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Constructive dismissal was unheard of more than twenty years ago. Today, it is not unusual for a voluntary resignation to be referred to the Industrial Court has constructive dismissal.

What is constructive dismissal? Why does an employee who resigns from the services of his employer take his so-called voluntary resignation as constructive dismissal to the Industrial Court?

Quite often in dealing with constructive dismissal cases the employer has unwittingly placed himself in a position, whereby the employee (perhaps through no fault of his) is forced into a position of resignation. Such a resignation becomes a constructive dismissal case, not only in the eyes of the employee but also the Industrial Court.

The pertinent question is: how can an employee voluntarily resign from the company, and then term it as constructive dismissal by exercising his rights under Section 20 (1) of the Industrial Relations Act, 1967?

In cases where the client company has referred constructive dismissal cases to the writer, the inevitable question is: what were the events or incidents that took place between the employee and the company, prior to receiving the letter of resignation?

In examining the various incidents (prior to the resignation), there has been undoubtedly a series of management action that accumulatively has led to the forced resignation of the employee.

Examples of such incidents can be in the form of reducing certain benefits, the removal of facilities that go with the position, reduced job functions, transfer which is seen as a demotion or punishment, etc. Employers who perpetrate such action, knowingly or unknowingly, run the risk of a constructive dismissal case being taken against them.

Even when there is no material change either in the position of the employee or the terms and conditions of service, the fundamental question the employer should ask is whether any action by the company attacks the root of the contract of employment.

Situations have arisen recently, due to the current economic downturn, where employers have arbitrarily reduced salaries, effected transfers, redefined position descriptions, removed certain benefits befitting the position and in certain exceptional cases have actually hinted to the employee (on several occasions) to resign. Any of these situations and others as well, could be construed as an impending constrictive dismissal case in the making.

What most employers fail to understand is that when an employee begins to get the feeling that the employer no longer needs him, the employee starts to document various incidents to construct his own dismissal leading to his eventual resignation.

At this point it is necessary to point out that constructive dismissal has been defined as "indirect dismissal where (e.g.) employer unilaterally changes terms of relationship so that an employee has virtually no choice but to resign" (Page 81, Dictionary of Law by L.B. Curzon, Fourth Edition, 1993). If one agrees that the legal relationship between an employer and the employee is one of contractual relationship, i.e. one agrees to offer employment and the other agrees to serve as an employee, surely any arbitrary change to that relationship would necessitate one of the parties to terminate the relationship. If this is agreed, then any material change to that agreed contract of employment would force the employee to terminate it by resignation.

In Supreme Court Civil Appeal No. 194 of 1986 (Wong Chee Hong v Cathay Organisation (M) Sdn. Bhd.) in allowing the appeal for constructive dismissal, the learned Judges commented that the word "dismissal" in Section 20(1) of the Industrial Relations Act, 1967 should "be interpreted with reference to common law principle". The learned Judges went on to comment, "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 situations, the employee is entitled to regard the contract as terminated and himself as being dismissed."

A further question to be posed is: whether a single act of the employer which is seemingly unacceptable to the employee can be interpreted as constructive dismissal? In Industrial Court Award No. 101 of 1991, the Court held the view that in ".... propagating the plea of constructive dismissal a number of requisites have to be established". In this case the Court established that "there must be a fundamental breach of the contract of employment on the part of the Company" and "it must be shown that the breach in question had given rise to the Claimant's resignation".

Considering the cases that have been referred by client companies and individuals (to the writer) and in conformity with Industrial Court Award No. 101 of 1991, the two ingredients for a resignation to be termed as constructive dismissal would be a "fundamental breach of the contract of employment and that the breach (or breaches) have given rise to the resignation". However, in some situations a single incident, such has a demotion without reason or arbitrary reduction of salary (also without reason) could be interpreted as a repudiation of the contract of employment, and therefore the employee has no choice but to resign.

Another factor which would lend credence to the allegation of constructive dismissal is when the employee places on record the employer's various acts of repudiating the contract of employment. Hence, the earlier observation that in a constructive dismissal case the employee must document his case prior to submitting his resignation.

Given the situation that any employee who submits his/her resignation for whatever reasons, and then subsequently terms it as constructive dismissal, what preventive measures can an employer take to circumvent the allegation of constructive dismissal?

Understanding the principle that constructive dismissal is fundamentally a forced resignation initiated by the employer for various reasons, the employer in the first instance should be aware of the consequence of repudiating the contract of employment. The employer should also be aware that there are many ways of dismissing a delinquent or non-performing employee. Perhaps what the employer should know is that any action which attacks the very "root of the contract of employment" would be termed as constructive dismissal if the aggrieved employee decides to resign.

What safe guards should an employer take to prevent a constructive dismissal situation?

Firstly, is there a need to dismiss? If there is a need to dismiss, what are your reasons for doing so? A dismissed employee has the right to appeal for reinstatement under Section 20 (1) of the Industrial Relations Act if the employee is aggrieved by the dismissal. If you have no choice (e.g. a serious misconduct) then follow the procedures of conducting a Domestic Inquiry; it is perhaps the best way of dismissing anyone.

Secondly, consider a financial settlement or commonly termed "golden handshake", but ensure that the employee has no further claims against you.

Thirdly, if termination is necessary due to non-performance, then what have you done to improve his performance? Coaching, counselling, training and monitoring improvement or otherwise would be evidence to show that you have done your best to help him. If there is no improvement, then terminate not dismiss.

Fourthly, have you considered that the following unilateral actions would attack the very foundations of the contract of employment:
 

i)	Change in terms and conditions of service;
ii)	Re-designating a position (e.g. Manager to Asst. Manager);
iii)	Removing or taking away allowances that reflects the position;
iv)	Altering or taking away facilities reflective of the position (e.g. company car, direct telephone line, room, personal secretary, etc.)
v)	Unilaterally changing job functions, particularly if the employee is incapable of performing those functions;
vi)	Unwarranted demotion or transfer; and
vii)	Acts of victimisation (e.g. setting unattainable deadlines, constant fault finding, harassment, etc.)

Any one or more of the above actions (by the employer) could trigger off a constructive dismissal action (by the employee) through the process of forced resignation.

The question that now arises is, whether it is possible for an employer to make alterations or changes to the contract of employment, without attacking the fundamental relationship of employer/employee, thus affecting the contract of employment?

In Industrial Court Award No. 435 of 1997, the learned Chairman noted that the "company at all times wanted the Claimant to continue her employment.... she had set the time limit of three days to accede to her demands......The Court is of the view that the Claimant had been too hasty in making her decision to walk out of the company....." In this particular case the Claimant had her own interpretation of what was meant as "calendar days" as opposed to working days in relation to medical leave based on a five-day working week. The company in this instance maintained that they wanted the Claimant "to continue" her employment, therefore the question of resigning from the company and terming it has constructive dismissal did not arise.

Based on the Court's observation as mentioned above, it is possible to conclude that as long as there is evidence to prove that the company had no intention to dismiss the employee, there would be no grounds for the allegation of constructive dismissal. The second aspect to the allegation of constructive dismissal is one of timing: the Claimant was "too hasty in making her decision to walk out of the company".

It should be noted that numerous Court Awards have reiterated that in a constructive dismissal case, the Claimant has to commence the case in Court, the employer merely defends the allegation on the basis of voluntary resignation. Coupled with the employee's claim for forced resignation and the timing of the resignation, it is possible for an employer to avoid a claim for constructive dismissal.

It must be emphasised that the ability to avoid the allegation of constructive dismissal does not give an employer the license to "get rid" of an employee at will. The following suggested guidelines on what constitutes a constructive dismissal is to enlighten the employer and employee on the ability to defend or maintain an allegation of constructive dismissal by either party:-
 

For the Employer
 
 

i)	Voluntary resignation is when an employee submits his/her notice of resignation in accordance with the notice period as required in the letter of appointment or payment of salary in lieu of the notice period. However, where an employee resigns with immediate effect (in writing) and leaves the company instantly, you can be assured that the resignation would invariably be termed as constructive dismissal.
ii)	If for whatever reason you unilaterally alter the terms and conditions of service or other terms of the contract of employment whether express or implied, you expose yourself to a claim of constructive dismissal. Should you find the need to alter, vary, modify, add or annul the terms and conditions of service it is best done by agreement with the employee in writing.
iii)	In cases of non-performance or failure to meet the required expectations of the company, you are best advised to monitor the employee's performance (on a regular basis) for a period of time, advising the employee in writing that his performance is being monitored for the stipulated mentioned period. You may than want to conduct a Domestic Inquiry to prove non-performance before terminating the services of the employee.
iv)	Ensure that the employee has not been penalised in anyway for any length of time (for whatever reason) without the employee knowing the reasons (in writing) for such penalties.
v)	Discrimination in the awarding of bonus, increments, etc would lend credence to a constructive dismissal situation, if it is effected without any known substantative reason.

Both employer and employee are advised to seek professional help if a case of constructive dismissal is eminent.

(Reference was made to A.B. Gomez "Malaysian Industrial Court Precedents", who has summarized Court Awards since 1965.)

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