Contract Test Prevails in Constructive Dismissal: A Landmark Malaysian Employment Law Decision
- Employment Law Malaysia
- Apr 17
- 4 min read
BY EMPLOYMENT LAW MALAYSIA

The recent Court of Appeal decision in Saharunzaman bin Barun v Perodua Sales Sdn Bhd & Anor [2025] CLJU 3 has reinforced a vital principle in Malaysian employment law: the test for constructive dismissal remains the "contract test." However, this ruling also highlights an important caveat: when an employer includes "reasonableness" in the employment contract, it becomes a binding obligation. This landmark decision provides essential guidance for employers and employees, especially in termination of employment in Malaysia and workplace restructuring scenarios.
Understanding Constructive Dismissal in Malaysian Employment Law
What Is Constructive Dismissal Under the Malaysian Employment Act?
Constructive dismissal occurs when an employer makes a significant change to the terms and conditions of an employee’s contract, or engages in behavior that forces the employee to resign. Under the Malaysian Employment Act, if an employer breaches the contract to such an extent that the employee feels compelled to leave, it could be considered wrongful dismissal in Malaysia.
Key Legal Tests for Wrongful Dismissal Malaysia and Constructive Dismissal Claims
In this case, the Court of Appeal clarified that the primary test for constructive dismissal is whether the employer has breached the employment contract Malaysia in a fundamental way. This test overrides the "reasonableness test," emphasizing that a breach of the contractual terms can trigger wrongful dismissal Malaysia claims.
The Importance of Employment Contracts in Malaysia
Why Employment Contract Malaysia Matters in Dismissal Cases
The employment contract in Malaysia serves as the foundational document that defines the relationship between the employer and employee. The case reinforced the importance of clearly defined contractual clauses, particularly those that address transfers and termination of employment in Malaysia. In this case, the employees' contracts included a clause stipulating that transfers would be "as reasonably directed by the Company," which became a binding contractual obligation.
How Reasonableness Clauses Affect Termination of Employment Malaysia
The ruling highlights that when a contract includes a "reasonableness" clause, it can significantly impact how a termination of employment Malaysia case is handled. Employers must ensure that any actions they take, such as transfers or dismissals, align with the contractual terms that are explicitly outlined in the employee's contract.
The Role of Managerial Prerogative and Reasonableness in Employment Law
Industrial Relations Malaysia: When Does Reasonableness Become a Binding Obligation?
While employers retain managerial prerogative, the case clarified that this prerogative is not unlimited. If the contract includes a "reasonableness" clause, as seen in this case, the employer is legally bound to exercise their prerogative reasonably. The Court's ruling reinforces that industrial relations in Malaysia must be governed by the principles set out in the contract.
How Courts Scrutinize Managerial Prerogative in Employment Disputes
Courts will carefully review how managerial prerogative is exercised, particularly when it conflicts with contractual obligations. In this case, the Court found that the Company’s actions, including abrupt transfers and the demand for resignations, were unreasonable and designed to force the employees out without offering termination benefits.
Key Implications of the Court's Ruling for Employers and Employees
Understanding Employee Rights in Malaysia: What Does This Decision Mean for Your Job Security?
This decision is significant for employees concerned about unfair dismissal in Malaysia, workplace harassment in Malaysia, or discrimination at work in Malaysia. Employees now have more clarity on how their employment rights in Malaysia can be protected under the Malaysian Employment Act if their contract contains specific terms like "reasonableness."
How Employers Can Avoid Unfair Dismissal Malaysia and Ensure Compliance with Labour Law Malaysia
For employers, this ruling emphasizes the need for clear and precise employment contract Malaysia clauses and the importance of adhering to the terms of employment. Employers must be mindful of the labour law in Malaysia to avoid costly legal disputes related to constructive dismissal in Malaysia and unfair dismissal in Malaysia.
Seeking Legal Counsel for Employment Issues in Malaysia
When to Contact an Employment Lawyer Malaysia for Constructive Dismissal Claims
If you believe you have been subjected to wrongful dismissal in Malaysia or constructive dismissal, it’s crucial to seek advice from an employment lawyer in Malaysia. Legal guidance is essential to navigate the complexities of the Malaysian Employment Act and protect your employee rights in Malaysia.
Employment Rights Malaysia: How to Protect Your Rights Against Workplace Harassment Malaysia and Discrimination at Work Malaysia
An employment lawyer in Malaysia can assist you in protecting your rights against workplace harassment Malaysia or discrimination at work in Malaysia. If you're facing an unfair work environment or need assistance with maternity leave Malaysia, sick leave in Malaysia, or salary disputes in Malaysia, an experienced lawyer can help ensure that your rights are respected.
For Employers: Ensuring Compliance with Retrenchment Law Malaysia and Employment Contracts
Employers facing challenges related to retrenchment law in Malaysia, salary disputes Malaysia, or restructuring should consult an employment law firm in Kuala Lumpur. Seeking legal advice can help you navigate the complexities of industrial relations in Malaysia and ensure compliance with contractual and legal obligations.
Legal Resources for Employers and Employees in Malaysia
Finding the Right Employment Law Firm Kuala Lumpur for Contract Disputes and Constructive Dismissal Cases
For comprehensive legal representation in employment disputes in Malaysia, an employment law firm in Kuala Lumpur can provide the expertise needed to protect your interests. Whether you're facing termination of employment in Malaysia or need help with overtime pay in Malaysia, a trusted firm can provide tailored solutions.
Searching for an Employment Lawyer Near Me Malaysia for Salary Disputes Malaysia, Maternity Leave Malaysia, or Sick Leave Malaysia
When searching for an employment lawyer near me in Malaysia, ensure the lawyer is well-versed in labour law Malaysia and employee rights in Malaysia. Whether you're dealing with salary disputes in Malaysia, maternity leave in Malaysia, or sick leave in Malaysia, the right lawyer will guide you through the legal process.
Conclusion
This landmark decision serves as a powerful reminder that employers must uphold their contractual obligations, and employees have the right to seek redress if those obligations are violated. Whether you’re an employer or employee dealing with constructive dismissal in Malaysia, unfair dismissal in Malaysia, or any other employment-related issue, securing professional legal assistance is crucial.
For expert advice on labour law Malaysia, employee rights Malaysia, or any employment-related issue, reach out to a trusted employment lawyer in Malaysia today. Contact us today for a free consultation via WhatsApp (+6011-1630-0091) or email (general@employmentlawmalaysia.com) for expert advice tailored to your employment needs.
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