When an Employee Resigns but Alleges Constructive Dismissal: The Employer's First Risk Assessment

A resignation does not automatically prevent an employee from bringing a dismissal claim. In Malaysia, an employee may allege constructive dismissal by saying the employer's conduct amounted to a fundamental or repudiatory breach of the employment contract and caused the employee to leave.

The allegation is not proved merely because the employee describes the company's conduct as unfair, unreasonable or intolerable. In Tan Lay Peng v RHB Bank Berhad & Anor, decided on 4 April 2024, the Federal Court reaffirmed that the legal test is the contract test. The employee bears the burden of proving constructive dismissal on the balance of probabilities.

For the employer, the first response should be disciplined rather than defensive: preserve the record, identify the contractual term said to have been breached, test whether the alleged breach was fundamental, and examine whether the employee actually resigned in response to it and without undue delay. If a Section 20 dispute is live or anticipated, Legal That Works assists employers through its Industrial Court and Section 20 Representation service.

What constructive dismissal means for an employer

Constructive dismissal is a form of alleged dismissal even though the employee communicated the resignation. The employee's case is that the employer's conduct brought the employment relationship to an end in law.

The Federal Court in Tan Lay Peng held that the question is whether an act or series of acts by the employer:

• constituted a fundamental or repudiatory breach going to the root of the employment contract; or

• showed that the employer no longer intended to be bound by an express or implied term of that contract.

The Court also made the boundary clear: the reasonableness of the employer's conduct may help the factual analysis, but reasonableness is not the legal test and unreasonable conduct alone is insufficient.

The four questions that organise the first risk assessment

This is a legal analysis tied to the contract and evidence. It should not be reduced to whether management thinks the employee was treated "fairly" in a general sense.

What the employer should do in the first 48 hours

1. Preserve the resignation and every earlier complaint. Keep the original message, attachments, delivery details, metadata and all replies. Do not rely on screenshots when the native email, HRIS record or messaging export is available.

2. Issue a preservation instruction. Suspend routine deletion for relevant email, Teams or other workplace messages, HR records, access logs, performance materials and documents held by the managers involved.

3. Form a small response team. Limit the core group to authorised management, HR, in-house legal and external counsel where required. Define who may communicate with the former employee.

4. Freeze retrospective editing. Do not rewrite minutes, backdate approvals, improve performance records or create a new explanation for an earlier decision. A reconstructed record can damage credibility.

5. Acknowledge without prejudging. The company can confirm receipt and deal with operational handover without admitting the allegation or labelling the employee dishonest before the facts are reviewed.

6. Build one controlled chronology. Record the decisions, communications, objections, responses and dates in sequence, with a source document for each material entry.

Start with the contract, then test the actual conduct

Collect the signed employment contract, variation letters, promotion and transfer documents, applicable policies, collective agreement if any, job description, reporting structure and relevant management authorities. A current employment agreement matters because the employer cannot assess an alleged repudiatory breach without identifying the obligations that governed the relationship.

The risk matrix should distinguish between what the documents permit and how the power was exercised. A transfer clause, for example, may support the employer's contractual authority, but the facts still require review: the new role, grade, pay, location, duties, reporting line, stated business reason and communications surrounding the decision.

Common allegations may involve:

• unilateral reduction of salary, benefits, grade or core responsibilities;

• a transfer or reassignment said to be outside the contractual power or a disguised demotion;

• failure to pay salary or provide agreed work;

• a course of conduct alleged to destroy mutual trust and confidence;

• pressure to resign or accept materially different terms;

• suspension, investigation or disciplinary action said to be targeted or improperly motivated; or

• a series of acts where the employee relies on the last event as the final breach.

None of these labels determines the result by itself. The issue remains whether the proved conduct, assessed against the contract, crossed the fundamental-breach threshold.

Build an evidence file that can survive later scrutiny

The evidence should be collected, not coached. Managers should provide their own factual accounts before reading a group narrative that may contaminate recollection. Privilege and confidentiality should be managed deliberately; marking every document "privileged" does not make it so.

Do not confuse a fixed-term dispute or retrenchment with constructive dismissal

If the real issue is non-renewal, first assess whether the arrangement was genuinely temporary or had become permanent in substance. The existing guide to fixed-term employment contracts in Malaysia owns that classification question.

If the company abolished a role or reduced headcount, the core question may instead concern genuine redundancy, selection and process. The guide to retrenchment in Malaysia addresses that pre-dismissal route. A constructive-dismissal allegation may still be raised on particular facts, but the employer should preserve the correct primary analysis rather than force every dispute into one label.

How Section 20 affects the employer's timetable

Section 20(1) of the Industrial Relations Act 1967 allows a workman who considers that they were dismissed without just cause or excuse to make written representations to the Director General for reinstatement. Section 20(1A) sets a 60-day filing window for the workman. That is not an employer response deadline.

JPPM's current guidance states that the matter proceeds first through DIRM conciliation. If settlement is reached, a Memorandum of Agreement is prepared and endorsed. If the Director General is satisfied there is no likelihood of settlement, section 20(3) requires referral to the Industrial Court for an award.

JPPM also states that advocates are not allowed to represent employers or employees during DIRM conciliation. The company can still obtain legal advice to assess its position, organise documents, prepare its authorised representative and evaluate settlement terms. Representation rules differ once the matter reaches the Industrial Court.

Once a matter is referred, our guide to Industrial Court case management for employers sets out what the company needs ready, and our guide to back wages, reinstatement and compensation exposure covers the remedy range.

Management decisions should be recorded before settlement is discussed

The response team should give the authorised decision-maker a short written assessment covering:

• the contractual term alleged to have been breached;

• the act or series of acts relied on;

• why the employer says the conduct was or was not a fundamental breach;

• causation and timing evidence;

• documents and witnesses supporting each disputed fact;

• any remedial step offered before resignation;

• reinstatement and compensation exposure if the claim succeeds;

• operational and reputational consequences; and

• a reasoned defence-versus-settlement range with proper authority.

This record should separate legal merits from commercial preference. A company may decide to settle a defensible case to control cost and disruption, or defend a case where the precedent and governance implications matter. Our guide to deciding whether to settle or defend a Section 20 claim sets out that framework. Neither decision should be based on an untested assumption that "the employee resigned, so there is no dismissal".

Frequently Asked Questions

Can an employee resign and still bring a dismissal claim in Malaysia?

Yes. The employee may allege constructive dismissal under section 20 by saying the employer's conduct fundamentally breached the employment contract and caused the resignation. The resignation wording and the underlying evidence both matter.

What must the employee prove in a constructive-dismissal case?

The employee bears the burden of proving constructive dismissal on the balance of probabilities. The analysis asks whether there was a contractual breach, whether it was sufficiently fundamental, whether the employee left in response to it and whether the employee acted without undue delay.

Is unreasonable treatment enough to prove constructive dismissal?

No. The Federal Court in Tan Lay Peng confirmed that the contract test, not a standalone reasonableness test, governs. Reasonableness may be a factual consideration, but it must relate to whether there was a fundamental or repudiatory contractual breach.

Does a transfer or change of duties automatically amount to constructive dismissal?

No. The employer must examine the contract, the scope of any transfer or management power and the actual effect of the change. Grade, pay, duties, location, reporting line, business reason and implementation may all be relevant, but no single label decides the case.

What is the 60-day period under section 20?

It is the workman's filing window for a dismissal representation, subject to the statutory treatment of dismissal with notice. It is not a 60-day response period given to the employer.

Can a lawyer represent the employer at JPPM/DIRM conciliation?

JPPM's current guidance states that advocates are not allowed to represent employers or employees in DIRM conciliation proceedings. Legal advice can still be obtained to prepare the company's authorised representative, evidence, risk assessment and settlement documentation.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

How Legal That Works can assist

If an employee has resigned and alleged constructive dismissal, Legal That Works can assess the contract, chronology, evidence and Section 20 strategy through its Industrial Court and Section 20 Representation service.