Special Feature on Constructive Dismissal Part 2: Why HR Practitioners Must Be Savvy of the Contracts Act 1950

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The law of contract is very much embedded in the doctrine of constructive dismissal. In Malaysia, a big chunk of the body of principles of contract law is put into statutory form in the Contracts Act 1950.

Every HR practitioner must be familiar with the landmark case of Wong Chee Hong v Cathay Organisation [1988] 1 MLJ 92, which laid down the principle that in cases of constructive dismissal the test that ought to be applied is the “contract test”.  It is basically to establish if the employer is guilty of a breach of a term or condition of the employment contract that goes right down to the root of contract.

The contract test means that the complaint of constructive dismissal will only succeed where the employee is able to prove that the employer was guilty of conduct which was repudiatory or in fundamental breach of the contract and that the employee treated himself as discharged following the breach. A modern case on point would be Anwar Abdul Rahim b Bayer (M) Sdn Bhd [1988] 2 CLJ 197.

Constructive dismissal has been referred to as “a doctrine that gives life to an employee who has been dismissed without just cause or excuse”, as per Dato’ Abdul Malik Ishak J in Moo Ng v Kiwi Products Sdn Bhd, Johor & Anor [1998] 3 CLJ 475:

“It is a doctrine that gives life to an employee who has been dismissed without just cause or excuse… This doctrine hinges on the contract test as elucidated by Lord Denning in Western Excavating (ECC) Ltd v Sharp [1978] IRLR 27. In a broad sense constructive dismissal occurs when an employee repudiates a contract of employment. The repudiation may take the form of a breach, anticipatory breach or notice on intention. It may be expressed or implied and must go to the substance of the contract. If an employee asserts that he has been constructively dismissed, he must establish that there has been conduct on the part of the employer which breaches an express or implied term of the contract of employment going to the very root of the contract.”

The onus of proving constructive dismissal lies with the employee. The employee has to prove on a balance of probabilities that:-

  1. The employer’s conduct amounted to a breach of contract which entitled the employee to resign; and
  2. Whether the employee made up his mind and acted at the appropriate point in time soon after the conduct which he complained of had taken place.

The employer’s defence, therefore, has to bear in mind these two limbs of the employee’s burden of proof. Employers must take advantage of the power conferred by contract law that even if there is a breach by the employer, it does not necessarily amount to sufficient cause for constructive dismissal unless the breach goes to the root of the contract and, if affirmative, whether the breach was a fundamental one.

Since the doctrine of constructive dismissal pivots on contract law, it would augur well for HR practitioners to expand their vista on the subject by a deeper understanding of contractual principles and statutory provisions.  In court, every constructive dismissal case is decided on it merits in accordance with contractual principles, and in today’s dynamic workplace environment, understanding the nuances of a constructive dismissal claim is essential to the practice of HR. An employer’s good intentions in making changes to an employee’s condition of employment will be irrelevant unless the court implies a term into the contract that the employer can “reasonably” alter the terms of employment. As an anticipatory measure, employment contracts must be carefully worded, and to this aim HR practitioners must be shrewd as to the yesses and nos of the Contracts Act 1950 in addition to the prevailing employment legislation in order to safeguard the employer from potential claims for breach of contract. When a claim is made, HR practitioners need to step out of their administrative role into that of an employment law advisor to the organisation’s top management in order to contrive the correct defence mechanism.

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