An oft-repeated business mantra is “be slow to hire and quick to fire”.  Unfortunately, what many managers do not realise is that a “quick to fire” approach also carries significant risks, especially in Malaysia, which does not adopt the principle of “at-will” employment. Trigger happy employers may soon find themselves at the wrong end of a lawsuit if they don’t take the appropriate steps and precautions prior to making the decision to terminate an employee.

THE LAW ON UNFAIR DISMISSAL

It is not uncommon to hear of Malaysia’s reputation for having a legislative landscape that is “pro-employee”. This is true to a certain extent as Malaysian law provides several avenues for terminated employees to seek redress if they feel their termination has been unfair. However, this does not mean that it is impossible to fire employees in Malaysia; what it means is that employers must first satisfy certain legal requirements before they can terminate an employee.

Section 20 of the Malaysian Industrial Relations Act 1967 (“IRA 1967”) provides that an employee who claims he has been unfairly dismissed may make a representation to the Director General for Industrial Relations (“Representation”) within 60 days from the date of his dismissal. Procedurally, this is what happens after a Representation is filed:

  • The Industrial Relations (IR) Department will organise a conciliation meeting between the employee and the employer. At this meeting, an IR officer will act as a mediator between the two parties in hopes that the matter can be settled amicably. Legal representation is not allowed at the conciliation meeting.

 

  • In the event a settlement cannot be achieved at the conciliation meeting, the matter will be referred to the Minister of Human Resources, who has the discretion to decide whether or not to refer the matter to the Industrial Court.

 

  • Once the matter is referred to the Industrial Court, the employee’s claim will go through a mechanism that is similar to a civil claim. A trial (with witness testimony) will be heard before the Chairman of the Industrial Court, sitting alone.

If the Industrial Court finds that the employee has been unfairly dismissed, the employee will typically be awarded either: (a) reinstatement and backwages; or (b) compensation in lieu of reinstatement and backwages. Practically speaking, reinstatement is rarely granted unless both parties agree (which is rarely the case). It is more common for the Industrial Court to grant compensation in lieu of reinstatement, which is typically awarded on the basis of 1 month’s salary for every year of service.

Backwages are also awarded to cover the period between the date of dismissal and the date of the award. For confirmed employees, backwages awarded by the Industrial Court are capped at a maximum of 24 months of the employee’s last drawn salary (The cap is 12 months for probationers). However, all remedies are still subject to mitigation and discretionary considerations and the Industrial Court may revise the quantum to take into account specific circumstances, such as if the employee has already found alternative employment.

The potential exposure to an employer in an unfair dismissal case can be significant. Imagine a situation where a highly paid and senior employee is dismissed after 10 years of service – the maximum exposure for the employer would be up to 34 months of his last drawn salary, and could therefore run into hundreds of thousands of ringgit.

It is also worth pointing out that aside from the mechanism under the IRA 1967, aggrieved employees may also opt to file a civil claim against their employers for breach of contract and/or unlawful termination.

WHAT IS “WITH JUST CAUSE AND EXCUSE”?

In order for employers to successfully defend an unfair dismissal claim under the IRA 1967, employers will have to prove that the dismissal is “with just cause and excuse”. The phrase is ambiguous to say the least and perhaps intentionally so. The Industrial Court prides itself on being a “court of equity and good conscience” which means that they determine cases on the substantial merits without regard to technicalities and legal form.  The flexibility of the Industrial Court therefore comes at the expense of certainty.

Generally, the principle of “just cause and excuse” means that the employer must have proper justification and reasons to terminate the employee. The threshold will vary depending on the reasons for termination: for example, termination on grounds of redundancy may require the employer to prove that the functions of the employee were eliminated or were in excess to the needs of the company (among other things).

The Industrial Court also takes into account “procedural fairness”, so it is also entirely possible that an employer may have good grounds for dismissal but still lose the unfair dismissal case because the dismissal was procedurally unfair or against the rules of natural justice.

Ramifications of an unfair dismissal claim can be far-reaching and in some cases, catastrophic to business. An employer who does not invest in doing some groundwork before termination may find himself begrudgingly paying a large settlement sum to a dismissed employee in order to avoid more significant liability. These settlement sums may even exceed the sums usually paid as bonuses to excellent, high performing employees, and that may be the biggest tragedy of all.

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ABOUT THE AUTHOR. Donovan Cheah is a partner at Donovan & Ho. He is an advocate and solicitor of the High Court of Malaya, and his writings have been featured in publications like The Star, the American Chamber of Commerce updates, and Asialaw.

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