In a unanimous decision, the Federal Court reaffirmed the applicable test for determining constructive dismissal in the case of Tan Lay Peng v RHB Bank Bhd & Anor [2024] 6 CLJ 315.
The sole question of law posed before the apex court was whether there was a difference in the contract test or reasonableness test in light of the major developments in the industrial court jurisprudence.
The Background Facts
This case involved one Mr Tan Leong Huat (Mr Tan), a former employee of RHB Bank Berhad (Respondent), who was represented by Ms Tan Lay Peng in her capacity as the administratrix of his estate following his passing.
In 2011, Mr Tan commenced his employment with the Respondent as the Operations Head for Thailand Operations in Bangkok, which was the Respondent’s only branch in Thailand at the material time. In November 2013, the Respondent established a second branch in Sri Racha, which was subsequently placedunder Mr Tan’s supervision. In 2014, one Ms Marina Chin was appointed by the Respondent as the Head of Thailand Operations to oversee the operations of the Bangkok, Sri Racha, and forthcoming Ayutthaya branches.
On 14.10.2014, a transfer order was issued against Mr Tan directing him to assume the role of branch manager at the Ayutthaya branch with effect from 20.10.2014, for a period not exceeding nine months. For that reason, Mr Tan was transferred to the Ayutthaya branch which commenced operations in November 2014.
Despite the arrangement, the Respondent subsequently appointed a Thai national as the Ayutthaya branch manager on 16.3.2015. Accordingly, the Respondent issued another transfer order to transfer Mr Tan to the International Infrastructure, PMO and Operations Support, Group International Business unit (GIB) in Malaysia with effect from 1.3.2015. Mr Tan was given the assurance that his personal grade and terms and conditions of his employment would remain unchanged.
Notwithstanding this, Mr. Tan vigorously objected to the repatriation to Malaysia where he stated in a letter dated 25.2.2015 that the transfer would “kill his career”. By a letter dated 2.3.2015, Mr Tan claimed constructive dismissal by the Respondent and that it was made without reasonable justification.
The Respondent denied Mr Tan’s allegation and instructed him to report to work immediately, failing which he will be deemed to have abandoned his employment with the Respondent. In the subsequent correspondence with the Respondent, Mr Tan maintained his stance that he had been constructively dismissed and filed a representation under Section 20 of the Industrial Relations Act 1967. The matter was later referred to the Industrial Court for adjudication.
The Industrial Court found in favour of Mr Tan and awarded him a sum of RM216,840.00 as compensation in lieu of reinstatement. Dissatisfied, the Respondent sought a judicial review in the High Court to quash the Industrial Court’s decision, which was subsequently dismissed. Upon appeal, the Court of Appeal reversed the High Court’s decision on the ground that the Industrial Court had erred by applying the reasonable test in determining whether there was constructive dismissal.
Mr Tan’s estate appeared to the Federal Court.
The Applicable Test For Constructive Dismissal Cases
In its judgment, the Federal Court referred to the landmark case of Wong Chee Hong v Cathay Organisation (M) Sdn Bhd [1988] 1 CLJ 45 and reiterated that the courts have consistently applied the contract test in determining constructive dismissal claims, instead of applying the reasonable test. This proposition can be seen in a line of authorities cited by the Federal Court such as, amongst others, Pan Global Textiles Bhd Pulau Pinang v Ang Beng Teik [2002] 1 CLJ 181; Petroliam Nasional Bhd v Nik Ramli Nik Hassan [2003] 4 CLJ 625 and Ng Teck Fay v Mahkamah Perusahaan Malaysia & Anor [2021] 10 CLJ 73.
Regarding the contract test, the Federal Court established that the test hinges on whether the conduct of the employer, through its action or series of actions, constitutes a fundamental or repudiatory breach that goes to the root of the employment contract, or where the employer has evinced an intention no longer to be bound by the express or implied terms of the contract.
The reasonableness test refers to what a reasonable, honest and right-minded individual would consider fair and proper based on the particular facts and circumstances of the case. Although the unreasonableness of the employer's conduct could be a factor to be considered when determining if there has been any fundamental breach of the employment contract or an intention no longer to be bound by the contract, the Federal Court held that it is not a requisite legal criterion for a constructive dismissal case.
The rationale underpinning the preference for the contract test lies in the inherently subjective nature of reasonableness which fluctuates with contextual factors. In this regard, the Federal Court opined that unreasonableness per se would be too broad and indefinite to be made a legal requirement for a constructive dismissal case.
In arriving at its decision, the Federal Court highlighted that Malaysia’s current legal stance – where the contract test prevails – conforms to the established practice in other jurisdictions including the United Kingdom, Singapore, Australia and Canada, where the contract test remains foundational. Consequently, the Federal Court affirmed that the contract test continues to be good law in Malaysia, and there was no compelling justification to deviate from this established approach.
Accordingly, the Federal Court answered the leave question in the following manner:
“There is a difference between the contract test and the reasonableness test. The appropriate test for determining a constructive dismissal case is the contract test. The reasonableness of the employer's conduct is a factor that may be taken into consideration in determining whether there is any fundamental breach of the contract of employment or an intention no longer to be bound by the contract.”
Conclusion
This judgment arrives at a crucial juncture, unequivocally reaffirming the legal position that the contract test remains the prevailing legal test for determining constructive dismissal cases. Any departure from the contract test in favour of the reasonableness test could potentially lead to unsettled industrial relations by introducing uncertainty and confusion.
By upholding the contract test, the Federal Court has reinforced a coherent and predictable approach to constructive dismissal, thereby ensuring greater clarity and stability in employment law.
21 October 2024