates his/her contract of employment and therefore considers himself/herself discharged from further obligations because of the conduct of the employer. According to Bowman and Lord Hailsham (2005) in Halsbury’s Laws of England, constructive dismissal happens when an employee terminates the contract of employment with or without notice and may still make a claim to have been dismissed, if the circumstances are such that he or she terminated it by reason of the employer's conduct or a breach of contract by the employer. The employee must leave immediately in response to the breach of contract. In a Canadian case, Farber v Royal Trust Co (1997), Canada's Supreme Court defined constructive dismissal as follows: Where an employer unilaterally makes a fundamental or substantial change to an employee’s contract of employment — a change that violates the contract’s terms — the employer is committing a fundamental breach of the contract that results in its termination and entitles the employee to consider himself or herself constructively dismissed. Constructive dismissal denotes the conduct of an employer, which is outrageous and makes continued employment impossible; a workman need not tolerate it and can treat himself or herself as dismissed (Lotteries Corporation Sabah Sdn Bhd v Vincent Lee [1991] 1 ILR 554 (IC)). A much clearer explanation of constructive dismissal was given by Dato’ Gopal Sri Ram JCA in Quah Swee Khoon v Sime Darby Berhad [2000] 2 MLJ 600 (CA) who simply defines constructive dismissal as follows: An employer does not like a workman. He does not want to dismiss him and face the consequences. He wants to ease the workman out of his organisation. He wants to make the process as painless as possible for himself. He usually employs the subtlest of means. He may, under the guise of exercising the management power of transfer, demote the workman … Alternatively, he may take steps to reduce the workman in rank by giving
  8. 8. il ɑ ol`.fm a e cxcvi θuesday, ʃeptember ´`, ´ ` ` cxcvi ɑ Industrial Law Journal [2010] 1 ILJ him fewer or less prestigious responsibilities than previously held. Generally speaking, he will make life so unbearable for the workman so as to drive the latter out of employment. In a constructive dismissal, an employer is guilty of a breach of the employment contract which goes to the root of the contract or if the employer has shown and committed unreasonable actions or behaviours which repudiates the contract of employment. In such situations, the workman is entitled to regard the employment contract as having terminated and construe himself/herself as having been constructively dismissed. In Malaysia, the Supreme Court (now Federal Court) ruling by Tun Salleh Abas LP in Wong Chee Hong v Cathay Organization (M) Sdn Bhd [1998] 1 MLJ 92, firmly established the doctrine of constructive dismissal. As a result, constructive dismissal has been brought within the ambit of s 20 of the Industrial Relations Act 1967,6 which means dismissal rights under the law are now extended to those workmen who are compelled to resign because of the conduct of their employers (Anantaraman, 2000). However, constructive dismissal cases need to be analysed from a different perspective unlike wrongful dismissal and unfair dismissal or from any other type of employment terminations, as in a constructive dismissal, the burden of proof is on the workman to prove that his/her employer is guilty. The term ‘wrongful dismissal’ is based on contract law and it happens when the employer breaches the employment contract and forces the employee to leave and the claims for wrongful dismissal means looking at the employment contract to see if the employer has breached the contract. In the context of English employment law, constructive dismissal would be the case of a 6 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; the representation may be filed at the office of the Director General nearest to the place of employment from which the workman was dismissed.’ The Industrial Court in PG Pak Poy & Associates Sdn Bhd vs Looi Sook Chan (1986) asserted that: ‘Section 20 of the IRA embodies the concept of security of tenure of employment … a workman is entitled to keep his job and no employer may be allowed to throw a workman out of his employment without good reason. This provision gives a workman the right to claim reinstatement and this court may order reinstatement in the workman’s former employment if his dismissal is considered to be without just cause or excuse.’
  9. 9. il ɑ ol`.fm a e cxcvii θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia cxcvii wrongful dismissal. The term ‘unfair dismissal’ on the other hand, is based on statute when the employer dismisses the employee without reasonable excuse as in s 20 of the Industrial Relations Act 1967. However, in the Malaysian context of employment law, the term ‘wrongful dismissal’ and ‘unfair dismissal’ are synonymous and are used interchangeably (Thavarajah, 2008) and constructive dismissal is seen as another type of dismissal apart from wrongful dismissal and unfair dismissal. In determining constructive dismissal claims, it is the contract test and not the reasonable test, which must be present. The contract test was used in Wong Chee Hong v Cathay Organization (M) Sdn Bhd (also cited in Sama World Asia Sdn v Teh Soo Seng [2008] 1 ILR 112 (IC ) where the learned judge, Tun Salleh Abas LP made the following comments: Thus it would be a dismissal if an employer is guilty of a breach which goes to the root of the contract or if he has evinced an intention no longer bound by it. In such situation, the employee is entitled to regard the contract as terminated and himself as being dismissed. Similarly in the case of Shabudin Abdul Rashid v Talasco Insurance Sdn Bhd [2004], 4 CLJ 514 the Court of Appeal held that: We confirm this to be the true test as the employer’s conduct … must be such as to amount to there being a breach of some term in the appellant’s contract of employment and must be so fundamental as to evince an intention not bound by the contract of employment. In Western Excavating (ECC) Co Ltd v Sharp [1978] 1 All ER 713 (CA) which was an earlier English case, the decision was established that reference must be made to the contract of employment in order to see whether the employer’s conduct constitutes a fundamental breach of contract. This principal was also used in MPH Bookstores Sdn Bhd v Lim Jet Seng [1987] 1 ILR 585 (IC), that in order for a claim of constructive dismissal to be successful, both limbs of the common law ‘contract test’ must be present; they are as follows: Did the employer’s conduct amount to a breach of the contract or had he evinced an intention no longer to be bound by the contract thereby entitling the workman to resign, and did the workman make up his mind and act at the appropriate point in time soon after the conduct, which he had complained of, had taken place. Therefore, the onus of proof is on the workman and not on the company to prove on a balance of probabilities that he/she was dismissed. The claimant has to prove that the company has breached the contract thereby entitling him/her to plead under constructive dismissal. In order to prove that he/she has suffered constructive
  10. 10. il ɑ ol`.fm a e cxcviii θuesday, ʃeptember ´`, ´ ` ` cxcviii ɑ Industrial Law Journal [2010] 1 ILJ dismissal, an employee must prove that he/she did so as a result of a breach of contract by his/her employer who no longer intends to be bound by the essential terms of the contract. The key element of constructive dismissal is that the workman must have been entitled to leave without notice as a result of the employer’s conduct. The word ‘entitled’ means that the employee could leave when the employer’s behaviour towards him/her was so unreasonable that he/ she could not be expected to stay (Smith and Wood, 2007). Circumstances where the workman can classify when an employer’s action has led to constructive dismissal (D’Cruz, 2007) are: (a) arbitrary reduction of wages, commission, allowance, etc; (b) withdrawal of contractual benefits provided as they are mentioned in the contract of service; (c) altering or taking away facilities reflective of the position; (d) demotion or downgrading to a lower post, with or without the reduction of salary, fringe benefits, etc; (e) transfer to a different location if such transferability is not clearly stated in the letter of appointment; (f) substantial changes in the job function, especially if the employee is incapable of performing those functions; (g) behaviour by the employer, which is intended to humiliate the employee; (h) acts of victimisation such as setting unattainable deadlines, constant fault-finding and harassment (including sexual harassment); and (i) threatening with dismissal if the employee does not resign from the job. The table below shows a drastic increase in the number of constructive dismissal awards made in 2009 which is the highest over the last nine years and the number is expected to rise in 2010. This is indeed alarming and it is a pressing issue that cannot be taken lightly by human resource practitioners in Malaysia. With compensation awarded to each employee amounted to as much as 24 months of back-pay salary plus a month’s pay for every year of service, organisations can no longer neglect this issue. Therefore, it is essential for human resource practitioners to learn and understand the cases on constructive dismissal in order to not only manage it but also to prevent constructive dismissal claims from taking place.
  11. 11. il ɑ ol`.fm a e cxcix θuesday, ʃeptember ´`, ´ ` ` ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia [2010] 1 ILJ cxcix Analysis of Awards on Employment Termination (2001 – 2009) Types of Termination 2001 2002 2003 2004 2005 2006 2007 2008 2009 Constructive 26 35 40 34 22 42 97 126 140 Misconduct 726 810 763 1638 2144 2051 1200 878 613 Retrenchment 41 52 61 61 16 32 422 155 114 Others – – – – – – 402 573 328 Total 793 897 864 1733 2182 2125 2121 1732 1195 Source: Malaysia Industrial Court at http://www.mp.gov.my/. SOME OF THE CONSTRUCTIVE DISMISSAL AWARDS Transfer of a workman The right to transfer a workman within the organisation of an employer’s profession, business, trade or work is a managerial right; however that such transfer does not entail a change to the detriment of a workman in regard to his or her terms of employment. This law on transfer was also clearly summarised by Raus Sharif J in Chong Lee Fah v The New Straits Times Press (M) Bhd [2006] 1 MLJ 289 (HC) cited in Thavarajah (2008). In the earlier case of Supermix Concrete (M) Sdn Bhd v Raduan Ahmad [2002] 1 ILR 80 (IC), the claimant argued that a transfer to another plant was a breach of the fundamental contract. The judge held that in a transfer provision, the company had the discretionary power to transfer at any other location as and when the company required or needed; therefore, there was no mala fide or victimisation; the company’s power to transfer the claimant in this case was a bona fide exercise. However in Dicklin Sdn Bhd v Bathma Subramaniam [1991] 2 ILR 750, IC, the court held that the transfer provision was only limited to a transfer from one selection, division or associated company to the other and that under the contract of service, the company had no contractual right to transfer the claimant from West Malaysia (Subang Jaya) to East Malaysia (Kota Kinabalu). The company’s action was mala fide given the fact that there was an ongoing retrenchment exercise and knowing that the transfer will force her to resign, to avoid paying retrenchment benefits.
  12. 12. il ɑ ol`.fm a e cc θuesday, ʃeptember ´`, ´ ` ` cc ɑ Industrial Law Journal [2010] 1 ILJ In the case of Cosdel (Singapore) Pte Ltd v Ching Chooi Ham [2002] 1 ILR 562 (IC) the claimant had verbally agreed to be transferred to another location assuming that the terms and conditions of the employment were similar to the current job. Upon receiving a new appointment letter with different terms, she agreed to accept the transfer provided that the terms and conditions of her employment were not changed. The court held that it was an unjust dismissal whereby the company had altered the terms and conditions of the employment. There were a few cases of constructive dismissal in the late 1990s which were related to transfers which are relevant for us explore further. In Funai Electric (Malaysia) Sdn Bhd Johore v Salliah Ahmad [1997] 2 ILR 1002 (IC), the claimant, an assistant manager (shipping) claimed constructive dismissal on the ground that her transfer to the service parts department resulted in the erosion of her duties and responsibilities. She claimed constructive dismissal only after reporting to the new position and after being there for 12 days. The court allowed her claim of constructive dismissal notwithstanding the delay of 12 days on the ground that the claimant had to report to the new position as well as spend 12 days to find out whether it was indeed a demotion; this was not fatal to her claim. In Titan Polyethylene (M) Sdn Bhd v Othman Busu [1997] 3 ILR 497 (IC), when the company demoted the claimant from the position of group human resource manager to assistant to the vicepresident of human resource, he wrote to the managing director to reconsider his decision and to reinstate him in his former position. Pending the outcome of his appeal, the claimant worked under protest for 2.5 months before claiming constructive dismissal. He explained that the delay was there because he wanted to give the company a chance to remedy the breach. The court did not hold the delay as amounting to affirmation of the new terms of his contract. In Hotel Malaya Sdn Bhd v Say Lip Nyen [1994] 1 ILR 464 (IC), the action of the hotel in transferring its maintenance executive to the newly created job of ‘car park executive’ without any indication of duties and functions was claimed by the claimant as both mala fide and a breach of contract. The court found that the claimant's new job functions at the car park tantamounted to that of a car park attendant. It upheld the claim of constructive dismissal and rightly ordered for reinstatement to his former position in the maintenance department without any loss whatsoever.
  13. 13. il ɑ ol`.fm a e cci θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia cci In Harta Maintenance Sdn Bhd v Vanaja Chelliah & Ors [1999] 1 ILR 639 (IC), the claimants were cleaners at the Kajang Hospital and because of their trouble with their supervisor, they were transferred to the Kuala Lumpur Hospital. Though the right to transfer was the prerogative of the employer, it should not entail a change to the detriment of the employees. The claimants accepted the cleaner's job in Kajang because the place of their work was just one block away from their homes. However, transfer was detrimental to the claimants as it caused them economic loss, an increase in travelling expenses, and a decrease in their monthly income in terms of overtime income. The court upheld their claim of constructive dismissal and ordered compensation to be paid to the claimants. Therefore, it is pertinent for organisations to understand their legal right to transfer their employees as well as their limitations. This was highlighted by the Industrial Court in Kian Joo-Southcorp Sdn v Nurul Syafiqah binti Abdullah [2003] 2 ILR 344 (IC). In this case, the court cited Ghaiye’s Misconduct in Employment in respect to the power to transfer, which the learned author has emphasised, is subject to well recognised restrictions namely: (a) there is nothing to the contrary in terms of employment; (b) the management has acted in a bona fide manner and in the interests of its business; (c) the management is not actuated by any indirect motive or any kind of mala-fide; (d) the transfer is not made for the purpose of harassing and victimising the workman; and (e) the transfer does not involve a change in the conditions of service. The above restrictions was also cited in the Court of Appeal by Arifin Zakaria JCA in Ladang Holyrood v Ayasamy a/l Manikam & Ors [2004] 3 MLJ 339, and Raus Sharif J in Chong Lee Fah v The New Straits Times Press (M) Bhd [2006] 1 MLJ 289; [2005] 4 CLJ 605 cited in Thavarajah (2008). Setting unreasonable targets The assignment of work and the setting of work targets and performance goals are considered to be the right of organisations; however, under certain circumstances, this can lead to constructive dismissal if this right is not exercised in a bona-fide manner. For example, in Informatics v George Varkey Sebastian [2002] 1 ILR 300 (IC), the claimant contended that the company had set an unreasonable target and a re-designation. A contract test applied
  14. 14. il ɑ ol`.fm a e ccii θuesday, ʃeptember ´`, ´ ` ` ccii ɑ Industrial Law Journal [2010] 1 ILJ whereby the judge held that in a constructive dismissal claim, the onus is upon the claimant to establish on a balance of probabilities that the company by its conduct had breached a term or terms (express or implied) of the contract; that the breach is a fundamental one going to the root or foundation of the contract; that the claimant has terminated the contract by reason of the company’s conduct and the conduct is sufficiently serious to entitle the claimant to leave at once; and that the claimant in order to treat himself as discharged, left soon after the breach. Lasalle International Design School Sdn Bhd v Azhari Haltami [2002] 1 ILR 340 (IC) is an interesting case where the claimant, a lecturer, was unfairly dismissed when the company restructured the organisation and also due to unsatisfactory work performance. The court held that where it concerned unsatisfactory performance, the company has to prove that the company has given sufficient warnings or notice to improve the employee’s quality of work, failing which, the employee could be asked to leave. During the process of restructuring, the management has the right to reduce the number of workmen in accordance to the company’s needs; however this exercise must be bona fide and genuinely undertaken. Since there was no evidence to prove that the claimant was given prior notice of retrenchment and warnings about his unsatisfactory performance, the dismissal was deemed unfair. Unilateral of changes in contract It is well established in employment law that the employment terms and conditions cannot be varied unilaterally by one party. In Konnas Jet Cargo Systems Sdn Bhd v Cheah Cheong Tian [1995] 2 ILR 800 (IC) the claimant was a general manager of the company and a memo from the company dated 3 February 1987 unilaterally altered his duties and responsibilities and also made him subservient to an assistant general manager brought in from the parent company. The breach of contract as alleged occurred on 3 February 1987 but the claimant only left his employment on 6 July 1987, more than five months later. Since the company insidiously committed a series of breaches which were inconsistent and incompatible with the claimant's functions, duties, status and dignity as a general manager of the company only after its letter dated 3 February 1987, the court ruled that the delay was not fatal. In Sugar Bun Services Corp Bhd v Ong Siew Choon [2006] 1 ILR 99 (IC), the employee’s fixed annual bonus was an express term in the employee’s annual remuneration and as such, it was a fundamental term of the contract between the two parties. The company therefore
  15. 15. il ɑ ol`.fm a e cciii θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia cciii could not unilaterally withdraw the said fixed annual bonus without the employee’s consent. The company’s action amounted to a serious breach of the claimant’s contract of employment. Payment of wages In the case of ATI Technologies (M) Sdn Bhd & Anor v Jamilah Abu Bakar [2002] 1 ILR 385 (IC), the claimant constructively dismissed herself when she was not paid monthly salary. The court held this as unjust dismissal and ordered the claimant to be paid back wages and compensation in lieu of reinstatement. In TKS Kitcheneering Studio (SA) Sdn Bhd v Chia Mooi Keng [2002] 1 ILR 124 (IC), the company had constructively dismissed the claimant via her demotion and the drastic salary reduction without providing her with any reasons. In Broadway Typesetting Sdn Bhd v Puan Ho Nyet Khoon [1987] 2 ILR 350 (IC), the claimant was dismissed because she was 4 1/2 months pregnant. The court held that the company had avoided paying her maternity leave and had therefore found that there was no just cause or excuse to dismiss the claimant. In Sama World Asia Sdn Bhd v Teo Soo Seng [2008] 1 ILR 112 (IC), cited in Thavarajah (2008), the employee claimed constructive dismissal when the company did not pay his salary, income tax and EPF (Employee Provident Fund) for three months as well as his reimbursements for travelling and medical expenses. The Industrial Court however dismissed the employee’s claim, holding that the employee had failed to prove that the company had evinced an intention not to be bound by the contract. Repudiation of contract In Plastic Tecnic Sdn Bhd v Saraswathy d/o Manickam & Ors [1991] 1 ILR 643 (IC), the company relocated itself from Petaling Jaya to Bangi promising its employees that a free transport service would be continuously provided. However, the bus service ceased operations after two months. The conduct of the company in ceasing operations was held to be a repudiation of a fundamental term of the contract, and the employees were therefore, entitled to regard themselves as having been constructively dismissed. Breach of implied term The terms and conditions of employment are both expressed (written) and implied (not written or psychological contact). There were several cases of breach of implied contact in the 1990s which
  16. 16. il ɑ ol`.fm a e cciv θuesday, ʃeptember ´`, ´ ` ` cciv ɑ Industrial Law Journal [2010] 1 ILJ lead to constructive dismissal. For example in Aik Poh Rubber Industries Sdn Bhd v Goh Seng Hooi [1991] 2 ILR 849a (IC), the court applied the common law principle that the company by humiliating, intimidating and assaulting the claimant which made him fear for his safety was guilty of breach of an implied term which goes to the root of the contract of employment. This is therefore dismissal. In another award provided by the court in Multrapac Sdn Bhd v Low Kok Piew [1993] 2 ILR 242 (IC), the court held that no employer has the right to assault his/her employee for any reason. Therefore, the claimant had the right to walk out after the assault and treated himself as being dismissed by the company. While in the case of Syarikat Pengurusan Ladang Sdn Bhd v Sebastian Joseph Fernandez [1991] 1 ILR 99a (IC), the Industrial Court held that when the conduct of an employer is outrageous and makes continued employment impossible for a workman, he/she need not tolerate it and can treat himself or herself as dismissed. BACK WAGES AND COMPENSATION FOR CONSTRUCTIVE DISMISSAL Section 20(1) of the Industrial Relations Act 1967 provides employment protection for workmen. The section provides: 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; the representations may be filed at the office of the Director General nearest to the place of employment from which the workman was dismissed. As for the back wages and compensation for constructive dismissal, there is no set formula to be followed. In Holiday Inn Kuching v Lee Chai Siok Elizabeth [1992] 1 MLJ 23 (HC), the claimant found employment after her dismissal, therefore requested for compensation in lieu of reinstatement. The court held that the claimant did not want the job back, thus there is no basis for awarding damages or compensation in lieu of reinstatement. Lately, there have been delays in obtaining a hearing date and this creates considerable problems to claimants who seek reinstatements. Thus under such circumstances, back wages or compensation in lieu of reinstatement will be the only remedy provided by the ordinary court for wrongful dismissal. In Sibu Steel (Sarawak) Sdn Bhd v Ahmad Termize Bujang [1996] 2 ILR 885 (IC), the social objective of s 20 of the Industrial Relations Act 1967 was pointed out by the court as follows:
  17. 17. il ɑ ol`.fm a e ccv θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia ccv The remedies of reinstatement or compensation in lieu thereof are consequential to the substantive right conferred upon workmen of their entitlement to security to tenure which is translated into the practical assurance that no employer can dismiss or even contractually terminate the service of his employee without just cause or excuse … the complaint of unjust dismissal solely on the ground that the remedy of reinstatement is no longer expedient or otherwise inappropriate. ESTABLISHING CONSTRUCTIVE DISMISSAL In Ang Beng Teik v Pan Global Textile Bhd, Penang [1996] 3 MLJ 137 (CA), where Tun Salleh Abas LP had observed that in proving constructive dismissal, the claimant has to establish: (a) that the company, by its conduct had breached the contract of employment in respect of one or more of the essential terms of the contract; (b) that the beach is a fundamental one going to the root or foundation of the contract; (c) that the claimant had terminated the contract by reason of the company’s conduct and that the conduct is sufficiently serious to entitle the claimant to leave at one; and (d) that the claimant, in order to assert the right to treat himself as discharged, left soon after the breach. He further commented that when the claim for reinstatement under s 20(1) of the Industrial Relations Act 1967 is based on constructive and not actual dismissal, the onus of proving that he has been constructively dismissed lies on the workman himself. Therefore if the workman leaves the company where these conditions are not met, he may be considered as having resigned. The evidence of the employer’s conduct and the events determine whether the claimants have been dismissed or constructively dismissed by the company. Dato Gopal Sri Ram JCA in Ang Beng Teik v Pan Global Textile Bhd, Penang [1996] 3 MLJ 137 (CA) said that ‘the term ‘constructive dismissal’ is only a convenient label to describe the conduct on the part on the employer which makes a workman consider that he has been dismissed without just cause or excuse, although there is no formal order of dismissal’. SOME RECOMMENDATIONS TO REDUCE CONSTRUCTIVE DISMISSAL CASES Thavarajah (2008) asserted that under the broad concept of ‘constructive dismissal’, the courts are imposing further
  18. 18. il ɑ ol`.fm a e ccvi θuesday, ʃeptember ´`, ´ ` ` ccvi ɑ Industrial Law Journal [2010] 1 ILJ responsibilities on organisations and employers. Therefore, employers whether domestic or multinational, would have to shoulder greater responsibility towards their employees. For example, an employer who ignores a complaint by a female employee that she has been sexually harassed may have to defend his/her inaction before the Industrial Court pursuant to a complaint by the female employee that she had been constructively dismissed. With the increasing claims on constructive dismissal, the management of human resources becomes more challenging with legal implications for organisations and employers. As a result, from the perspectives of the author, the following recommendations and suggestions can be a useful guide to reduce claims of constructive dismissal. These recommendations are not difficult to implement as they are simple strategies based on the human dimension of management. These include the creation of harmonious employment relations, a consultative management approach, effective and efficient grievance handling machinery and effective human resource strategies (Muniapan, 2006). These recommendations are also useful for the effective management of employment in any industry, society or country. The creation of harmonious employment relations is essential. Employees are considered as the most important resource of the organisation because they contribute to the growth and success of the organisation. Like any other resource in the organisation, they would need to be managed; but unlike any other physical resource, employees are human beings that have feelings, freedom of thoughts and freedom to make choices, the liberty to act, or not to act, in a certain manner, etc. Because employees are considered as a unique and vital organisational resource, they would need to be managed properly. Industrial relations or employment relations essentially are ‘human relations’ and understanding the ‘humane’ and ‘human’ aspect of management is the first step in creating harmonious employment relations. The constructive dismissal cases that were highlighted earlier indicate poor human management and are one of the sources of the claims made by employees. Therefore, the organisations would need to play a strategic role in creating and maintaining harmonious employment relations. Moreover, both employers and employees should regard each other as partners to build lasting relationships. They would need to adopt a consultative approach in resolving issues through dialogue, taking into consideration the needs and concerns of both parties. The employers or the management should also provide effective leadership and direction in the overall interests of all parties. They should lead by example and accept responsibilities. The employers
  19. 19. il ɑ ol`.fm a e ccvii θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia ccvii should adopt a more participative management style, participative management style is more suitable to the current management environment in Malaysia as several research studies indicates that the authoritarian or directive management styles is not suitable for many organisations in the current business environment. Participative management is an open form of management where employees have a strong decision-making role. A participative management system needs to be developed by the management especially in a nonunionised environment to actively seek a strong cooperative relationship with their employees. Besides reducing the constructive dismissal claims, the advantages of participative management include increased productivity, improved quality, and reduced costs. The handling of employee grievance with an effective grievance handling machinery is a must to resolve any disputes at supervisory level. A grievance is like a small fire; the earlier you put it out, the better. The grievance should be studied thoroughly and objectively, and due consideration should be given to the social and cultural aspects of the grievance and the parties involved. The grievance handling procedure of the organisation can affect the harmonious environment of the organisation. The grievances of the employees are related to the contract, work rules, policy or procedure, health and safety regulation, individual complaints, wage, bonus and other employment related issues. Here, the attitude on the part of the organisations in their effort to understand the problems of employees and to resolve the issues amicably have a better probability in maintaining a culture of high performance (Kumar, 2006). The grievance handling process must be done in a fair and equitable solution for all parties; both the employer and employees. The solution should be just (firm), but justice should be tempered with compassion wherever possible. Finally, the solution to the grievance should not only be effective in redressing the present grievance but it should also be effective in avoiding recurrence of such grievances in the future (D’Cruz, 1999). Therefore, organisations need to educate their managers about the importance of the grievance procedures as the effective grievance handling is an essential part of cultivating good employee relations and running a fair, successful, and productive workplace. Effective human resource management and employment relations strategies in terms of employee selection, induction, training and development, performance management and appraisal, compensation management and employee relations are also essential. As previously stated employers should regard their employees as their most important asset as it is not great products or services that make an organisation great but the people. Investment in their employees and developing
  20. 20. il ɑ ol`.fm a e ccviii θuesday, ʃeptember ´`, ´ ` ` ccviii ɑ Industrial Law Journal [2010] 1 ILJ them is also a must for the organisations to remain competitive in the marketplace. Every manager manages employment relations, although not every manager is an employment relations manager in the organisation. As the current expectation on human resources is shifting from managing the organisation of the business to managing the business of the organisation (Yong, 2005), it is essential for organisations operating in Malaysia to manage their human resources effectively. CONCLUSION Constructive dismissal claims and cases are creating new challenges in human resource management and it is indeed one of the important and emerging patterns of employment relations in Malaysia. The cases of constructive dismissal provided and the recommendations will be a helpful guide to organisations and human resource practitioners in Malaysia to prevent constructive dismissal claims from being practiced in their respective organisations. They will also be able to avoid some of the common mistakes as found from the analysis of the case laws related to constructive dismissal. Thus this will help in reducing the number of claims and cases of constructive dismissal which will be referred to the Ministry of Human Resources under s 20 of the Industrial Relations Act 1967. With a good understanding of the awards on constructive dismissals, it is expected that organisations will manage and treat their human resources as their greatest assets and prevent claims of constructive dismissals from taking place. This will eventually help to improve and maintain harmonious employment relations. REFERENCES (1) Aik Poh Rubber Industries Sdn Bhd v Goh Seng Hooi [1991] 2 ILR 849a, (1991) Industrial Court Award No 251/1991. (2) Aminuddin, M (2008) Human Resource Management: Principles and Practices, Oxford University Press, Kuala Lumpur. (3) Aminuddin, M (2007) Malaysian Industrial Relations & Employment Law (6th Ed), McGraw-Hill Education, Kuala Lumpur. (4) Anantaraman, V (2000) Malaysian Industrial Relations: The Doctrine of Constructive Dismissal, The Malayan Law Journal (MLJ), V3, Report 129-176. (5) Anantaraman, V (1997) Malaysian Industrial Relations: Law and Practice, UPM Press, Kuala Lumpur.
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  23. 23. il ɑ ol`.fm a e ccxi θuesday, ʃeptember ´`, ´ ` ` [2010] 1 ILJ ɑ The Law of Constructive Dismissal and its Implications to Human Resource Management in Malaysia ccxi UNITEN International Business Management Conference, Hotel Equatorial, Melaka, 16–18 December. (46) Muniapan, B, and Parasuraman, B (2007) Misconduct, Domestic Inquiry and Rules of Natural Justice in the Context of Malaysian Employment Relations, Malayan Law Journal, Number 6, pp cxlix – clxviii. (47) Plastic Tecnic Sdn Bhd v Saraswathy d/o Manickam & Ors [1991] 1 ILR 643, (1991) Industrial Court Award No 173 of 1991. (48) PG Pak Poy & Associates Sdn Bhd v Looi Sook Chan [1986] Industrial Court Award 245 of 1986. (49) Quah Swee Khoon v Sime Darby Bhd [2000] 2 MLJ 600. (50) Ramasamy, G (2006) Discipline at Work: A Guide for Managers, Industrial Relations Network, Kuala Lumpur. (51) Sama World Asia Sdn Bhd v Teo Soo Seng [2008] 1 ILR 112. (52) Sibu Steel (Sarawak) Sdn Bhd v Ahmad Termize Bujang [1996] 2 ILR 885. (53) Shabudin Abdul Rashid v Talasco Insurance Sdn Bhd [2004] 4 CLJ 514. (54) Smith, IT and Wood, JC (2007) Industrial Law (9th Ed), Butterworths, London. (55) Stamford Executive Center v Dharsini Ganesan [1986] 1 ILR 101, [1985] Industrial Court Award 263 of 1985. (56) Sugar Bun Services Corp Bhd v Ong Siew Choon [2006] 1 ILR 99. (57) Supermix Concrete (M) Sdn Bhd v Raduan Ahmad [2002] 1 ILR 80. (58) Syarikat Pengurusan Ladang Sdn Bhd v Sebastian Joseph Fernandez [1991] 1 ILR 99a, (1991) Industrial Court Award No 27/1991. (59) Thavarajah, T (2008) Constructive Dismissal: Commentaries and Cases, CCH Asia, Kuala Lumpur. (60) Thavarajah, T & Low, TC (2003) Employment Termination Law & Practice in Malaysia, Singapore: CCH Asia Pte Ltd. (61) Titan Polyethylene (M) Sdn Bhd v Othman Busu [1997] 3 ILR 497. (62) TKS Kitcheneering Studio (SA) Sdn Bhd v Chia Mooi Keng [2002] 1 ILR 124. (63) Western Excavating (ECC) Ltd v Sharp (1978) ICR 221. (64) Wong Chee Hong v Cathay Organization (M) Sdn Bhd [1998] 1 MLJ 92; [1988] 1 CLJ 45.
  24. 24. il ɑ ol`.fm a e ccxii θuesday, ʃeptember ´`, ´ ` ` ccxii ɑ Industrial Law Journal [2010] 1 ILJ (65) Wu, MA (1995) The Industrial Relations Law of Malaysia, Longman, Kuala Lumpur. (66) Yong, KB (2005) Strategic HR: Invent and Innovate, Genuine Circuit, Kuala Lumpur.

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