Anything can happen during litigation. An unfair dismissal claim can take years to resolve, and during this period, some employers could end up being insolvent, wound up, acquired by another entity, or dormant. In such situations, employees are left with a dilemma as to the state of their claim.

What happens to their claim if the employer is wound up / dissolved, or is in no financial position to pay the compensation awarded by the Industrial Court?

Section 29 (a) of the Industrial Act 1967 addresses this issue as it provides power to the Industrial Court to join/include parties to an unfair dismissal claim.   This provides some sort of remedy to the employee since parties other than the employer could be joined to the unfair dismissal claim and be made liable for any award for compensation by the Industrial Court.

However, several conditions have to be met before roping any party into a dispute. To justify the joinder of a third party into a claim, the burden is placed on the applicant to satisfy a two-fold test:

  • Does the inclusion of the other party make the adjudication effective and enforceable?;
  • Does the employer named in the unfair dismissal claim fully represent the interest of the employer? If not, other persons who are interested in the undertaking of the employer may be joined.

The 1st limb centres on the issue of effectiveness and enforceability of the award. In order to be successful, an applicant must show that in the event an award is made in his favour, the company as his employer would not be able in reinstate him or pay him compensation.

The 2nd limb requires an applicant to establish a nexus between the employer company named in the unfair dismissal suit, and the proposed party to be joined.  It must be shown that the proposed party to be joined represents the interest of the employer or has an interest in the business or undertaking of the employer. However, it does not mean that the intended party to be joined has to fall under the traditional definition of an employer.

Some examples of successful joinder applications include:

  • Amran Ramakrishnan Abdullah v CS Metal Industries (M) Sdn Bhd [2006] 5 MELR 842: The employer company was wound up. Upon application by the employee, the Industrial Court joined another company as a respondent to the unfair dismissal claim. The Industrial Court there was sufficient nexus between this company and the employer company since both companies share the same business address and had common directors and shareholders.
  • Aminuddin Ahmad v EPC Oil & Gas Sdn Bhd [2014] MELRU 545: The Industrial Court joined an individual shareholder of the employer company since she was the directing mind of the employer company and was also the majority shareholder.
  • Shanmugam Muniandy v Safemel Drilling Sdn Bhd [2015] MELRU 1: There was evidence that the proposed joinee company had taken over the business affairs and management of the employer company. For example, the employee’s dismissal letter even carried the logo of the proposed joinee company. As such, the Industrial Court held that it was just and equitable to join the other company as a party to the unfair dismissal claim.

Joinder applications in unfair dismissal claims are inconsistent with the legal concept of the “corporate veil” – ie that generally, companies are separate and distinct legal entities from their directors, shareholders, holding companies and subsidiaries.  Directors and shareholders are not personally liable for the debts and liabilities of their companies.

However, an inroad has been made to this principle of law and the Industrial Court has made it clear that the corporate veil can be lifted if the justice of the case demands. The Court of Appeal in Asnah Ahmad v Mahkamah Perusahaan Malaysia & Ors [2015] 2 MELR 423 held:

“The Industrial Relations Act 1967 is a social legislation. Third parties can be made liable to pay the award notwithstanding that they were not the employer. Third parties cannot resist joinder or deny liability on grounds there is no privity or is a separate legal entity, etc when there is sufficient nexus between the party to be joined and the party named in the reference…”

As such, employers should take note that winding-up, or transferring assets out of the company will not necessarily put an end to the unfair dismissal claim.  Where the circumstances warrant, even directors and individual shareholders may be found personally liable for awards handed down by the Industrial Court.

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This article was written by Donovan Cheah (Partner) and Amirul Izzat Hasri (Associate) from the employment law and dispute resolution practice group of Donovan & Ho. If you have a query, please feel free to contact us.

 

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