Does an employee demotion or re-grading amount to constructive dismissal?

Ng Teck Fay v. Mahkamah Perusahaan Malaysia & Anor. [2021] 10 CLJ 73, Court of Appeal

• The appellant (“Employee”) started working for the Company in 2008 as an Assistant General Manager. In 2014, the Employee accidentally shared an internal email with an outside party.

• The Company issued the Employee a show cause letter. The employee apologized and was issued a warning letter.

• After that, the Company also issued the Employee with two further letters — the first one entitled “change of job scope”. This meant that the employee’s scope of duties was reduced, and the second one entitled “job re-grading to senior manager” whereby the Employee was downgraded and demoted from Assistant General Manager to Senior manager.

• When these letters were issued, the Employee was also told that he could resign if he disagreed with the contents of the letters. Four days after the demotion, the Employee opted to leave the Company, and claimed that he was constructively dismissed.

• The Industrial Court dismissed the employee’s claims on the grounds:

         i. The re-grading/change of position did not involve any change to his salary and seniority, only changed his     

            benefits arising from the position of alignment of the new job grade and scope.

        ii. The employee failed to prove that the Company breached the relevant terms and conditions of his Employment

           contract which would entitle him to consider himself constructively dismissed.

• The employee then challenged the Industrial Court’s decision at the High Court. The High Court dismissed the challenge. The Employee then filed an appeal to the Court of Appeal.

• Court of Appeal outlined 4 conditions that the employee must satisfy to claim he was constructively dismissed:

         i. There must be a breach of contract by the employer.
        ii. The breach must be sufficiently important to justify the employee leaving.
       iii. The employee must leave in response to the breach and not for some other unconnected reasons.
       iv. The employee must not unduly delay in terminating the contract or he would be deemed to have waived the      breach and agreed to vary contract

• The Court of Appeal decided that the employee had satisfied these conditions and the employee was deemed to be constructively dismissed.

• The re-grading resulted in the Employee having reduced responsibilities, and the demotion also involved the removal of two other employees who used to report to the Employee, as well as reduced benefits.

• The CoA found that both the Industrial Court and High Court failed to consider that an employee could not be demoted or re-graded to a post which he never held before (the Employee was hired as an Assistant General Manager and was now asked to assume the post of Senior Manager), and that there was insufficient judicial appreciation of the totality of the evidence.