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Case Update: Reasonableness not a legal test when deciding breach of employment contract

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15 February 2024

EMPLOYMENT LAW
Constructive Dismissal – Employment – Demotion – Managerial Prerogative – Appeal

RHB Bank Berhad v Tan Leong Huat
Civil Appeal No. P-01(A)-202-03/2020 | Court of Appeal
- see the grounds of judgment here

Facts Tan Leong Huat (the ‘Respondent’), employed by RHB Bank Berhad (the ‘Appellant’) as Vice-President, Operation Head, Thailand Operations, was initially assigned to oversee operations in Bangkok. In 2013, a second branch was opened, and Tan Leong Huat supervised it. However, in 2014, the bank decided to expand further, leading to the appointment of a more senior candidate, rendering the Respondent's role redundant. He was then asked to temporarily manage a new branch until a suitable local manager was found, with the understanding that this assignment would not exceed nine months. When a local manager was appointed, the Respondent was informed of his transfer to Malaysia to the Internal Infrastructure, PMO and Operations Support – Group International Business. The Respondent objected to his repatriation to Malaysia and failed to report for duty as instructed. Subsequently, via a letter, the Respondent deemed himself as unfairly dismissed. The Appellant refuted the Respondent’s allegations of unfair dismissal and directed the Respondent to report to work immediately, failing which the Appellant would assume that the Respondent had abandoned his employment with the Appellant. The Respondent however maintained his claim for constructive dismissal which ultimately led the Appellant to deem that the Respondent had abandoned his employment. The Respondent then presented a complaint for unfair and constructive dismissal at the Industrial Court. The Industrial Court upheld his claim of constructive dismissal, citing that the transfer lacked good faith and that the job scopes were significantly different. The Appellant appealed to the High Court, which upheld the Industrial Court's decision, leading to the current appeal.

Issues 1. Whether the occurrence of a fundamental breach of contract of employment is to be gauged by the contract test or by the unreasonableness test.
2. Whether the High Court Judge had directed herself correctly as to the law on constructive dismissal.
3. Whether the transfer was a disguised demotion of the Respondent and a fundamental breach of the Respondent’s contract of employment with the Appellant’s company.

Held In allowing the appeal and setting aside the decision of the High Court, Court of Appeal judge, YA Datuk Hanipah Binti Farikullah held that the Industrial Court had erred in law by failing to apply the proper legal test in determining constructive dismissal. The Court held that the correct test to apply in constructive dismissal cases is whether there was a fundamental breach of the express or implied terms of the employment contract. On the issue that the Respondent was allegedly constructively dismissed by the Appellant based on the ground that the job scope as Branch Manager in Bangkok and at the GIB were significantly different, the Court of Appeal held that the Appellant had relied on the evidence to show that the scope of work was not significantly different and this was unchallenged by the Respondent. It is trite that findings of facts made with no evidence to support the same in the decision-making process, are clearly errors of law which warrant those findings being interfered by the higher courts. The Court of Appeal clarified that the High Court's dismissal of the Appellant's application for Judicial Review was not based on finding a fundamental breach of contract by the employer. Instead, the High Court deemed the Industrial Court's decision reasonable, without procedural errors, and within its jurisdiction. The Court of Appeal emphasized that while reasonableness is considered in the Industrial Court's factual analysis, it cannot serve as a legal test for determining a fundamental breach. Hence, the appeal was allowed.

Zul Rafique & Partners
{15 February 2024}

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