Wrongful Dismissal and Unfair or Unjustifiable Dismissal and Its Remedies

This is the first of a two-part series on employment law. The first-part below analyses the common law wrongful dismissal and its remedies in a few jurisdictions including Malaysia, Singapore, Canada, UK and the US.

Security of tenure in employment is important to the extent that the courts in England¹ and in Malaysia² have equated it akin to ‘property right’. What the courts have been insisting by adopting the above concept is that a worker has interest proprietary in nature in the continuation of his employment.³ The courts in Malaysia have gone further by giving a liberal interpretation to the phrase ‘right to life’ in Art 5(1) of the Federal Constitution to include ‘right to livelihood’.⁴ The ‘right to life’ is a fundamental right of an individual and is not merely confined to physical existence alone but includes right to quality of life. Recently, however, ‘right to livelihood’ in the Federal Constitution has been given a more restricted application in the Federal Court decision of Pihak Berkuasa Negeri Sabah v Sugumar Balakrishnan.⁵ In Sugumar, the Court had adopted a literal and narrow interpretation Art 5(1), where it was stated that the above-mentioned article only deals with personal liberty and not liberty simplicitor.

Be that as it may, the recognition of ‘property right’ in employment illustrates the importance of the security of tenure in employment, a message that the courts have tried to put through in dealing with a worker’s right in the continuation of his employment. The importance of job security can be seen from the fact that remedies for its encroachment can be enforced either through common law wrongful dismissal or statutory unfair or unjustifiable dismissal.

Common Law Wrongful Dismissal

At common law, the employer-employee relationship is contractual; the employer may terminate the contract of employment by serving appropriate notice, as expressed in the contract or implied reasonable notice. Wrongful dismissal occurs when the employee is dismissed without notice or with inadequate notice.⁶ The rationale of giving notice is to offer the affected parties’ time, either to search for alternative employment or for the replacement of an employee, respectively.⁷ The parties, when entering into the contract of employment, may have agreed on the requirement of notice of termination of the contract.

Therefore, once notice is properly communicated, the employer is free to dismiss the employee on any ground with no obligation to reveal the reason for the dismissal.⁸ The employer may rely on the reasons for dismissal discovered subsequent to the dismissal, whenever there is impending litigation.⁹ It does not include aggravated damages, which is quasi-punitive in nature¹⁰ nor does it include exemplary or punitive damages. Furthermore, no damages can be recovered for mental distress following from the manner of the dismissal, or for injured feelings, as it is punitive in nature.¹¹

Termination of the Contract of Employment: The Notice Provision

Agreed length of notice of termination: The binding effect

Coming back to the requirement of notice of termination of the contract of employment, the agreed length of notice provision in the contract binds the parties. In those circumstances, a term requiring reasonable notice would not be implied. Whether the contract was read and explained to the employee, or whether there was an implied term, is immaterial. Failure to comply with the express provision may give rise to a claim for damages representing the period of notice agreed and not served on the other party. The pre-estimated damages are payable if the contract is unduly broken and the party affected is not bound to give credit for any actual or imputed earning as there is no duty to mitigate loss.¹²

In fact, a worker exposed to the ‘harsh termination provision’ cannot be relieved by equity on grounds such as inequality of bargaining power, absence of consensus ad idem, unconscionability, or change of circumstances removing the substructure.¹³ By way of illustration reference may be made to the Canadian case of Wallace v Toronto-Dominion Bank.¹⁴ In this case, the plaintiff began his career with the defendant as a System Research Analyst in 1970. He was initially given a probationary period of three months. Before the probationary term ended, at the request of the Bank, he was transferred to the Inspection Department. He was subsequently made a permanent employee of the Bank with an increase in salary. The contract of employment provided that either party could terminate the contract by giving four weeks’ notice. However, if the employer initiated the termination of the contract, he would be bound to pay all the salary owed for time already worked plus salary for an additional four weeks.

After four years of satisfactory performance the plaintiff was transferred, at his request, to the General Banking Stream. He underwent training, which the employer expected would take a period of 12–18 months, but the plaintiff took 24 months to complete the training. Although the longer period for completion was beyond his control, this was to the bank’s dissatisfaction. Upon completion, he was assigned as Assistant Manager in one of the branches, with the original provision of notice being preserved in the contract of employment. His salary was at a rate higher than normal for someone in his position because he had carried over his rate from his previous position.

As his performance was deemed to be unsatisfactory, he was constructively dismissed in 1978. The trial court upheld the constructive dismissal, but disapproved of the express provision of four weeks’ notice in the contract of employment, and held that under the circumstances he was entitled to 12 months’ notice (in accordance with the number of years the plaintiff had served and the position he held at the point of dismissal). On appeal, the Court of Appeal upheld the finding of constructive dismissal by the lower court, but by a majority held that the employment contract was still binding, entitling the plaintiff to only four weeks’ notice. Robins JA, for the majority, noted that the inequality of bargaining power inherent in the employment hiring context would not by itself be enough to render such harsh notice provisions unenforceable. According to His Lordship, the terms relating to notice to terminate the contract ‘were not hidden in a maze of fine print but were set forth clearly and understandably on the evidence’. He further added that there was no ‘attempt to take advantage of the plaintiff or to exert influence over him so as to procure a contract that otherwise would not have been made, and nothing that transpired can be treated as being oppression of him or as constituting the type of coercion that may vitiate consent.’¹⁵

From the above case, although the contract of employment between the parties lasted approximately eight years, the Court upheld the express provision on notice, which stipulated four weeks’ notice to end the relationship. Based on the above case, it is quite clear that at common law, an express term on notice will be effective, regardless of any unfavourable circumstances because it was agreed at the very beginning and the terms form the essence of a contract.¹⁶

It may, however, be argued that the express provision on notice might have been reasonable in the early stages of employment, but after a substantial period of employment, coupled with an increase in responsibilities after promotion, such a clause appears to be rather harsh and unfair. In light of the earlier mentioned case, when there is an express term on notice of termination, very rarely, if at all, will equity intervene to circumvent the agreed term.

Reasonable notice of termination

In the absence of an express provision, the period of notice would be determined either by the custom of the trade or industry or what is reasonable in the circumstances of the case. In the English case of Richardson v Koeford,¹⁷ Lord Denning MR (as he then was) noted that, ‘in the absence of express stipulation, the rule is that every contract of service is determinable by reasonable notice’. The factors that constitute reasonable notice are determined objectively with reference to the facts and the surrounding circumstances of each case.

There is no formula that can be derived leading to a certain result since the facts will vary from one case to another. Many factors are taken into consideration and this includes, inter alia, the age of the employee, seniority in employment, nature of the work and the availability of similar alternative employment. The Supreme Court of Canada in Wallace v Toronto-Dominion Bank¹⁸ added the manner of the dismissal, as another factor for computing the period of notice. It is worthwhile reproducing the commentary by Kroft JA in Wiebe v Central Transport Refrigeration (Man) Ltd¹⁹ — a Canadian case:

The determination of reasonable notice is a question with which lawyers and judges often grapple. Yet, there seems to be no single approach or philosophy, which has met with general acceptance or satisfaction. The most that can be said with any degree of certainty is that the ‘pigeon-hole’ or ‘catalogue method’ is not the answer. The endeavour of going through a list of similar fact categories with dollar value attached in order to find the items best fits, is endless, arbitrary and of little value.

In another Canadian case, Bardal v Globe and Mail Ltd,²⁰ McRuer CJ observed that:

There could be no catalogue laid down as to what was reasonable notice in particular classes of cases. The reasonableness of the notice must be decided with reference to each particular case having regards to the character of the employment, the length of service, the age of the servant and the availability of similar employment, having regards to experience, training and qualification of the servant.

Nevertheless, the following are some of the important factors that have been considered by the courts in common law jurisdictions when computing reasonable notice:

(a) Age of the worker: Generally, permanent employment does not imply a contractual right to a freehold tenure of the post or employment for life.²¹ In the absence of grounds justifying early termination of the contract of employment, the employee is subject to a compulsory retirement age, ranging between 55 and 65 years.²² Senior employees who have been dismissed may have difficulty finding alternative employment. If an employee is dismissed from 45 years onwards, he would certainly have difficulty in seeking other employment for it has been generally accepted that the productivity of an employee reduces as his age increases. This statement might be qualified against those engaged in their professional capacities, who might find little effect from the increase in their age.

(b) Length of loyal service: Long-term employment carries weight in the assessment of the notice period. An employee who has devoted a large part of his working life to a particular position of employment, working his way up through the ranks, developing expertise and knowledge in the affairs of his employer and enjoying the rewards of his efforts, would be placed in an extremely difficult position if suddenly released into the labour market. Thus, long-term employees would certainly require a longer period of notice when they are wrongfully dismissed.

      In exceptional circumstances, however, a worker with a short employment history may equally be awarded a long period of notice. It may be illustrative to refer to the New Zealand case of Brandt v Nixdorf Computer Ltd.²³ In the above case, the termination took place at the very onset with the plaintiff’s employment with the defendant lasting less than two months. The court, however, awarded the plaintiff 12 months as reasonable notice.

(c) Nature and character of employment: An employee whose expertise is gained through experience and his knowledge is highly specialised may find it extremely difficult to obtain other suitable employment. Thus, manual workers generally receive a shorter notice period than one who is in the managerial or professional category. For example, the chief executive officer of a large corporation would likely have less opportunity for similar alternative employment than a manual labourer. Therefore, the former would be entitled to longer notice than the latter.

(d) Manner of dismissal from employment: Manner of dismissal was only recognised recently as a factor in computing reasonable notice. It was introduced by the Supreme Court of Canada in Wallace v United Grain Growers Ltd.²⁴ In this case, the court recognised the existence of inequality in bargaining power in an employment contract where employees are usually the more vulnerable group. Therefore, the employer’s prerogative of hire and fire must be qualified, and they ‘should refrain from engaging in conduct that is unfair or is bad faith by being for example untruthful, misleading or unduly insensitive’.²⁵ The court concluded that:

[W]hen termination is accompanied by acts of bad faith in the manner of discharge, the results can be especially devastating. In my opinion, to ensure that employees receive adequate protection, employers ought to be held to an obligation of good faith and fair dealing in the manner of dismissal, the breach of which will be compensated for by adding to the length of the notice period.

These are some of the factors, although not exhaustive, that would be considered in computing the reasonable notice of termination. Other factors that may be considered include importance of the position held, the size of the worker’s salary, what the worker had given up to come to be employed with the employer, and economic crisis or recession.

Once it has been decided which factors are applicable in each particular case, the conclusion of length of notice is a matter of discretion for which there will be different opinions. Furthermore, the length of notice required is not the sum of the period fixed for each of the relevant factors, but a single period of time fixed with regard to all of the factors.²⁶ Therefore, case law merely serves as an illustration and each case must be decided on its own facts.

Circumstances where the requirement of notice of termination may be waived

At common law, an employer may dismiss workers from employment without notice when the employee has committed gross misconduct, such as immorality at the work place, insolence and insubordination, criminal conduct, or any conduct inconsistent with the relationship of an employer and employee. The conduct that justifies summary dismissal must, however, be so serious that it entitles the injured or innocent party to terminate the contract and that continuation would not be consistent with a proper relationship between the parties.

Whether or not the conduct justifies summary dismissal, the courts will generally have regard to:

(i)   the nature and degree of the alleged misbehaviour;

(ii)  its significance in relation to the employer and to the position held by the employee;

(iii) its effect on the confidential relationship between them as against the severe consequence of dismissal; and

(iv) misbehaviour which must be such that it goes to the heart or root of the contract between the parties.²⁷

Thus, to justify a summary or instant dismissal as opposed to a dismissal on notice, expressed or implied, it must be shown whether the worker has been guilty of serious misconduct of such gravity to render the further continuation of the employment relationship impossible.²⁸ The burden of proving misconduct justifying summary dismissal lies with the employer who has to establish such conduct on the balance of probabilities.

Specific Performance of Contract of Employment

When the employer breaches the contract, the requirement of mutual obligations of confidence and trust that is supposed to exist between the parties is thereby infringed and thus, the remedy of specific performance becomes somewhat impracticable. The common law courts are usually reluctant to grant an equitable remedy by way of specific performance for various reasons. This includes, inter alia, the fact that contracts of employment are personal,²⁹ they involve mutual obligations of confidence and trust,³⁰ and the effect would likely be seen as imposing ‘forced labour’ and reminiscent of serfdom.³¹ Furthermore, the enforcement of the remedy would be considered a futile exercise.³² At common law workers do not have security of tenure and in the event of wrongful dismissal, damages are by far, the sole remedy. Since contracts of employment are personal in nature, the courts are fully aware of the impracticability of an order of specific performance against someone who is unwilling to maintain a continuous relationship, and will therefore not make such an order.

While the common law courts are generally reluctant to grant specific performance in cases of personal contract, it must be stated that there is no rule that such contracts cannot be specifically enforced. Whether or not to award specific performance of contracts of service is not a matter of right for the party seeking relief, but is at the discretion of the court, which is guided by established principles, rather than by intuition. Each case has to be decided on its own facts and only when such an order would result in an unworkable relationship or when the inconvenience or mischief of decreeing specific performance would greatly outweigh the advantages, that specific performance will be declined. Megarry J in GH Giles and Co Ltd v Morris³³ — an English case, observed that:

But I do not think that it should be assumed that as soon as any element of personal service or continuous service can be discerned in a contract the court will, without more, refuse specific performance. Of course, a requirement for the continuous performance of services has the disadvantage that repeated breaches may endanger repeated application to the court for enforcement. But so many injunctions; and the prospects of repetition, although an important consideration, ought not to be allowed to negate a right. As is so often the case in equity, the matter is one of balance of advantage and disadvantage in relation to the particular obligations in question; and the fact that the balance will usually lie on one side does not turn this probability into a rule.

Specific performance of a contract of employment has been awarded in two situations, and may be broadly examined under the following headings:

Mutuality of obligation not infringed

This is where the mutual confidence between the parties is still in existence, such that there still exists the loyalty, trust and confidence for the employment to continue effectively. The existence or otherwise of mutual confidence is examined from the surrounding circumstances, such as nature of the work, the people with whom the work must be done, past history of employment, and the direct relationship of the employee with the employer or with other employees.

Any allegation that such an obligation is non-existent must be established on genuine grounds, and not based on mere assertion. For instance, in Hill v CA Parsons and Co Ltd,³⁴ the plaintiff aged 63, had been an employee of the defendant’s organisation for 35 years. As a result of his failure to join a trade union, and under pressure from the union, the defendant purported to terminate the plaintiff’s contract of employment with one month’s notice. An order was made to compel the defendant to continue to employ the plaintiff as the confidence between the parties was still intact and that the dismissal was the result of union pressure.

Execution of service agreement

When the parties have entered into a contract of employment, which laid down the procedure for dismissal, a purported dismissal in defiance of the agreed procedure would be nullified. For example, where there is a collective agreement or individual contract laying down a certain procedure to be complied with prior to the termination of the contract, failure to observe the procedure may render the dismissal ineffective. Therefore, an order of specific performance might be granted to compel the employer to retain the employee until that procedure has been properly complied with.³⁵

As noted by Lord Cairn LC in Doherty v Allmen³⁶ — an English case:

If parties, for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a Court of Equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done; and in such case the injunction does nothing more than give the sanction of the process of the Court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, by the Court, of the negative bargain which the parties have made, with their eyes open, between themselves.

For example, in GH Giles and Co Ltd v Morris and Ors³⁷ an English case, there was an agreement dated 6 November 1970, which contained terms and conditions, one of which specified that the defendants would ensure that the plaintiff be appointed under a service agreement as Managing Director of Invincible Policies Ltd, for a term of five years. However, due to disagreements prevailing among the defendants, the plaintiff was not appointed to the above position, which led the plaintiff to file a writ in court, claiming for the specific performance of the contract.

The defendants initially consented to the specific performance order before a Master. However, they failed to honour the order because the plaintiff lacked appropriate experience in the field of insurance and the earlier order of the Master had been procured due to improper advice. A committal order was made for the disobedience of the order of the Master. It was held that although the court would not usually decree specific performance of a contract for personal service, all that the decree required in the present case was the procuring of a single act, ie the execution of the service agreement.

From the above, the general belief that specific performance will not be ordered in employment contracts could be qualified as exceptions do exist. Surely a long serving faithful employee who has contributed much to the company will be allowed specific performance, if on investigation it is shown he was dismissed, not due to breakdown of employer/employee relationship, but due to trade union pressure or race, to mention but a few. Such a dismissal does not tarnish the mutual trust and confidence between the employer and employee. For such a person damages could be most inappropriate, as he might have put his life and soul into being sincere and faithful to his job. Therefore, for such a person specific performance should be rightfully granted.

Specific performance may still be granted even if this were to require constant supervision by the courts. However, the main obstacle in awarding such a decree is that the employer may still end the employment relationship by serving appropriate notice following the order of specific performance.³⁸ Thus, it is questionable whether all the effort taken, money spent and time wasted for the sake of acquiring an order of specific performance, is really worth it.

Mitigation of Loss

At common law, a worker whose contract of employment has been wrongfully terminated is bound to make reasonable exertion and show diligence in endeavouring to procure alternative employment. Any amount received from the substituted employment would be taken into account to reduce the damages.³⁹ All that the worker is required to do is to try to obtain reasonable alternative employment. The reasonableness of such alternative employment is based on the geographical location, the nature of the work, including pay, status and responsibility, and the worker’s personal status in life.

For example, in the Canadian case of Bohemier v Strowal International Inc⁴⁰ the worker who responded to an advertisement published by the manpower office was regarded as having attempted to mitigate his loss. However, the worker is not required to travel across the whole country, probably at his own expense, simply to lessen the damages to which he would otherwise be entitled or even accept employment at a lower rate of pay or status.

In Bohemier’s case it was noted that the worker was not under any obligation to take a significant demotion in a new job as compared to his former job, or accept a lower salary or go back to the employer who fired him. Steps such as searching for another job or even undertaking training to learn new technology would be considered sufficient.⁴¹

Failure to accept suitable alternative employment or take reasonable steps to procure the same would result in a deduction from the total amount recoverable calculated on a sum representing the amount the employee might have earned during the period. It is for the employer to establish on the balance of probabilities that the aggrieved worker failed to mitigate damage.⁴²

In Brace v Calder and Ors⁴³ — an English case, the defendants were a partnership consisting of four members. The plaintiff was employed as manager of a branch of their business for a certain period. Before the period expired, two of the partners retired and the business was transferred to, and carried on by, the other two partners. The continuing partners were willing to employ the plaintiff on the same terms as before for the remainder of the period but he declined to serve them. The court held that dissolution of partnership operated as a wrongful dismissal and since the plaintiff failed to mitigate damage by accepting the employment, the plaintiff was entitled only to nominal damages.

Conclusion

From the above discussion, it is noted that at common law, workers are subject to the ‘at-will’ employment, where an employer retains the prerogative to terminate the employment relationship by appropriate notice, as expressed in the contract or implied by reasonable notice. When the appropriate notice is served on the worker, the employment relationship will come to an end at the expiry of the notice period. The employer is neither bound to warn the employee nor is he bound to give any reason for the dismissal. Nor are they bound to adhere to the rule of fairness. The burden of proof is on the employee to establish, on the balance of probabilities, that the dismissal was wrongful.

The primary remedy of a worker wrongfully dismissed from employment is damages representing the notice period. Damages are awarded with a view to put the employee in the position that he should have been, had proper notice of termination been awarded. The employer cannot be made liable for more damages simply because he does not have a good reason for dismissing the employee.⁴⁴ However, if the grounds for the dismissal are set out in the contract of employment, the employee cannot be dismissed on other grounds.⁴⁵

It must be noted that recently, the common law courts have been ‘intruding’ into the contract of employment by implying terms much to the advantage of the workers. This includes the recently recognised implied term of ‘trust and confidence’, which was endorsed recently by the House of Lords ‘as a sound development’.⁴⁶ The above implied term now featured in every contract of employment, their violation being a fundamental breach going to the root of the contract and thus, amounting to repudiation of the contract at the initiative of the employer.⁴⁷ It may lead to an employee resigning and claiming constructive dismissal. The type of behaviour that infringes the implied term of confidence and trust is questions of fact which are left to the courts to determine.⁴⁸

It must be emphasised that the above term does not, however, imply that the employer’s right to abort the employment relationship is curtailed. The common law courts have refused to imply the obligation of good faith in the discharge of workers by their employer. For example, in Wallace v United Grain Growers Ltd⁴⁹ the Supreme Court of Canada noted that ‘the Court should not imply into the employment contract a term that the employee would not be fired except for cause or legitimate business reasons. The law has long recognised the mutual right of both employers and employees to terminate an employment contract at any time provided there are no express provisions to the contrary. A requirement of ‘good faith’ reasons for dismissal would be overly intrusive and inconsistent with established principles of employment law.

Ashgar Ali Ali Mohamed

International Islamic University

E-mail: ashgar@iiu.edu.my