The concept of Constructive Dismissal in Malaysia

The concept of Constructive Dismissal in Malaysia

What is Constructive Dismissal? How and when should you apply the “Constructive Dismissal” card against your employer?

Today, we look at a classic case in which Lord Denning MR defined the law on “Constructive Dismissal” which have repeatedly been applied in subsequent cases down the years.

Constructive dismissal is a term used when an employee terminates his employment contract and considers himself discharged from further performance of his work as a result of his employer’s behavior. For example, the employer has made the employee’s position at work untenable leaving the employee with no alternative but to quit his employment under protest. Although there is no actual dismissal by the employer, the end result is the same as if the employee had been fired.

Let’s look at this case – Western Excavating (E.C.C.) Ltd. v. Sharp [1978] ICR 221

The Case Facts

The employee Mr Sharp started work with the company on July 9, 1974. One of the terms was that, if he worked beyond his normal working hours, he could have time off in lieu. One day he wanted to play a card game for a team. He asked the foreman for three hours off. The foreman said that he could not have it that afternoon as there was a lot of work to be done. But the employee nevertheless took time off and played his game of cards. The next morning, the foreman dismissed him, giving him two weeks’ notice for failing to carry out a reasonable order. The employee appealed to a panel set up by the company under its disciplinary procedure.
On March 5, 1976, the panel allowed his appeal, ordering that the dismissal be withdrawn and substituted with five working days’ suspension without pay. Thus, the employee lost five days’ pay, which left him in financial difficulties. He was living with a woman and their two children. He had no savings, but he had holiday pay accrued to him of £117.17.

As a result of the five days’ loss of pay, the employee had no money to pay his household expenses. So, he went to his employers and asked for an advance on his accrued holiday pay. He was told that it was against company policy to pay holiday pay unless the holiday was itself actually taken.

The employee then asked for a loan. He said he wanted £40. The welfare officer told him that the company could not grant him a loan to that extent. Thus, he went to see the workshop manager, and said: “I don’t want to leave, but circumstances force me to do so. I am leaving and want my holiday pay now.” So, the employee picked up his holiday pay of £117.17, and left. He went straight to the industrial tribunal and made a complaint of unfair dismissal.

The Findings

The industrial tribunal held that the employee had been unfairly dismissed. They said that the company “ought to have leant over backwards” to help him and that the company’s conduct “justified the employee in terminating his employment in order to obtain his accrued holiday pay, and so to meet his commitments.” The company appealed to the Employment Appeal Tribunal, which dismissed the company’s appeal. The company then appealed to the Court of Appeal, where Lord Denning MR, (presiding with Lawton LJ and Eveleigh LJ) held: “If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance. If he does so, then he terminates the contract by reason of the employer’s conduct. He is constructively dismissed.

“The employee is entitled in those circumstances to leave at the instant without giving any notice at all or, alternatively, he may give notice and say he is leaving at the end of the notice. But the conduct must in either case be sufficiently serious to entitle him to leave at once. “Moreover, he must make up his mind soon after the conduct of which he complains: for, if he continues for any length of time without leaving, he will lose his right to treat himself as discharged. He will be regarded as having elected to affirm the contract.” Lawton LJ further held, “(This trial has) brought social justice into labour relations; but this new and desirable factor must be based on justice, not on whimsy or sentimentality.” The Court of Appeal on the facts of the instant case also held that there was no dismissal, constructive or otherwise, by the employers. The employers were not in breach at all. Nor had they repudiated the contract at all. The employee left of his own accord without anything wrong done by the employers and so allowed the appeal.

In summary:

In determining whether there is a constructive dismissal or not, the court will ask the question, firstly, whether there is a dismissal and secondly, whether the dismissal is just and with excuse. If the above questions are answered in affirmative, then the case will be made out against the employer.

I. In a nutshell, if an employee were to cite “Constructive Dismissal”, he must establish that:

1. The employer is guilty of conduct which is a significant breach going to the root of the contract of employment; or
2. Conduct which shows that the employer no longer intends to be bound by the essential terms of the contract.
3. Examples of such conduct include sexual or other physical harassment or abuse, non-payment of salary, payment of salary lower than agreed, changing essential terms and conditions arbitrarily.

II. The effect of Constructive Dismissal is that:

1. The employee is entitled in those circumstances to leave at the instant without giving any notice at all but the conduct must in either case be sufficiently serious to entitle him to leave at once; or
2. He may give notice and say he is leaving at the end of the notice.

III. The right to claim Constructive Dismissal is lost if the employee continues for any length of time without leaving after a breach of an essential term by the employer. In such a case, it will be viewed as the employee agreeing to the change in terms.

On the facts of Sharp, it is also apparent that Mr Sharp was, at the outset, guilty of “insubordination” for going against the reasonable prohibition of his immediate superior from taking time off – a clear act of misconduct. However, the foreman should have given Mr Sharp a right to explain himself before terminating, thereby complying with natural justice. That is probably why the domestic panel withdrew the dismissal.

The Courts – and by extension Domestic Inquiry panels – should not be swayed by an employee’s financial insecurity and arrive at decisions based on “sentimentality”.