Constructive Dismissal

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.

2 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

3 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

4 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.

5 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.

6 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

7 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

11 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

12 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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