One of the most frequent questions posed by many individuals seeking redress in the Industrial Court concerns the possible remedies that are available to them after a long, hard legal battle. These remedies are typically:
- Reinstatement and backwages; or
- Compensation in lieu of reinstatement, and backwages
This article addresses the monetary element of the remedy, in particular the issue of backwages. As seen from the above, the Industrial Court normally provides backwages to an employee who has been dismissed without just cause or excuse, regardless whether reinstatement was ordered by the Court. Backwages prove to be a fundamental remedy in an unfair dismissal claim, but what are backwages exactly?
Definition of Backwages
Backwages are ordered by the Industrial Court to make up for the losses the claimant had incurred as a result of his dismissal, and is meant to put the claimant back in the position he would have been had he not been dismissed. Backwages are therefore awarded to cover the period from the date of the claimant’s dismissal, until the last date of hearing in the Industrial Court (or the date of reinstatement in the company).
The law has imposed a limit as to how much backwages can be awarded to an individual. Pursuant to the Second Schedule of the Industrial Relations Act 1967 (“The Act”), the maximum amount of backwages that can be given to confirmed employees is 24 months of their last drawn salary. Probationers are only entitled to receive a maximum of up to 12 months of their last drawn salary as backwages.
What are the various issues that will be considered by the Court in determining backwages?
There are several key issues that will be taken into account by the Court in assessing the amount of backwages that is to be awarded to a Claimant:-
- Whether the claimant obtained alternative employment after his dismissal
A deciding factor often viewed by the Court is whether the claimant had obtained any employment after being dismissed by his previous company. The Industrial Court in assessing the quantum of backwages, will take into account any salaries earned by the claimant after his dismissal and deduct the backwages accordingly. There is no fixed mathematical formula for the deduction of backwages as this is usually up to the Court’s discretion.
- Whether there was any contributory misconduct involved.
The claimant’s own misdemeanour or unsatisfactory conduct might be taken as a contributing factor towards the assessment of compensation for wrongful dismissal. Again, there is no fixed formula as to what kind of deductions may be made by the Industrial Court, although there have been cases where contributory misconduct resulted in deductions within the range of 30% to 50%.
Are allowances and commissions considered part of “wages”?
The Act does not provide a definition for “wages”. However, under the Employment Act 1955, “wages” are defined to include all payments to an employee for work done in respect of his contract of service, excluding certain items such as annual bonus, value of amenities provided to the employee, EPF contributions, travelling allowance or concession, or sums payable to reimburse an employee for expenses.
Certain allowances may still be included in the definition of “wages” when calculating backwages or compensation in lieu of reinstatement. If the allowances are payments for work done in respect of contracts of service, and are not reimbursements for expenses incurred by the employee, it may be treated as falling within the definition of wages. For example, cases have held that the following allowances can be considered part of wages: acting allowance, shift allowance, fixed petrol allowance, and outstation overnight allowance.
Commissions may be included under the spectrum of backwages, subject to several factors. The Court of Appeal in Lim Seng Huat v Fiamma Sdn Bhd  3 MLJ 604, awarded the claimant backwages that included sales commissions based on the following grounds:-
- The claimant’s commission was more than his basic salary; and
- There was no evidence that the claimant had not received any commission in any particular month prior before being dismissed.
The principles above have been echoed and reaffirmed in other Industrial Court cases, although it means that whether commissions can be included in an award of backwages would still be determined on a case-by-case basis. Claimants who seek to have their commission calculated as part of their average monthly salary, must be able to provide evidence to show their monthly commission earnings.
Backwages may therefore cover different types of remuneration, earnings and allowances and is not necessarily restricted to an employee’s basic salary. Backwages remain an important remedy as they help ease the turmoil one goes through when he faces the grim reality of unemployment.
About the author: Amirul Izzat Hasri is an associate in the dispute resolution practice group at Donovan & Ho. He has experience in a diverse area of practice, including general civil and corporate litigation, judicial reviews, land related matters, defamation, debt recovery, and shareholder and boardroom disputes. He has also appeared in Industrial Court proceedings, having represented both employers and employees in unfair dismissal claims.