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The High Court's recent decision clarifies the exent of back wages that can be awarded to probationers on fixed term contracts.

The High Court’s recent decision clarifies the exent of back wages that can be awarded to probationers on fixed term contracts.

The High Court’s recent decision in Malayan Banking Berhad v Mahkamah Perusahaan Malaysia & Anor [2016] MLRHU 1 (17 October 2016) clarifies the remedies available to a probationer who is on a fixed term employment contract, in an unfair dismissal claim.

Briefly, these are the facts:

  1. The employee in question was on a fixed term contract of employment for 12 months from 18 January 2010 to 17 January 2011.
  1. Her fixed term contract of employment included a 6 month probationary period.
  1. On 30 July 2010, the employee was not confirmed (ie terminated) and she filed a complaint of unfair dismissal.
  1. The Industrial Court found in favour of the employee and awarded her 12 months backwages, with a 20% reduction for post-dismissal earnings.

The employer filed an application for judicial review against the Industrial Court’s decision. One of the grounds raised by the employer was that as the employee was on a fixed term contract, had she not been terminated on 30 July 2010, her contract would have expired on 17 January 2011 ie 5 months and 17 days later. As such, the Industrial Court should not have awarded 12 months of backwages.

The High Court agreed with the employer and quashed the Industrial Court’s decision. The High Court held that for employees on a fixed term contract (whether a probationer or a confirmed employee), their entitlement to back wages must be limited to the unexpired term of their fixed term contract:

“Although the [employee] was both on probation as well as on a fixed term contract, this did not alter or change the nature of the contract from being that of a fixed term contract. Assuming [the employee] was not terminated and had in fact successfully passed her probationary period, she still would at the end of the one year period have to leave the employment of the [employer] in the absence of any extension of the contract.

Therefore, although the [employee] was also placed on probation, her entitlement to backwages upon being unfairly dismissed has to be limited to the unexpired term of her fixed term contract. Any other construction would render the whole intent and purpose of having a fixed term contract meaningless.”

The High Court therefore ordered that the employee be paid backwages for a period of 5 months and 2 weeks (ie the balance of the unexpired term of her contract). The backwages were also rescaled/deducted by 40% to take into account the fact that after her termination, the employee found a new job and was earning almost 3 times her previous salary.

Commentary

In an unfair dismissal claim:

  • Probationers are entitled to a maximum of 12 months’ back wages.
  • Confirmed employees are entitled to a maximum of 24 months’ back wages.
  • Employees who are on a fixed term contract are entitled to back wages up to the unexpired term of their fixed term contract

This case was unique as the employee in question was both a probationer and on a fixed term contract.  The ambiguity arises because some fixed term contracts do not include probationary clauses, hence in those cases, the first two situations would never arise.

This decision by the High Court provides much needed clarity on the legal position, that employees who are on a fixed term contract can only be awarded back wages up to the balance of the unexpired term of their contract, regardless of their status as a “confirmed employee” or “probationer”. This award is still subject to deduction for post dismissal earnings and other relevant factors.

In making this decision, the High Court observed that it is unusual for fixed term contracts to have a probationary clause; however this is apparently the practice currently adopted in the banking industry. Employers may now want to consider including probationary clauses in fixed term employment contracts since the probationary period will allow the employers to assess the employee’s performance before committing to the whole fixed term period. With this recent High Court decision, employers can rest assured that the potential financial exposure in an unfair dismissal case would be limited to the unexpired term of the contract.

The applicability of this decision is limited to genuine fixed term contracts, so at the same time, employers should be mindful of the Industrial Court’s general power to “convert” fixed term contracts into permanent employment contracts in the event they suspect bad faith.

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This article was written by Donovan Cheah with assistance from George Teng.  If you have any queries about unfair dismissal or employment law in general, please feel free to contact us.

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