Constructive Dismissal in Malaysia: Can an Employee Resign and Still Claim Unfair Dismissal?

Sometimes, an employer does not expressly dismiss an employee.

Instead, the employer reduces the employee’s salary, removes their responsibilities, demotes them or makes working conditions so difficult that the employee feels they have no real choice but to resign.

This may amount to constructive dismissal.

However, under Malaysian employment law, an unfair workplace does not automatically give an employee the right to resign and claim constructive dismissal. The employer’s conduct must amount to a fundamental breach of the employment contract.

What Is Constructive Dismissal?

Constructive dismissal occurs when an employee resigns because the employer has committed a serious breach of the employment contract.

Although the resignation comes from the employee, the law treats the employer’s conduct as having brought the employment relationship to an end.

In Wong Chee Hong v Cathay Organisation (M) Sdn Bhd [1988] 1 MLJ 92, the Supreme Court recognised that an employee may treat themselves as dismissed where the employer commits a breach going to the foundation of the contract or shows an intention no longer to be bound by it.

Put simply, the question is:

Has the employer seriously breached the employment contract, leaving the employee entitled to regard the contract as terminated?

What Must an Employee Prove?

An employee claiming constructive dismissal must generally establish four elements:

1. the employer breached an express or implied term of employment;
2. the breach was sufficiently serious to go to the root of the contract;
3. the employee resigned because of that breach; and
4. the employee did not wait too long before resigning.

These principles were explained in Anwar Abdul Rahim v Bayer (M) Sdn Bhd [1998] 2 MLJ 599.

The burden is initially on the employee to prove that constructive dismissal occurred. If the employee establishes this, the employer must then show that the dismissal was with just cause or excuse.

Is Unreasonable Treatment Enough?

Not necessarily.

In Tan Lay Peng v RHB Bank Berhad & Anor [2024] 6 CLJ 315, the Federal Court reaffirmed that Malaysian courts must apply the contract test, rather than asking only whether the employer acted unreasonably.

The employee must connect the employer’s conduct to a fundamental breach of the employment contract. Poor management, personality conflicts or an unpleasant working environment may be unfair without necessarily amounting to constructive dismissal.

The employer’s conduct may still be relevant, but the central issue remains whether there was a sufficiently serious contractual breach. The Federal Court judgment confirms that reasonableness cannot replace the contract test.

Common Examples of Constructive Dismissal

Whether constructive dismissal occurred always depends on the facts. Situations that may support a claim include:

• a substantial reduction in salary or contractual benefits;
• persistent non-payment of salary;
• an unjustified demotion;
• removal of important duties or status;
• a transfer that fundamentally changes the employee’s role;
• being forced into a substantially different position;
• suspension without proper basis for an excessive period;
• serious harassment that the employer refuses to address;
• deliberately making the employee’s position untenable;
• imposing a discriminatory or humiliating change in working conditions; or
• pressuring the employee to resign through threats or impossible demands.

One incident may be serious enough on its own. In other cases, several related actions may collectively show that the employer no longer intends to honour the employment relationship.

Can a Salary Reduction Amount to Constructive Dismissal?

Salary is a fundamental term of employment.

An employer who substantially reduces an employee’s salary without contractual authority or consent may commit a fundamental breach. Persistent failure to pay salary may also support a constructive dismissal claim.

However, not every change to remuneration will necessarily qualify. The Court may consider:

• whether the payment was contractual or discretionary;
• the size and duration of the reduction;
• whether the contract permitted the change;
• whether the employee consented;
• whether the change affected other employees; and
• how quickly the employee objected.

An employee who continues working for a lengthy period without protest may be treated as having accepted the change.

Can a Transfer Amount to Constructive Dismissal?

An employer usually has some discretion to transfer employees, particularly where the employment contract contains a transfer clause.

A transfer may nevertheless become a fundamental breach if it is:

• outside the scope of the contract;
• effectively a demotion;
• accompanied by a substantial loss of duties or status;
• made in bad faith;
• intended to punish or force the employee to resign; or
• so drastic that it fundamentally changes the employee’s employment.

A transfer that is inconvenient or unpopular does not automatically amount to constructive dismissal. The employee’s contractual terms, seniority, responsibilities, location and the employer’s reasons will all matter.

Can a Demotion Amount to Constructive Dismissal?

Yes, particularly where the employee suffers a substantial loss of status, authority, responsibilities or remuneration.

The Court will look beyond the employee’s job title. An employer may retain the same title and salary while removing the employee’s team, decision-making powers and meaningful duties.

Conversely, a change in reporting structure or responsibilities may fall within the employer’s legitimate managerial authority. The question is whether the change fundamentally alters the employment bargain.

Can Workplace Bullying or Harassment Lead to Constructive Dismissal?

Potentially.

An employer has implied obligations within the employment relationship, including maintaining trust and confidence. Serious bullying, harassment or humiliation (particularly where management participates in or refuses to address it) may amount to a fundamental breach.

The employee should ordinarily document the conduct and report it through the appropriate internal channel.

Relevant evidence may include:

• emails and messages;
• written complaints;
• witness accounts;
• meeting records;
• medical records;
• the employer’s response; and
• evidence of repeated incidents.

An isolated disagreement or harsh remark may not be enough. The Court will examine the seriousness, frequency and surrounding circumstances.

Can an Unfair PIP Amount to Constructive Dismissal?

Being placed on a Performance Improvement Plan does not automatically amount to constructive dismissal.

An employer is entitled to manage genuine performance concerns. However, a PIP may become relevant where it forms part of a broader effort to force the employee out for example, where:

• the targets are impossible;
• the employee is denied the resources needed to succeed;
• the allegations are fabricated;
• management says dismissal is already decided;
• the targets keep changing; or
• the employee is repeatedly pressured to resign.

Even then, the employee must prove a fundamental contractual breach. A demanding, poorly managed or unreasonable PIP is not by itself enough.

Should the Employee Complain Before Resigning?

Where practical, the employee should raise the breach promptly and give the employer an opportunity to address it.

This may be done through:

• an email to management;
• a written grievance;
• a response to a transfer or demotion letter;
• a complaint to human resources; or
• a letter requesting the employer to restore the original terms.

A written objection helps show that the employee did not accept the change.

There may be situations where the breach is so serious that continuing employment is no longer reasonably possible. However, resigning without first explaining the complaint may make it more difficult to prove why the employee left.

How Soon Must the Employee Resign?

An employee must act within a reasonable time after the fundamental breach.

Continuing to work for too long without objection may suggest that the employee has accepted or waived the breach. The Court of Appeal has confirmed that an employee who delays excessively may be treated as having affirmed the contract.

There is no fixed number of days that applies to every case. The Court may consider whether the employee:

• protested against the breach;
• was waiting for the employer to respond;
• used an internal grievance procedure;
• was given assurances that the problem would be corrected; or
• simply continued working as usual.

The safest approach is to object promptly and obtain legal advice before deciding whether to resign.

What Should a Constructive Dismissal Resignation Letter Say?

The resignation letter should clearly identify:

• the employer’s conduct complained of;
• the contractual terms breached;
• why the breach is fundamental;
• any earlier objections or grievances;
• the employer’s failure to remedy the breach; and
• that the employee is resigning because of the employer’s conduct.

A vague resignation letter stating only “personal reasons” may undermine a later claim that the employee resigned because of a fundamental breach.

The employee should also avoid including unrelated reasons that could suggest they had already intended to leave for example, accepting another job before the alleged breach occurred.

Must the Employee Resign Immediately?

Constructive dismissal normally involves the employee treating the employer’s fundamental breach as bringing the contract to an end.

Working a full notice period without reservation may create an argument that the employee affirmed the contract. However, the effect of serving notice depends on the facts and how the resignation is expressed.

This is one reason an employee should obtain advice before:

• resigning;
• serving contractual notice;
• accepting revised terms;
• signing a mutual separation agreement; or
• continuing to work after the breach.

Once the employee resigns, reversing the decision may not be possible.

What Evidence Should the Employee Keep?

An employee considering a constructive dismissal claim should preserve:

• the employment contract;
• job descriptions;
• salary slips and bank records;
• transfer, demotion or suspension letters;
• emails and WhatsApp messages;
• performance appraisals;
• PIP documents;
• grievance letters;
• the employer’s responses;
• organisation charts;
• medical records where relevant; and
• the resignation letter.

Employees should not unlawfully remove confidential information or personal data belonging to the employer. Relevant documents should be preserved through proper channels.

How Does an Employee File a Constructive Dismissal Claim?

An employee who claims constructive dismissal may file a representation under section 20 of the Industrial Relations Act 1967.

The representation must generally be filed within 60 days of the constructive dismissal through the Department of Industrial Relations Malaysia‘s IRIS system.

The 60-day deadline should be treated seriously. Internal discussions, grievance proceedings or settlement negotiations should not be assumed to extend it.

If the matter is not resolved through conciliation, it may be referred to the Industrial Court.

What Can the Industrial Court Award?

The primary remedy for dismissal without just cause or excuse is reinstatement.

Where reinstatement is unsuitable, the Industrial Court may award:

• back wages; and
• compensation in lieu of reinstatement.

Back wages are generally subject to statutory limits and may be reduced based on factors such as post-dismissal earnings or contributory conduct.

Compensation is not automatic. The outcome depends on whether constructive dismissal and the absence of just cause or excuse are proved.

Practical Advice for Employees

Before resigning, ask:

• What contractual term has the employer breached?
• Is the breach serious enough to end the employment relationship?
• Have I objected in writing?
• Has the employer been given an opportunity to correct it?
• Am I resigning because of this breach?
• Have I waited too long?
• Does my resignation letter explain the real reason?
• Do I have documents supporting my complaint?
• Am I still within the 60-day deadline?

Constructive dismissal should not be used as a label for every workplace dispute. Resigning prematurely may leave the employee unemployed without establishing a successful claim.

Practical Advice for Employers

Employers should be cautious before making major changes to an employee’s:

• salary and benefits;
• job title;
• authority and responsibilities;
• reporting line;
• work location; or
• working conditions.

Before implementing a change, employers should review the employment contract, explain the business reasons, consult the employee and obtain consent where required.

A properly documented and genuinely negotiated change is less likely to be viewed as an attempt to force the employee out.

Final Thoughts

Constructive dismissal does not simply mean that an employee was treated unfairly or felt compelled to leave.

The employee must prove that the employer committed a fundamental breach of the employment contract, that they resigned because of that breach and that they acted without excessive delay.

For employees, the timing and wording of the resignation can be crucial. For employers, significant unilateral changes to contractual terms can create liability even where no formal termination letter was issued.

If you’re looking to learn more about Malaysian employment law, you can also explore Employment Law Malaysia: The Complete Guide for Employees and Employers (2026) for practical articles covering workplace rights, disciplinary procedures, termination and unfair dismissal claims.

This article provides general information and does not constitute legal advice. Constructive dismissal claims are highly fact-sensitive, and employees should obtain advice before resigning.