Poor performance due to culpable incompetent and inefficiency are misconduct and can be cause for dismissal’ (Mohd Hilmi Alham v Bermaz Motor Trading Sdn Bhd [2020] ILRU 0393).‘Any conduct inconsistent with the faithful discharge of his duties or any breach of the express or implied duties of an employee towards his employer unless it be of a trifling nature, would constitute an act of misconduct’ (Holiday Inn, Kuching v Lee Chai Siok, Elizabeth [1990] 2 ILR 262).The High Court in NXP Malaysia Sdn Bhd v Nurshakila Binti Sahlan (Civil Appeal No.: BA-16A-4-10/2024) has clarified that poor performers are not entitled to termination benefits under the Employment (Termination and Lay-Off Benefits) Regulations 1980 (“Regulations”).
The High Court held that the Director General of Labour (“Labour Court”) erred in deciding that the employee was entitled to termination benefits and allowed the Company’s appeal.
Brief Facts
- The employee was hired as an operator in August 2013 and promoted to trainer in 2021.
- In early 2024, the employee’s performance was deemed unsatisfactory, and the Company implemented a 3-month Performance Improvement Plan (PIP) from January to March 2024.
- The employee failed to complete the PIP satisfactorily and was terminated on 8 April 2024 for poor performance.
- The employee claimed that her termination was carried out without warning, internal inquiry or notice, and sought 1 month’s payment in lieu of notice and statutory termination benefits.
- The Company maintained that the employee was given the opportunity to improve her performance in line with the PIP, and that it had conducted monthly performance reviews during the PIP period, issued monthly warning letters after each review, and allowed sufficient opportunity for improvement before termination of employment.
- At the Labour Court, it was found that the employee was not entitled to 1 month’s payment in lieu of notice, as her employment contract allowed termination for unsatisfactory performance.
- However, the Labour Court allowed the former employee’s claim for termination benefits, from 1 January 2023. This was because the Regulations provided only 3 situations where termination benefits are not payable (retirement, termination for misconduct, or voluntary resignation). Therefore, an eligible employee terminated for poor performance is still entitled to statutory termination benefits.
High Court’s Findings
- The High Court considered whether poor performance constitutes misconduct:
– ‘Any conduct inconsistent with the faithful discharge of his duties or any breach of the express or implied duties of an employee towards his employer unless it be of a trifling nature, would constitute an act of misconduct’ (Holiday Inn, Kuching v Lee Chai Siok, Elizabeth [1990] 2 ILR 262).
– Poor performance due to culpable incompetent and inefficiency are misconduct and can be cause for dismissal’ (Mohd Hilmi Alham v Bermaz Motor Trading Sdn Bhd [2020] ILRU 0393).
- Here, the employee did not improve during the PIP, and warning letters were issued after every monthly review.
- The Court was satisfied that the Company complied with Section 14(1) of the Employment Act 1955, which requires a due inquiry before terminating an employee without notice for failure to perform duties.
- The Company had also satisfied the three key elements to justify dismissal for poor performance:
- The employee was warned about unsatisfactory performance.
- The employee was given sufficient opportunity to improve.
- The employee still failed to sufficiently improve their performance.
- The High Court concluded that the Labour Court erred in awarding termination benefits to the employee, and therefore allowed the Company’s appeal.
Key Takeaways
Proper documentation and procedures, including but not limited to performance improvement plans, regular performance reviews, and warning letters, would be helpful for an employer’s case to support lawful termination. The High Court has clarified that poor performers are not entitled to statutory termination benefits, if they are properly terminated on grounds of poor performance.
While the documentary processes (and legal criteria) for poor performance and misconduct may differ, the law recognises that poor performance resulting from incompetence or inefficiency can be treated as misconduct, which may justify dismissal. Employers should therefore ensure that the employment contract expressly contain provisions that allow termination of employment without notice specifically on grounds of poor performance.
Before this case, it was not clear whether poor performers would be entitled to termination benefits, since poor performance is not mentioned in the Regulations. This decision provides greater clarity. However, questions remain: if poor performance is not listed as a ground for termination in the employment contract, could the employee then claim payment in lieu of notice and statutory termination benefits? Employers should consider this when drafting contract terms.
Another point to note from the Labour Court’s decision (which was not addressed on appeal) is that if termination benefits are granted, statutory eligibility would likely be calculated from 1 January 2023, the effective date of the Employment (Amendment) Act 2022 (“Amendments”), if the employee was not entitled to statutory termination benefits before the Amendments took effect.
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This article was written by Adelyn Fang (Associate) from Donovan & Ho’s employment law practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.
