‘Contract test’ still good for constructive dismissal cases, says apex court

In February, the Federal Court held that a deceased former RHB Bank employee was not constructively dismissed when he walked out of his job in March 2015.

PUTRAJAYA: The “contract test” is still a good law in determining whether an employee has been constructively dismissed from employment and there is no reason to depart from that legal position, said the Federal Court.

Justice Nordin Hassan said the reasonableness of an employer’s conduct is not the legal test for constructive dismissal, but can be a factor to be considered in deciding whether there is any fundamental breach of the contract of employment.

To use the “reasonableness test” as the legal requirement or interchangeably with the contract test would only entail uncertainty and confusion in industrial relations, he said.

He said the apex court has been applying the contract test since 1988 for such dismissal, and not the reasonableness test.

Nordin, who wrote the unanimous judgment of a three-member bench, said the legal position was also the same in Commonwealth jurisdictions like England, Singapore, Australia and Canada.

“It is a trite principle of law in Malaysia that the applicable test in constructive dismissal cases is the contract test and not the reasonableness test,” he said in the 31-page judgment posted on the judiciary website last week.

On Feb 9, the bench, chaired by Justice Harmindar Singh Dhaliwal, dismissed an appeal by the estate of former RHB Bank Bhd employee Tan Leong Huat, who walked out of his job alleging that he had been constructively dismissed in March 2015.

Justice Rhodzariah Bujang was the other judge who heard the appeal and affirmed the findings of the Court of Appeal.

Constructive dismissal is where the employee claims he has been dismissed due to the employer’s conduct.

This can also be labelled as “deeming dismissal” by the employer with the burden on the employee to prove, on the balance of probabilities, that he has been constructively dismissed.

The present appeal was brought by Tan Lay Peng in her capacity as the administrator of the estate of Leong Huat, who died on May 15, 2022.

Lawyers representing the estate argued that both the “contract test” and the “reasonableness test” are of no difference and can be applied in constructive dismissal matters in light of recent developments in industrial disputes.

Counsels Jec Siose, KS Devanathan and Chen Hui Ken represented the deceased’s estate, while N Sivabalah and Jamie Goh appeared for the bank.

Leong Huat was employed by the bank in June 2011 and was assigned to be the operations head of its Bangkok branch office.

Two years later, the bank opened a second branch in Sri Racha, about 100km from Bangkok, and he was asked to be stationed there.

In 2014, the bank opened its third branch but felt a more senior and experienced candidate ought to assume the role of steering its enhanced and expanded Thailand operations. This led to the appointment of Chin Yoke Fong.

Leong Huat was, meanwhile, asked to assume the role of branch manager in Ayutthaya, about 80km from the Thai capital, for nine months until the bank secured a suitable position for him.

In February 2015, he was informed that he would be repatriated to Malaysia with no change in the terms and conditions of employment.

He objected to this, refused to report for duty, and instead treated himself as being constructively dismissed. He then brought his claim for wrongful dismissal to the Industrial Court.

In 2019, the Industrial Court ruled in Leong Huat’s favour and awarded him RM216,000 as compensation in lieu of reinstatement.

The bank’s application for judicial review was dismissed by the High Court the following year.

However, a three-member Court of Appeal bench, chaired by Justice Hanipah Farikullah, allowed the bank’s appeal in 2021 on the basis that both the Industrial Court and the High Court had applied the wrong test to determine whether Leong Huat was constructively dismissed.