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EMPLOYMENT – CONSTRUCTIVE DISMISSAL VIA TRANSFER: WHEN MANAGEMENT PREROGATIVE CROSSES THE LINE

1. Summary and Facts

In Sahurunzaman bin Barun v Perodua Sales Sdn Bhd & Anor [2025] 2 MLJ 17, three long-serving Perodua employees – Saharunzaman (OKU), Noramidah, and Mohd Razif – refused to resign from their permanent roles to accept a two-year contract with Perodua’s associate company, Nagoya Automobile Malaysia (NAM). In retaliation, Perodua abruptly transferred them to faraway branches (Kota Kinabalu, Kuching, Kuala Terengganu) with only three days’ notice, disregarding their personal circumstances, including medical issues and dependent family members.

They challenged the move as constructive dismissal. The Industrial Court ruled in their favour, but the High Court overturned the decision. The matter reached the Court of Appeal.

2. Legal issues

• Whether Perodua’s transfer orders were unreasonable and issued in mala fide to force the appellants out of employment?
• Whether the Industrial Court applied the correct test in finding constructive dismissal – i.e. the “contract test” versus the “reasonableness test”?
• Whether Perodua’s failure to secure work permits for Sabah and Sarawak postings breached the employment contracts?
• Whether the transfer orders constituted a fundamental breach of the employment contracts?

3. Court’s Findings

• The Industrial Court correctly applied the contract test, not the reasonableness test. Because the contract expressly required transfers to be “reasonably directed”, reasonableness was part of the contract term and therefore reviewable.
• The transfer orders were mala fide, intended to pressure the appellants into resignation without payment of lay-off or termination benefits. This constituted a fundamental breach of the employment contract.
• Perodua failed to apply for necessary work permits for postings to Sabah and Sarawak. Requiring employees to report for duty without permits was illegal and a breach going to the root of the contract.
• Perodua could not show genuine operational need for the transfers, nor did it provide evidence of alternative branches being full. Transfers appeared punitive rather than business-driven.
• The Industrial Court’s decision was reinstated. Each claimant was awarded compensation in lieu of reinstatement and backwages, with costs.

4. Practical Implications

Employers must exercise contractual transfer powers reasonably and in good faith. Where transfers are used as a tool to compel resignation or as retaliation, courts may find constructive dismissal and award compensation accordingly.

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