Case Update: When an employee transfer can amount to a constructive dismissal

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In this Case Update series, I share summaries of recent Malaysian court decisions to explore the current approach taken by the courts when deciding on employment-related issues. You can find all the posts in the series by clicking here, including case updates on other legal areas by TheMalaysianLawyer co-founder Lee Shih.

It is a well-established principle in employment and industrial relations law in Malaysia that the right to transfer an employee is a prerogative of the management which the Industrial Court would rarely interfere with. However, there are factors which may affect an employer’s ability to transfer an employee without consent, including the following:

  • Whether the transfer is between different roles or departments within the same location, or from one branch or location to another, or between different companies within the same Group.
  • Whether the transfer is brought about by bona fide or genuine business reasons.
  • In some cases, the practical effect of the transfer may also be relevant (eg the impact of a change in work location or job functions).

In short, employee transfers are not always straightforward. Transferring an employee without consent may result in a breach of contract or constructive dismissal.

The Industrial Court considered these issues in Ng Bee Yoong v. Capital Development Sdn Bhd (Award No. 186 of 2016).

Brief facts

The claimant (the Employee) commenced employment with Petaling Garden Berhad and was transferred to a subsidiary of Petaling Garden Berhad, Capital Development Sdn Bhd (the Employer), in 1991. In 2005, Petaling Garden Hotel Sdn Bhd was established within the Petaling Garden Berhad Group of Companies, and owned Hotel Sri Petaling Kuala Lumpur (HSPKL). In February 2009, the Employer and Petaling Garden Hotel Sdn Bhd became wholly-owned subsidiaries of PNB Commercial Sdn Bhd (PNBC).

On 6 December 2010, PNBC’s CEO issued a letter of transfer to the Employee, informing her of her transfer with effect from 13 December 2010 from the Employer to HSPKL and redesignation from “Property Manager of Wisma Nusantara and Menara Aik Hua” to “Sales & Property Manager of HSPKL”.

The Employee asked the COO of PNBC to speak to the CEO and retract the transfer letter, but the COO instructed her to comply. On 10 December 2010, the Employee issued a letter objecting to the transfer and redesignation, claiming that it amounted to a demotion (she would go from having 10 staff reporting to her and herself reporting directly to the COO, to having 4 staff reporting to her and herself reporting to the Hotel Manager), and was a transfer to another industry and entity which involved different job functions for which she was not qualified, and which would mean that she would definitely fail to meet the targets set. She continued to report to work as usual.

After the Employer failed to address her grievances and insisted on proceeding with the transfer, the Employee issued a letter on 16 December 2010 treating herself as constructively dismissed.

On 20 December 2010, the COO issued a letter to the Employee informing her that she was considered to have abandoned her employment without notice or payment of salary in lieu of notice.

Issues of law and burden of proof

The Industrial Court summarised that there were two issues before the Court:

  1. Whether the Employee had been constructively dismissed. The burden is on the Employee to prove this.
  2. If the Employee succeeded in proving that she had been constructively dismissed, then the burden would shift to the Employer to show that the dismissal was with just cause or excuse.

Findings of the Court

In delivering its findings, the Industrial Court cited settled legal principles on the law on the transfer of employees from several previously-decided cases, including the following (edited for brevity):

  1. It is well-settled that the right to transfer an employee from one department to another, or from one post of an establishment to another, or from one branch to another, or from one company to another within the organisation, is the prerogative of the management and the Industrial Court will ordinarily not interfere, unless the transfer is actuated with improper motive.
  2. The power of transfer is subject to the following restrictions:
    • There is nothing to the contrary in the terms of employment.
    • The management has acted bona fide and in the interest of its business.
    • The management is not actuated by any indirect motive or any kind of mala fide.
    • The transfer is not made for the purpose of harassing and victimizing the employee.
    • The transfer does not involve a change in the conditions of service.
  3. The right to transfer an employee is an implied right of the employer. No express term in the contract is necessary.
  4. However, where the transfer is from one legal entity to another, an employee has a constitutional right to be employed by an employer of his choice. Compelling an employee to work for a particular employer is a form of forced labour. An employer has no power to transfer an employee to another company or a separate legal entity without the employee’s consent.

The Industrial Court found that the PNBC Group of Companies, and more specifically the Employer and Petaling Garden Hotel Sdn Bhd, were not within the essential unity of a group enterprise (having no inter-dependence or community of financial control, functional integrality, unity of management and control as well as community of manpower, and general unity of purpose) for several reasons, including —

  • there was no common senior management;
  • there was no evidence that employees within the Group were transferable from one company to another within the Group;
  • there was no evidence of functional integrity (functional inter-dependence of the nature that one company cannot exist conveniently and reasonable without the other companies and were inter-dependent);
  • there was no inter-dependence or community of financial control between the companies, and no evidence of mixing-up of capital or distribution of capital amongst the Group; and
  • the Employer and Petaling Garden Hotel Sdn Bhd were involved in different industries and there was no unity of purpose between the companies in the Group.

Because the Employer and Petaling Garden Hotel Sdn Bhd were separate legal independent entities with no essential unity of group enterprise, and the Employee’s employment contract did not contain a transfer clause, the consent of the Employee was required for the proposed transfer.

The Industrial Court found that the Employee had proved her contention that the proposed transfer was to a different company, to do a totally different scope of work, in a totally different industry, and it amounted to a demotion and a change in job functions.

The Industrial Court also found that the Employee had established elements of victimisation and mala fides on the part of the Employer in effecting the transfer and redesignation, and that the Employer by its conduct had effected a unilateral variation of the Employee’s employment contract, and therefore intimated an intention not to be bound any longer by the original terms of employment. The Court therefore concluded that the Employee was entitled to claim constructive dismissal.

As such the evidential burden shifted to the Employer to prove that there was just cause or excuse for the Employee’s dismissal. The Industrial Court found that the Employee was driven out of her employment, and that the dismissal was without just cause or excuse.

The Employee was awarded 24 months backwages, less 30% for post-dismissal earnings, and 20 months compensation in lieu of reinstatement (one month per year of service).

Comments

Although the right to transfer an employee is a prerogative of the management, employers must approach any proposed transfers with caution. In particular, employers should ensure that any transfer —

  • does not involve a demotion;
  • does not involve a significant change in employment terms and conditions;
  • is being proposed for genuine reasons; and
  • is between entities which are not only in the same Group of companies, but have the unity of a group enterprise or are genuinely inter-dependent.
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