Constructive Dismissal in Malaysia: A Comprehensive Overview
Can an employee’s resignation amount to a dismissal under Malaysian employment law?
Constructive dismissal is a complex and often misinterpreted aspect of employment law in Malaysia. Unlike direct termination, constructive dismissal occurs when an employee resigns but later claims that the resignation was not voluntary. In such cases, the employee asserts that the employer’s conduct made continued employment intolerable, effectively amounting to an indirect termination.
This article provides a comprehensive overview of constructive dismissal in Malaysia, detailing its application under employment law, the applicable legal principles and keyconcepts considered by the Industrial Court.
It also examines common examples of employer conduct that may lead to constructive dismissal and the perspectives of both employers andemployees in such claims.
Understanding Constructive Dismissal
In simple terms, constructive dismissal is where the employee claims that he has been dismissed due to the employer’s conduct. It arises when an employer’s action or omission amounts to a fundamental breach of the contract of employment, thereby entitling the employee to treat the contract as terminated. In suchcircumstances, the employee resigns not out of free choice, but because the employer’s conduct leaves no reasonable or practical alternative but to do so.
Although the term “constructive dismissal” is not expressly provided for in the Industrial Relations Act Malaysia, the concept is well established through decisions of the Industrial Court and appellate courts, and is firmly recognized as part of Malaysian employment law.
Constructive Dismissal vs Direct Dismissal
A direct dismissal occurs when an employer expressly terminates an employee’s employment, usually by issuing a termination letter. Constructive dismissal, on the other hand, involves no formal act of termination by the employer. Instead, the employee alleges that the employer’s conduct forced him or her to resign.
As a result claims of constructive dismissal often require closer scrutiny of the facts and surrounding circumstances. The Court looks beyond labels or form and examines whether the employer’s conduct effectively brought the employment relationship to an end.
The Legal Framework
Claims of constructive dismissal are governed by the Industrial Relations Act Malaysia, which provides statutory protection against unfair dismissal.
An employee who believes he or she has been constructively dismissed may file a representation with the Director General of Industrial Relations. If the dispute cannot be resolved through conciliation, the matter would be referred to the Industrial Court, which has the jurisdiction to determine whether a constructive dismissal has occurred.
Applicable Legal Test and Key Concepts
The Contract Test
In Malaysia, the sole and relevant test for constructive dismissal is the contract test, which focuses on whether the conduct of the employer, in its action or series of actions, constitutes a fundamental or repudiatory breach that goes to the root of the employment contract or where the employer has evinced an intention no longer to be bound by the express or implied terms of the contract.
It is important to note that the reasonableness of the employer’s conduct is not the legal test for constructive dismissal. However, it can be a factor to be taken into consideration in determining whether there is any fundamental breach of the contract of employment by the employer.
Fundamental or Repudiatory Breach
For constructive dismissal to be established, the employer’s breach must amount to a fundamental breach or, repudiatory breach – one that goes to the root of the contract.
Examples of such breaches may include:
- unilateral changes to terms of employment;
- significant reductions in salary or benefits;
- demotion without valid justification; and
- persistent unreasonable, oppressive, or hostile conduct.
Such conduct may be regarded as repudiatory, indicating that the employer no longer intends to be bound by the original contract of employment.
Implied Term of Mutual Trust and Confidence
Malaysian courts also recognise the implied term of mutual trust and confidence, which requires employers not to act in a manner calculated orlikely to destroy or seriously damage the employment relationship.
A detrimental change in working conditions or sustained unreasonable behaviour may breach this implied term, even in the absence of a breach of an express contractual provision.
Causation and Timeframe for Claim
The resignation must be directly caused by the employer’s breach. If the employee resigns for unrelated reasons, a claim for constructive dismissal is likely to fail.
The length of time is a crucial factor. The law requires that the employee leave soon after the breach. A delay of one month has been held to be too long to entitle an employee to claim constructive dismissal. Hence, if the employee continues working without protest for an extendedperiod, the Court may conclude that the breach has been affirmed or accepted.
Common Examples of Constructive Dismissal in Malaysia
While each case turns on its own facts, Industrial Court decisions in Malaysia have identified recurring situations that may amount to constructive dismissal, including:
- non-payment of wages;
- unjustified demotion or removal of key responsibilities;
- arbitrary transfers resulting in material disadvantage;
- salary reduction or delayed payment without consent;
- a hostile work environment or persistent harassment;
- unilateral changes to working hours or job scope.
Such circumstances may be regarded as creating conditions that leave the employee with no real choice but to resign.
Employee’s Perspective: Burden of Proof
In constructive dismissal cases, the burden of proof lies with the employee. The employee must prove, on the balance of probabilities, that:
- the employer committed a breach of the employment contract;
- that breach must be sufficiently important to justify the employee resigning;
- the employee must leave in response to the breach and not for some other unconnected reason; and
- the employee must not occasion any undue delay in terminating the contract, otherwise he will be deemed to have waived the breach and agreed to vary the contract. The resignation was a direct response to that breach.
Employer’s Perspective: Managing Legal Risk
From an employer’s perspective, constructive dismissal claimsfrequently arise from management decisions that are poorly executed or inadequately communicated. Actions that significantly alter an employee’s terms of employment or working conditions may expose employers to legal risk if they are perceived as breaching the contract of employment or undermining the employment relationship.
Employers should also ensure that disciplinary processes, performance management, and restructuring exercises are conducted fairly, transparently, and in accordance with established procedures. Poor handling of grievances or prolonged unreasonable conduct may be viewedby the Industrial Court as conduct amounting to a repudiatory breach.
Employers should exercise caution when:
- varying terms and conditions of employment;
- executing disciplinary proceedings;
- implementing organisational restructuring; and
- managing performance issues or employee grievances.
Seeking timely advice from lawyers for employers or a reputable Malaysia law firm can help mitigate the risk of industrial disputes.
Role of Employment Lawyers For Employers
Constructive dismissal claims are rarely straightforward. Owing to their technical complexity and the serious consequences involved, employers commonly seek advice from employment lawyers in Malaysia or reputable law firms specialising in industrial relations for strategic guidance and representation.
Employment lawyers for employers assist by:
- assessing whether an employer’s conduct amounts to a legallyactionable breach;
- advising on risk management and dispute resolution strategies;
- representing the employer before the Industrial Court; and
- ensuring compliance with procedural requirements under employment law
Early legal intervention can often prevent disputes from escalating into formal litigation.
Constructive Dismissal and Industrial Relations
Constructive dismissal cases underscore the importance of maintaining sound and coperative industrial relations within the workplace. Many such claims arise not from a single incident, but from a breakdown in trust between employer and employee, often caused by poor communication, inconsistent management practices, or a failure to address workplace concerns in a timely and fair manner.
Employers who act transparently and respect contractual obligations are significantly less likely to face claims of unfair or constructive dismissal. Adhering to fair employment practices, implementing clear internal policies, and providing effective grievance-handling mechanisms can help prevent misunderstandings from escalating into legal disputes.
Strong industrial relations not only reduce litigation risk but also promote workplace stability, employee morale, and long-term organizational sustainability.
Conclusion
Constructive dismissal in Malaysia is a nuanced area of employment law that requires careful evaluation of employer conduct, contractual obligations, and the circumstances surrounding an employee’s resignation.
An understanding of key concepts such as fundamental breach, repudiatory conduct, unilateral variation of terms, and the implied term of mutual trust and confidence is essential for both employers and employees.
Given the potential legal and financial consequences involved, obtaining advice from experienced employment lawyers in Malaysia remains a prudent and strategic step when dealing with constructive dismissal issues.
Contact us for professional legal guidance.