“Where a workman, irrespective of whether he is a member of a trade union of workmen or otherwise, considers that he has been dismissed without just cause or excuse by his employer, he may make representations in writing to the Director General to be reinstated in his former employment; the representation may be filed at the office of the Director General nearest to the place of employment from which the workman was dismissed.” (The Law on Unfair Dismissal; Section 20 (1) of the Malaysian Industrial Relations Act, 1967).
Are you aware that in Malaysia, on an average, 1700 cases of unlawful dismissal are referred to the Industrial Court per year? It is not uncommon to hear of Malaysia’s reputation for having a legislative landscape that is “pro-employee” (Donovan & Ho, 2016).
Legal Implications of Dismissing an Employee
This article is intended to highlight the legal implications of dismissing an employee in Malaysia which is referred to as involuntary termination in the legal terms; looking specifically into direct and constructive dismissals respectively.
We will also look at strategies for protecting yourself as an employer in the termination process without violating the law. Doing everything right lawfully won’t always protect you from a lawsuit, however, if the laying off is well executed on your part, it will show that the termination was justified, legitimate, and handled within the law.
Direct dismissals and constructive dismissals refer to when an employee is dismissed from their job in a harsh, unjust, or unreasonable manner (Fair Work Ombudsman, 2016). This law applies not only to Malaysians but foreigners who are employed by Malaysian companies as well.
A direct dismissal is a straightforward way of letting an employee go which is usually done by a formal letter of termination. This dismissal could be considered unfair under the Malaysian Law if the employer does not have a valid and good reason (for example with an underlying element of victimization or unfairness) for terminating the employment of a staff or if the employer does not follow the organization’s formal disciplinary or formal process before dismissing an employee. For unfair dismissal, the employer must prove a just reason for dismissal.
On the other hand, constructive dismissal refers to the scenario where a workman is forced to leave his or her job against will due to an employer’s conduct-whether through a single act or a series of acts. This is a dismissal that is less straightforward than direct dismissal whereby an employee resigns as a result of the employer creating a hostile work environment. For constructive dismissal, the employer must prove that the dismissal was constructive-based on evidence and reasoning.
It must be noted that avoiding a wrongful termination lawsuit begins long before you actually fire an employee. An error or miscommunication in any part of the employment process, from job applications to interviews to staff handbooks to reviewing employee performance, can open you up to a wrongful termination lawsuit.
Employers must first satisfy certain legal requirements before they can terminate an employee. Therefore, taking these early or rather pre-termination actions ought to be your best defense in protecting yourself against potential
Malaysian Industrial Act 1967
In the Malaysian Industrial Act 1967, under Section 20, states that an employee files for a case against his former employer for being unfairly dismissed can make a representation to the Director-General for Industrial Relations of his or her termination from work. This has to be done within 60 days from the date of dismissal. Let’s now look at what takes place after a claim has been filed.
Under Malaysian law, the first step involves a meeting between the employee and the employer which is organized by the Industrial Relations Officer to mediate a reconciliation between the two parties in the hopes to settle the issue amicably. However, if this fails to be achieved, then the second step will be in getting the Minister of Human Resources to intervene whereby he will determine if the matter ought and fit to be referred to the Industrial Court.
After this, the claim of the ex-employee in question will be heard before the Head of the Industrial Court. The Industrial Court upon the matter being referred to by the Minister of Human Resources will then go on to consider whether the employee’s termination of employment was unlawful or whether it was justified.
“The court shall have power in relation to a trade dispute referred to it or in relation to a reference to it under section 20(3), to make an award (including an interim award) relating to all or any of
In reference to the above, if the Industrial Court finds that the employee has justifiable reasons
1) Monetary compensation
In this situation the Industrial Court will order the Company to pay back wages to the ex-employee in question to cover the period between the date of dismissal and the date of the award. For confirmed employees, backwages granted are capped at a maximum of 24 months. For probationers, the cap is 12 months. However, the Industrial Court can revise this after taking into account other factors for instance if an employee had since found new employment.
This is when the Industrial Court may order reinstatement which refers to giving the employee back his position at your organization without loss of salary, status, and benefits. Reinstatement not usually granted as having both parties agree is rarely the case. In most cases, the Industrial Court awards compensation in lieu of reinstatement—typically on the basis of 1 month’s salary for every year of service.
In some cases, the industrial court procedure would order the employer to pay the employee compensation rather than order reinstatement. In Malaysia, the compensation usually works out to be the employee’s one month’s salary for every year of employee’s services and back wages from the date of dismissal up to the last day of the court hearing, capped with a similar maximum period of 24 months (Halim Hong & Quek, 2016).
However, there’s a grey area to the above verdict. If it is found that a staff that had been terminated wrongfully and/or has been gainfully employed since the dismissal, the Industrial Court may reduce the compensation amount as deemed suitable accordingly.
Here are some of the contractually mandated tips that you can take to terminate a contract in Malaysia without the fear of ramifications:
- Inform employee of charges against him in writing
- Allow reasonable amount of time for employer to come back to you on the charges
- Give a notice to remedy to inform employee that they are required to pull their socks up
- Conduct counseling to coach employee on areas of shortcomings
- Ensure enquiry and clear communication of expectations take place before terminating
- Documentation is key-all proceedings should be clearly documented
- Initiate a performance improvement plan.
- Ensure you have gone through the inquiry as a matter of course before terminating,
- Notice to terminate to be issued and served in accordance with the clause of the contract.
In summing up, your best defense as an employer against such claims is an ongoing, proactive approach that includes well articulated personnel policies and procedures that are consistent with the Industrial Relation Act of Malaysia as well as the fair and consistent application of those policies and procedures in implementation. In short, consider all legal requirements you must comply with and ensure you fulfil them; equip yourself before you throw in the towel on an employee. I shall end with these words from Dr. Muniapan who is a specialist in HRM at Wawasan Open University Malaysia who said, ‘Remember, law is not a substitute for good human resource management practices!’
To explore more, join our Executive MBA or our Master in Human Resource Management double certificate program with SHRM (Society for Human Resource Management) and IUKL (Infrastructure University Kuala Lumpur).