EFFECTS OF CORPORATE RESTRUCTURING, ACQUISITIONS

AND MERGERS ON AN ORGANISATION

By Rutheran Sivagnanam
Barrister-at-Law, Lincoln’s Inn

One of the high sounding terms that many of us have become

familiar with in recent times are “corporate restructuring”, “asset
restructuring”, “acquisitions and mergers” and such like. With
the changing face of commerce and industry, the entry of new
players, the exit of old players and the influx of new equity partners
and such like make this a reality that we cannot run from.

To the human resource practitioner it introduces a new challenge and

shifts the conventional paradigm. From managing the fixed pool of
employees in a business that grows organically the position is now
transformed to managing change. That means having to contend at
short notice with the task of making two sets of people from 2
organisations, with different cultures to work as one and with
minimal implications upon the quality of service to customers. The
challenge is especially great to a customer facing business.

I will set out some of the main issues here:

1. Dealing with mobility upon a change of ownership;

2. Harmonisation of terms and conditions;
3. Rationalisation of positions

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As we go along you must of course ask yourselves how much
thought should be put into each of these areas pre-merger or pre-
acquisition.

Mobility Of Employees In An Acquisition

Right of Transfer

It is possible and common to see the implication of the right to

transfer employees within the employer’s establishment. This right is
generally viewed, as an extension of the employer’s right of control
over his employees, and to issue directives and instructions to its
employees. So long as the employer acts bona fide no issue would
raise from the exercise of this prerogative. However, there is a
marked reluctance to imply such a right with respect to the transfer
of employees, to an undertaking other than that of his legal employer
in the absence of an express contractual provision. The critical
difference between transfers in the former circumstances and the
latter lies in the fact that in latter instance the transfer will inherently
involve a change in the identity of the employer. The required
contractual provision may either be found in the employee’s contract,
collective agreement or it may be incorporated by reference into the
contract.

2
This limitation on the right of transfer was emphasized with abundant
clarity by the Industrial Court into contrasting cases involving the
Palmex Group.

In Sky Palmex Industries v. Shakri Bin Baharom (Award No.

149 of 1985) the Industrial Court held as follows when confronted
with a letter of appointment and collective agreement that was silent
on the subject of transfer:

“…it appears…astounding that apart

from the overriding question of public
welfare, power should given to a Court
or any one else to transfer a man
without his knowledge and possibly
against his will from the service of one
person to the service of another. I had
fancied that ingrained in the personal
status of a citizen under our law was
the right of choice for himself whom
he would serve, and that this right of
choice constitute the main difference
between a servant and a serf. But if
Parliament has so accepted, the result
must be enacted.”

“I am of the view that in the absence

of any specific provision either in the
Collective Agreement or the contract of
employment the Company had no right

3
 to transfer the Claimant to Acidchem
(M) Sdn Bhd.”
[taken from the dicta of the House of
Lords in the case of Nokes v.
Doncaster Amalgamated Collieries Ltd
(1940) A.C. 1014]

However, in Palmex Industries v. Poobalan Shanmugam

(Award 215 of 1984) the Industrial Court held as follows
when faced with the same collective agreement, but this time
with a letter of appointment which provided for the right of
transfer:

“In the instant case, the terms of the

1982 collective agreement is an
implied term of the contract of
employment of En Poobalan. As there
is no provision regarding transfers in
the collective agreement, it cannot be
in inconsistent with the expressed term
of the individual contract of
employment that he is liable to
transfer. It will be a different matter if
the collective agreement specifically
provides that he shall not be subject to
transfer to any location outside the
premises of Palmex industries Sdn
Bhd. In that event the expressed term
in the individual contract of
employment will be void because it is
not in accordance with the collective
agreement: section 17(2) of the Act.”

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This being so, an employee will be well within his rights to decline a
transfer order that is made, unless there are due provisions for the
same in either the employee’s contract or collective agreement.

The underlying sentiment of the Court in these matters is that an

employee is not a chattel to be transferred at will, to an entity he
never undertook to serve. Reasonable and reassuring as the
employer may be, the Court, it may be noted places greater weight
to the employee’s right to choose whom he wishes to serve and
hence who he envisaged serving when entering into employment.
The issue had nothing to do with benefits, terms and condition,
rather it concerned the fundamental right of an employee to
determine whom he wished to serve.

In all the circumstances, unless there are due provisions for the
contemplated transfers, such transfer may only be effected with the
concurrence of the employee.

Once the right to effect the transfer is established an employer must

in exercising that right ensure that he does not cause the employee
to suffer any detriment in his terms of employment. Section 13(3)(b)
of the Industrial Relations Act 1967 codifies the right of transfer and
makes it abundantly clear that the employee must not experience
any loss in relation to “terms” of employment. However, there is no

5
similar restriction with regards “conditions” of work which refer to the
physical conditions under which the employee functions.

6
 Secondment

The concept of secondment envisages a situation whereby, an

employer in furtherance of his trade and business interests, requires
his employee to perform services for another entity (the hirer), which
performance does not entail a severance of his existing employment
relationship nor does it entail the creation of fresh employment ties.
There are many reasons for this, In a group enterprise there may be
a need for employees in one part of the group to render assistance to
other parts of the group for limited durations. There may also be
organizations that render services they may be required to second
their employees to the client for a specified duration to execute
certain tasks.

During his service with the hirer, the employee may well be
subject to directions and orders that are issued by that hirer.
However his position as an employee of his legal/original
employer does not cease or diminish.

In Comex Services Asia Pacific Region v. Grame Ashley Power

(Award No. 224 of 1987), the Industrial Court explained the
concept of secondment as follows:

“Therefore so long as the contract is

not terminated, a new contract is not

7
 made and the employee continues to
be in the employment of the original
employer even if the employer orders
the employee to do certain work for
another person, the employee still
continues to be in his employment.
The only thing that happens in such
cases is that the employee carries out
the orders of the master; hence he
has a right to claim his wages from
the employer and not from the third
party to whom his services are lent or
hired. It may be that such third party
may pay his wages during the time
he has hired his services, but this is
because of his agreement with his
real employer. However, that does
not have the effect of transferring of
service of the employee to the other
employer. The hirer may exercise
control and direction in the doing of
the thing for which he has hired the
employee or even the manner in
which it is to be done. But if the
employee fails to carry out his
direction, he cannot dismiss him and
can only complain to the actual
employer. The right of dismissal is
vested in the employer(s)”.
[taken form The Law of Industrial
Disputes by O.PP Malhotra, Vol.1,3rd
Ed.,at p.246]

Therefore the secondment is a tripartite arrangement involving the

original employer, the hiring employer and the employee.

8
The arrangement is convenient for a short period of time. However, a
prolonged existence on secondment can give rise to complications,
particularly if in the course of events the employee is for any reason
re-designated, whether by reason of promotion or otherwise, or if the
employee receives more favourable benefits by the hirer. These
circumstances beg the question of what will happen at the end of the
secondment, when the employee reverts to his original employer.

It is important to bear in mind that at the end of the period of

secondment, the employee reverts to his original employer regardless
of the circumstances of the hirer. Thus even if the hirer has ceased
operations it does not mean that the seconded staff may for that
reason alone be terminated. The requirement is that the staff in
question be reverted to their legal employer.

9
 EMPLOYMENT (TERMINATION AND LAY-OFF BENEFITS
REGULATIONS) 1980 AND THE SALE AND PURCHASE OF
BUSINESS UNDERTAKING

Although the Employment (Termination and Lay-Off Benefits

Regulations) 1980 (hereinafter referred to as 1980 Regulations) is
but a piece of subsidiary legislation made pursuant to the
Employment Act 1955 (hereinafter referred to as the 1955 Act), it has
come to play an important role in all major acquisitions or
divestments of business. Whilst it does not have the broad sweep of
the Transfer Regulations practiced in Europe, nevertheless by its
control over the right to receive termination benefits, the 1980
Regulations has played a vital role in providing for the mobility of
labour in a business acquisition situation.

In most situations where one business is acquired by another, i.e.

where the assets and liabilities of one business is purchased by
another, both the buyer and the seller of the business will face a real
concern over the issue of manpower. The buyer may not want to
acquire a business undertaking that is completely unmanned.
Meanwhile, the seller will not want to be left with a workforce for
whom he has no ability to utilize. The problem which would confront
both parties is that in many cases, contracts of employment do not
allow for transferability to an entity that is outside the group which
employs the employee. On the other hand, the implied right to

10
transfer is limited to divisions within one entity/employer only.
Therefore, the seller will not be able to transfer the employees to the
entity which acquires the business, nor may the buyer insist on
taking over that workforce without first procuring their consent.

The 1980 Regulations does not create an independent right to

transfer an employee. It merely encourages mobility through its
control of the right to receive termination benefits. The said
regulations are the only source of law in the country, which obligates
the payment of termination benefits when an employee is terminated
from service. However, the 1955 Act recognizes instances where an
employer may be excused from its obligations in respect of
termination benefits provided in the 1980 Regulations to the 1955
Act. One of the important exceptions to the obligation to pay
termination benefits is reg. 8 of the 1980 Regulations, which can be
triggered when there is a change in the ownership of a business.

Regulation 8 of the Employment (Termination And Lay-Off

Benefits) Regulations 1980, provides as follows:

“(1) Where a change occurs (whether by

virtue of a sale or other disposition or
by operation of law) in the ownership
of a business for the purposes of
which an employee is employed or of
part of such business, the employee

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 shall not be entitled to any
termination benefits payable under
these Regulations, if within seven
days of the change of ownership, the
person by whom the business id to
be taken over immediately after the
change occurs, offers to continue to
employ the employee under terms
and conditions of employment not
less favourable than those under
which the employee was employed
before the change occurs and the
employee unreasonably refuses the
offer.”

The requirements of reg. 8 may be

summarized as follows:

(i) there is a change in ownership of a

business or part of a business;
(ii) the change concerns the employee’s
employment;
(iii) an offer of employment is mad e
within seven days of the said change
by the buyer;

(iv) such offer being on equal or more

favourable terms.

If the aforesaid conditions are satisfied and the employee refuses the
offer, the employer is excused from its obligations in respect of the
termination benefits in the event of a consequential termination. In
this context sec. 12(3) of the 1955 Act empowers the employer to

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terminate the services of its employees in circumstances such as
these:

“Notwithstanding anything contained

in subsec. (2), where the termination
of service of the employee is
attributable wholly or mainly to the
fact that:

(a) the employer has ceased, or intends

to cease to carry on the business for
the purposes of which the employee
was employed;

(b) the employer has ceased or intends

to cease to carry on the business in
the place at which the employee was
contracted to work;

(c) the requirements of that business for

the employee to carry out work of a
particular kind have ceased or
diminished or are expected to cease
or diminish;

(d) the requirements of the business for

the employee to carry out wok of a
particular kind in the place at which
he was contracted to work have
ceased or diminish or are expected to
cease or diminish;

(e) the employee has refused to accept

his transfer to any other place of
employment, unless his contract of

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 service requires him to accept such
transfer; or

(f) a change has occurred in the

ownership of the business for the
purpose of which an employee is
employed or of a part of such
business, regardless of whether the
change occurs b virtue of a sale or
other disposition or by operation of
law,

the employee shall be entitled to, and

the employer shall give to he
employee, notice of termination of
service, and the length of such notice
shall be not less than that provided
under subsec. (2)(a), (b) or (c), as
the case may be, regardless of
anything to the contrary contained in
the contract of service.”

What then is a change of ownership of a business or part of a

business? The Federal Court held in Abdul Aziz bin Atan v. Rengo
Malay Estate Sdn Bhd 1986 2 MLJ 98 that the crucial words in reg. 8
were “change in the ownership of a business”. Regulation 2 which
defined “business” meant an activity or undertaking carried on by the
company. In the case of Rengo there was no transfer of the assets or
stock in trade of the company there was a mere sale of shares. The
Court relied on Melon v. Hector Powe Ltd (1981) 1 ALL ER 313 where
Lord Fraser said that the transfer of a business (under the English

14
Redundancy Payments Act 1965) meant that the business is
transferred as a going concern, “so that the business remains the
same, but in different hands”.

Therefore, a change in ownership is distinct from a sale of shares. If

the acquisition is via a sale of shares then the status quo is maintain,
succession is perpetual and the buyer of the shares simply steps into
the sellers shoes, with all arrangements remaining intact.

It must be emphasised that the regulations envisage an offer from

the buyer. However, liability for termination benefits rests squarely
with the seller (the employer of the affected employees). Attempts to
impose joint and several liability on buyers has been declared ultra
vires and to that extent void. Hence, one must be careful in
regarding reg. 8, because the said regulation has been declared ultra
vires to the extent that it purports to impose liability on persons other
than the employer. Therefore, it would be prudent for a seller to
propose:

(i) a clear undertaking by the buyer to make an offer on

equal or more favourable terms;

15
(ii) indemnify from the buyer should it fail to make an offer
that conforms to the requirements of reg. 8 which results
in the seller being faced with a liability under the Act.

16
 THE DIFFICULTIES IN MAKING A REGULATION 8 OFFER

There has been a ruling by the Courts which calls for some careful
consideration in effecting offers of employment under reg. 8.

In the case of Radtha A/P Raju & 358 Ors v. Dunlop Estates Bhd (RS
No. J-04-53-94), the Court held that the sale of the business
undertaking entailed a severance of the employment relations, and
that the acceptance of employment with the buyer necessarily
entailed a termination of service with the seller. On the facts of the
case and on a totality of evidence the court was satisfied that the
termination of service was at the instance of the seller, and hence
the notice obligations of the Act visited.

Sellers will naturally be concerned as to the actual mechanics of

giving such notice, the terminology to be used as well as the timing,
as many a time these transactions will be subject to various
approvals being obtained. Employers will also be concerned as to
whether the giving of notice may in itself precipitate the obligation to
pay termination benefits even before the buyer is able to offer
employment.

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 Rationalisation of Terms of Employment

This is a critical challenge during any acquisition. Not only do

companies have different cultures but they very often have different
sets of terms of employment. These variations will differ in
significance but they are nevertheless variations.

There are many ways in which these variations may be resolved. The
choice would turn upon the importance of the term and whether the
company is unionized or not. In general the options would range
from:
• personal to holder arrangements;
• seeking acceptance of a revised set of terms of employment;
• offers to cash out a benefit;
• offers of an alternative benefits in substitution.

Where the terms in question form part of a collective agreement it

gives rise to its own issues which inherently entail having to conclude
an agreed variation to the terms of the collective agreement.

In all such cases where there are variations which are less favourable
in nature it is important that consent be procured in a suitable
fashion.

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 Rationalisation of Positions

This is by far the most complex post acquisition or post merger

activity which places the greatest challenge upon any organization at
the planning stage of an exercise. There are several inevitabilities in
a merger or an acquisition one of them is that duplications have to be
addressed the other is that the amalgamation of functions creates a
critical mass which requires a function to be upgraded to down
graded as the case may be.

This brings employers into contact with various complex principles

governing retrenchment and downsizing as well as constructive
dismissal.

Retrenchment

It is settled law that an employer has the fundamental right to

determine the size of its workforce. Thus, where a reorganization is
undertaken which results in the employer requiring fewer employees
in a particular position or where the reorganization results in the
relegation in importance of an activity then the employer may
justifiably elect to terminate the services of such staff that become
surplus by reason of such a decision. In all such cases the employer

19
must act bona fide and carry out its selection for retrenchment based
upon an objective criteria.

The following examples are illustrative of the challenges:

• In Siemens Malaysia Sdn. Bhd. v Cheong Kok Leng 2004

1 ILR 195 , an employer decided to close down one section in
a division. It decided not to proceed with bids in that section
and assigned some of the miscellaneous tasks that remained to
other employees in other functional sections. In upholding the
termination the Industrial Court held:

“I agree wholly with what his Lordship has quoted and what he
further expressed:

“It is well established that it is for

management to decide the strength of
its staff which it considers necessary for
efficiency in its undertaking. The Court
will not intervene unless it is shown that
the decision was capricious or without
reason or was mala fide or was actuated
by victimization or unfair labour
practice. Theses principles have been

20
 consistently applied by the Industrial
Court in numerous cases. They must,
mutates mutandis, apply in the present
case.” (Emphases added)

As to the standard of proof which is required of the employer a

similar view is expressed in Mead’s Unfair Dismissal, 5th Edn. At p.
237 as follows:

The tribunal cannot demand an ‘excessively high standard of

proof’ of a redundancy. The employer is not obliged to produce
‘accounts or figures to show the loss referred to, how it was
sustained and how much it came to’, nor does the employer
have to show ‘that the redundancy situation was so bad as to
cause the dismissal’; nor is there any ‘obligation on the
employers to establish the existence of some economic or
accountancy state of affairs which would, as the existence of
some economic or accountancy state of affairs which would, as
it were, justify the declaration of a state of redundancy: H
Goodwin Ltd v Fitzmaurice [1997] IRLR 393. Once a
redundancy has been establish then it is not open to the
tribunal to consider the actions of the employer which led to
the redundancy situation. Tribunals are not there to make
findings about the way in which the employer has conducted

21
 the business: Moon v Homeworthy Furniture (Northern) Ltd
[1977] ICR 117. In Guy v Delanair (Car Heater) Ltd [1975]
IRLR 73, the company decided to do away with the redundancy
situation. The tribunal found it ‘is not in a position to criticize
the manner in which an employer decides its work must be cut
down’. The tribunal was not prepared to consider whether the
redundancies were necessary. (Emphasis added)

In this regard, I am persuaded by the Company’s argument that

there are authorities in support of a situation where the employer’s
act of reassigning incidentals and outstanding upon the closure of a
unit or the retrenchment of a person does not detract from the reality
that there is a redundancy situation which justifies a retrenchment.

In Scarth v Economic Forestry Ltd [1973] ICR 322, an employee, a

timber manager was dismissed on the ground of redundancy. The
employer found it no longer economic to employ the timber manager
and his work was undertaken partly by the forestry manager and
partly by subcontractors. On appeal, the employee argued that the
facts found by the tribunal show that in the year of his dismissal he
would have felled approximately the same amount of timber as he
had felled in the previous years of his employment. However, in
dismissing the appeal, at p. 325 the court held:

22
But the fallacy in that approach is to
equate the requirement to achieve an
end with the requirement of the
business to have employees in order to
achieve that end…

In the exercise of his judgment, Mr

Cumberland [the director in overall
control of the operations] on behalf of
the employers, deemed it more
economic, against this background, to
dispense with the services of a timber
manager and to have the work done
partly by the forestry manager and
partly on a subcontract basis. In the
view of this court it is clear beyond
argument that on those facts the
tribunal were entitled to find that the
requirements of the employers’ business
for a timber manager in the midlands
area had ceased and that was the
reason for his dismissal.”

23
• More recently in Usahasama Proton – DRB Sdn. Bhd v
Khoo Chien Biau, the Industrial Court dealt with a case of a
company that decided to decline renewal of a fixed term
contract. There were many issues that were raised on the
status of the contract. But one of the arguments that found
favour with the Court the following:

“ If indeed there was a valid basis to abolish the Claimant’s position

then such a position is redundant and this is itself just cause or
excuse for such termination. COW-1 explained the following:

• The Company’s core business and principal activity is the

promotion and sale of Proton cars;

• The services rendered by the Claimant were not part of that

core business, instead it was ancilliary in nature;

• Taking into account the Company’s operation requirements and

the fact that the actual work on these matters were often
carried out by external contractors, the Company felt that the
various branches could deal directly with those contractors.
Where necessary, the Human Resources and Administration
Department could assist;

24
• And added factor was the fact that at the material times the
Company’s premises were rented so there was no need to have
a full time person to carry out rental payment, collections,
repairs or security;

To date the Company does not have a Maintenance Executive as it is

superfluous.

Applying the principles to this case I am satisfied that the Company

had just cause or excuse for terminating the Claimant’s tenure
whether we want to call that tenure a genuine fixed term tenure or
otherwise. I am mindful of the need to act in accordance with “equity
and good conscience” and in accordance with “substantial merits”.
Appreciating the substantial merits includes appreciating the practical
commercial realities that the Company operates in, and why in such
conditions it may not require the services of the Claimant as has
been explained by COW-1.”

These are situations that one frequently confronts in a merger or an

acquisition. Functions may become consolidated, or process layers
may be removed, or other steps may be taken to enhance
efficiencies all of which may contribute to a situation where the
business may be undertaken with fewer employees.

25
The key area of contention for an employer in any such case is to
demonstrate that there has in fact been a reduction in the demand or
requirement for a particular function. This is not something that is
particularly easy to quantify. Not all positions are capable of tangible
measurement. Yet in all jobs there is a critical mass that is required
in order to sustain the inherent efficacy for the retention of such a
position.

The next area of contention is that of selection. This is a highly

controversial area, because many an employer has faced defeat in a
redundancy case, not because of the absence of a redundancy
situation, but because the Courts were not satisfied that an objective
selection was carried out to discharge the surplus that arose. As a
general rule the last in first out rule is applied. There are exceptions
however to this rule:

i. where one is dealing with a single position that has been

abolished;

ii. where the employer can successfully invoke the Code of

Conduct for Industrial Harmony which also places an emphasis
upon organizational needs, efficiency and such like.

26
Aside from that there are serious questions as to how LIFO is
applied. Is it applied company wide, department wide, by the section
or on a group basis. Suffice to say that there is no way of applying
LIFO which pleases all parties. Given these uncertainties and the real
prospect that an aggrieved party will seek recourse against the
employer regardless of how LIFO is applied, employers have been
drawn to the use of VSS, as a means of resolution.

Constructive Dismissal

Where the employer does not retrench an employee but instead

reassigns to transfers him to a different position in a merger and
acquisition environment it does tend to invite questions of whether
such an assignment tantamounts to a constructive dismissal in law.

The usual grievance faced by the employer is that the employee

perceives that the position he has been assigned to is lesser in
stature, comparisons tend to be made to the comparative positions
held by the employee and the previous incumbents, with little
conscious regard for the fact that functions acquire an added
importance when they are amalgamated into a larger whole.

In modern Industrial Law, constructive dismissal lies rooted in the

well known and often quoted case of Wong Chee Hong v Cathay

27
Organisation (M) Sdn. Bhd. [1988] 1 MLJ 92. Wong was a
senior employee of Cathay. He had joined the services of Cathay as a
Junior Executive Assistant, he then rose in the ranks to become the
Personnel and Industrial Relations Manager. In that capacity Wong
negotiated and concluded a collective agreement with the Union.
Shortly after that he received a transfer order to the Overseas Union
Garden Cinema, Operations Department. He was to take charge of
that Cinema. The transfer order made it clear that his terms and
conditions of employment would remain unchanged. Wong was
aware that this was a position which he has previously occupied
some 16 years prior. Therefore although, there were no changes in
his terms and conditions Wong considered himself dismissed and
made a representation for reinstatement under Section 20 of the
1967 Act. The Industrial Court ruled in his favour. Harun J (as he
then was) however, quashed the Award. It was his view that
“constructive dismissal is not within the ambit of Section
20(1) of the Industrial relations Act. Industrial court
therefore had no jurisdiction”.

The case therefore came before the Supreme Court of Malaysia. Tun
Salleh Abbas L.P. noted the importance of the issue that he and his
brethren were being called upon to address:

28
 “This is an appeal from the decision
of Harun J. issuing an order of
certiorari quashing an award made
by the Industrial Court. The case, we
were told, raises an important
question of law as to told, raises an
important question of law as to
whether or not the doctrine of
constructive dismissal is applicable in
the interpretation of section 20 of our
Industrial Relations Act 1967.”

His Lordship then went on to observe inter alia as follows :

“Thus it is clear that even in England,

“constructive dismissal” does not
mean that an employee can
automatically terminate the contract
when his employer acts or behaves
unreasonably towards him. Indeed if
it were so, it is dangerous and can
lead to abuse and unsettled industrial
relations. Such a proposition was
rejected by the Court of Appeal.

29
 What is left of the expression is now
no more than an employee’s right
under the common law, which we
have stated earlier, and goes no
further. Alternative expressions with
the same meaning, such as “implied
dismissal” or even “circumstantial
dismissal”, may well be coined and
used. But all these could not go
beyond the common law test”.

However, once the Industrial Court found a constructive dismissal to

exist it then had to satisfy itself that the employer’s actions did not
admit “just cause or excuse”.

The Contract test and the Implied term

There were obvious difficulties in the application of the contract test.

In most cases where an employee alleged constructive dismissal
there was rarely if ever a breach of any express term of the contract
of employment. Nevertheless in very many such cases, it was equally
plain that the employer’s actions were of such nature and quality that
it had the effect of driving an employee out of service.

30
Employment law is an area of law where implied terms play a real
and dominant role whereby the implied terms which have evolved
alongside the broader principles of industrial adjudication have
operated so as to regulate and control the exercise of managerial
prerogatives and even those managerial prerogatives which are
enriched through express provisions in the contract of employment.
Gajendragadkar J in R.B. Diwan Badri Dass & Ors v Industrial
Tribunal, Punjab, Patiala & Ors. AIR (1963) SC 630:

“The broad and general question

raised …on the basis of the
employer’s freedom of contract had
been frequently raised in industrial
adjudications; and it has consistently
been held that the said right is now
subject to certain principles which
have been evolved by industrial
adjudication in advancing the cause
of social justice…

The doctrine of the absolute freedom

of contract has thus to yield to the
higher claims for social justice…”

31
It is as a result of advance in the implied term and as a result of a
claim in constructive dismissal being founded upon a fundamental
breaches of implied terms it has provided a vehicle for persons to
contest the manner in which their positions are restructured. Viewed
differently, what started out as an effort to shield an employee from
wrongful actions by an employer who is desirous of circumventing
the employment protection regime has now become transformed into
a sword which lies at the employee’s disposal by which he may
combat any act of employer which earns his displeasure.

There are cases up and down the country where constructive

dismissal has been employed in order to oppose transfers,
departmental reorganizations, changes in duties and responsibilities,
alterations in reporting structures, the issuance of a suspension order
and so forth. Obviously, at one end of the spectrum there were
indeed cases like unto Wong’s case where the employer’s actions
could reasonably be said to drive the employee out of his post. But
on the other hand there are clearly cases where accusations are
made as to underlying motives or bona fides of an otherwise normal
course of action by an employer. In these cases the employee would
be heard to say that there was in a breach of the implied terms of his
contract as he had been relegated to a position of lesser importance
pr that his powers were curtailed and such like.

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Whether or not these allegations are true or otherwise, is a question
of fact and of degree. An officer at a conciliation level will not be able
to undertake an evaluation of this evidence nor would he be able to.
As the Court of Appeal observed in the Hong Leong Case:

“The way in which the Act is

constructed makes it clear that it is
only the Industrial Court which is
conferred with an adjudicatory
function. The two precedent powers,
namely, the Director General and the
Minister, cannot therefore assume a
function expressly reserved to the
third.”

What does this leave the employer? The employer must be prepared
for a situation where it will be subjected to scrutiny even in regard to
a perfectly normal course of action taken in the line of carrying on its
trade, business or calling.

The trend of cases are mixed. There is on the one hand a significant
growth in the use of the implied term of mutual respect trust and
confidence which many an employee would argue prohibits acts

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which undermine the standing or prestige of the incumbent. Be that
as it may there is also a clear trend of cases which recognize the
need to respect managerial prerogatives and to observe restraint
where there are no breaches of the terms of employment as such:

In UMW Engineering Sdn Bhd v Fong Pak Fai [1995] 2 ILR

782, Tuan Tan Kim Siong held as follows :

“The claimant’s impression or fear in

his new position has been
misconstrued and has presupposed the
company’s ultimate intention to ship
him out from his new assignment. The
assertion of the claimant as a result of
a series of words and actions by the
top executive of the company, is, in
my view, more indicative, of the state
of the company’s intention to force
him out of his employment. The
claimant ought to have
acquiesced to the transfer and
should have waited until the
picture was brighter. There is a lot
of smoke but no fire. The claimant

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 should have reported for work at
his proved right there would have
been plenty of time for him to
walk out of his job. Constructive
dismissal is not something an
employee stumbles across, like
the answer to a riddle or the prize
in a treasure hunt. It is the duty and
function of this Court the label is not
loosely used lest the meaning loses its
effect and direction. The unique
pattern of constructive dismissal is that
the employee abandons his
employment and holds his employer
responsible for his abandonment. It is
something like ‘I resign and I say
action makes me do so’.

In Talasco Insurance Sdn Bhd v Industrial Court of Malaysia

& Anor (OM No. R1-25-141-94), the workmen attempted to make
out a case of constructive dismissal based on similar grounds i.e. a
change in his reporting line and the shift to a smaller room. His
Lordship Dato’ Hj Abdul Kadir Bin Sulaiman quashed the
Industrial Court Award and held as follows:

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“It is the Applicant’s prerogative
to decide who is more suitable for
a particular job for so long as in
the making of the decision, it
acted in good faith and that the
2nd Respondent’s responsibilities,
salary and all other terms and
conditions of service with the
Application remained unchanged.
It may result in the loss of pride
for the 2nd Respondent to be the
subordinate of the newly
appointed immediate superior.
But this loss of pride alone would
not constitute a dismissal of the 2nd
Respondent by the Applicant.”

“…The obdurate refusal of the

Appellant to accept conditions
very properly and sensibly being
sought to be imposed upon her
was unreasonable. Watkins LJ
held at page 702 that :

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 “Employers must not, in my
opinion, be put in a position
where, through the wrongful
refusal of their employees to
accept change, they are
prevented from introducing
improved business methods in
furtherance of seeking success for
their enterprise.”

This is a fact that becomes even more apparent, when the employer
takes the affirmative step of reassuring employee of his position and
asks him to return to work. Where an employee declines to do so he
declines to do so at a severe risk. Because in many instances where
the allegation of constructive dismissal is made by an employee who
declines a transfer or by one who opposes a new posting or by one
who opposes a reorganization, it may not be possible to him to
substantiate his case by rational or probative evidence without having
to try out the position first. Without so doing, any allegation that is
made is bound to be hypothetical in nature in most cases.

Conclusion

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What we can all gather from the above is that the advent of an
acquisition or a merger brings with it a series of challenges which
opens up several potential pockets of dispute. The task lies with us to
factor these realities into our planning and to reduce the margin of
risk at a every progressive turn and corner whilst compromising as
little as possible to the business plans of the organization.

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