Employment Law
(What is Constructive Dismissal?)

In Malaysia, the term “constructive dismissal” pertains to an employee’s decision to terminate their employment due to a significant breach of contract by the employer. This breach must be substantial enough to substantially change the fundamental terms of the employment contract, compelling the employee to resign. While there is no direct dismissal by the employer, it can still constitute unfair dismissal due to the actions of the employer, hence the term “constructive” in “constructive dismissal.”

What qualifies as a legitimate breach of contract by the employer that falls under the scope of constructive dismissal? For instance, can ill-treatment by an employer be considered grounds for constructive dismissal?

In cases of constructive dismissal brought before the Industrial Court for resolution, the Court typically examines whether four essential elements are proven to establish constructive dismissal:

1. Breach of Contract by the Employer: The threshold for constructive dismissal is determined by the “contract test,” which means that the breach committed by the employer must be so severe that it strikes at the core of the employment contract. This includes assessing whether the employee’s responsibilities and duties have been significantly altered to constitute a fundamental breach of the employment contract. This test is not about “reasonableness.” In other words, unreasonable conduct by an employer may not necessarily lead to a valid claim for unfair dismissal unless there is a breach of contract. The primary focus of the Court is whether the employer breached a fundamental term of the employment contract.

2. Significance of the Breach: Even if there is a breach of the employment contract, it must be substantial enough to justify a claim of constructive dismissal. Minor disputes or disagreements with superiors are not considered grave breaches. The severity of each breach is evaluated on a case-by-case basis, but case law has identified several circumstances as examples of significant breaches, including deliberate substantial reductions in wages or benefits without good reason, failure to provide a safe working environment, “forced resignations” due to threats or duress, and non-bona fide reduction of duties or changes in job scope.

3. Resignation in Response to the Breach: In constructive dismissal claims, the employee must resign due to the breach, not for unrelated reasons. Before leaving employment, it’s crucial for an employee to clearly state the reasons for their resignation, which must align with the alleged breach. If the employee provides a different reason for resignation (e.g., a better job offer or relocating), it may be challenging to later claim they left due to the employer’s breach.

4. Timeliness: The timing of filing a constructive dismissal claim is critical. When a breach occurs, the employee is expected to take immediate action by protesting, notifying the employer, or resigning. Remaining in the position may be seen as accepting the breach and waiving the right to legal recourse. In some cases, even a one-month delay in taking action may be considered too long to claim constructive dismissal.

Constructive dismissal allegations are serious, and the law sets a high standard for meeting the criteria. Employees must carefully consider whether these elements are met before deciding to leave their employment and pursue legal action against their employers. A poorly thought-out constructive dismissal claim could result in the employee being sued for payment in lieu of notice.