Employee's Termination

In Malaysia, termination of employment falls under the purview of the Employment Act 1955 (“EA”), the Employment (Termination and Lay-Off Benefits) Regulations 1980, the Industrial Relations Act 1967 (“IRA”) and of course, letter of appointment/employment contract/contract of service. Although the provisions of the EA only cover EA employees (for the purpose herein, employees covered under the EA are all workers whose earnings do not exceed RM2,000.00 a month and all manual workers irrespective of their earnings under First Schedule), these principles of law are generally considered as guidelines for most employer-employee relationships, particularly in the absence of a written letter of appointment/employment contract/contract of service.. At the outset, it is to be highlighted that the employee must be a “workman” as defined under Section 2 of the IRA. It reads as follows:- “…any person, including an apprentice, employed by an employer under a contract of employment to work for hire or reward and for the purposes of any proceedings in relation to a trade dispute includes any such person who has been dismissed, discharged or retrenched in connection with or as a consequence of that dispute or whose dismissal, discharge or retrenchment has led to that dispute.” In one landmark case of Inchcape Malaysia Holdings Bhd. v R B Gray & Anors. [1985] 2 MLJ 297,Supreme Court held the general understanding of the term “workman” will therefore cover all categories of employees irrespective of wages, levels and titles as long as they are not Directors or Managing Directors, who have the functions or authority that are deemed to be the directing mind of the Company. Basically, the Company has two (2) methods to terminate the employees:- a. Terminate summarily or given 24 hours written notice if the employee commit any breach of the terms of LOA or committed any act which is not in the Company’s interest. Before making a definite decision to summarily dismiss an employee because of serious misconduct, the Company need to identify exactly what the employees did that was unacceptable and the impact the misconduct had on the business. For an employee to be justifiable dismissed on the ground of his private conduct, it has to be of exceptional gravity or be capable of damaging the employer’s business. [Transport Workers Union v Syarikat Pengangkutan Kemajuan Sri Perak Bhd Award 161 of 1981]. OR b. Terminate by either party: i. given witten notice (working notice); OR ii. salary in lieu of notice (termination pay). The written notice should specify the period of notice given (or payment in lieu of notice if the employee is not required to work the notice period) and the date the employment will end. Either (i) or (ii) the Company would still need to pay salary to the employee. The different is just whether the Company want the employee to work in that notice period or not. Notice period can be waived/shorten by mutual consent between the Company and the employee. In Malaysia, an unfair dismissal claim may be litigated either in the civil court for common law wrongful dismissal or in the Industrial Court for dismissal without just cause or excuse. Section 20 of the IRA laid down that a dismissal must be with just cause and excuse. The just cause and excuse must be based on facts of each case, a misconduct, negligence or poor performance. The onus is on the employer to prove just cause and excuse [Great Wall Shopping Sdn Bhd v Gan Shang eng Award 241 of 1988]. Employee termination or dismissal must be with just cause and excuse and the common law principle of ‘termination simpliciter’ (i.e. a termination by contractual notice and for no reason) is not applicable in view of s.20 of the IRA. The Federal Court, in the case of Goon Kwee Phoy v J & P Coats [1981]2 MJL 129 held: ‘we do not see any material difference between a termination of the contract of employment by due notice on a unilateral dismissal of a summary nature. The effect is the same and the result must be the same.’ And in Dr. A. Dutt v Assunta Hospital [1981]1 MLJ 304 held: ‘… there is no material distinction between dismissal and termination. Either must be with just cause and excuse to be justifiable……’ Therefore, the Company cannot be terminated the employee without just cause or excuse either summarily or with notice. Very often companies will prepare fixed term contract of employment for their new employees. Their reasoning is simple, because the Companies can automatically have the right to not renew the contract when it expires. However, when some of the fixed term contract comes to an end an employer may continue to pay the employee to work and the employee may continue to come to work. The Company should be mindful that this conduct could be used as evidence that the employee’s functions are not temporary or seasonal in nature, and the contract is not a “genuine fixed term contract”. It is laid down in the case of Han Chiang High School/Penang Han Chiang Association v. National Union of Teachers in Independent School West Malaysia (award no. 306 of 1988) that the law allows parties to enter into fixed term contracts of employment where there is a genuine need for such contracts. However, whether a fixed term contract is indeed genuine or not is something which the Industrial Court must look into and scrutinize. If the Industrial Court makes a finding of fact that the fixed term contract is genuine, the matter then ends there as the contract has come to its natural end. However, should the Industrial Court make a finding of fact that the fixed term contract is not genuine and is a permanent contract dressed up to look like a fixed term contract, the company would then have to explain why the contract was not renewed. This is where the company would need to establish that the non-renewal, which is in effect actually a termination, was with just cause and excuse. Should the Company not be able to establish that the termination was with just cause and excuse the dismissal would then be set aside by the Industrial Courts. Based on the foregoing, a company cannot circumvent the provisions of Section 20 of the IRA, simply by placing their employees on a fixed term contract of employment and choosing to not renew it when the contract comes to an end. In order for the Courts to uphold it as a genuine fixed term contract, the employer must first prove that there was a genuine reason for the contract to be for a fixed period. For example, where the employee was engaged to work on a particular project or the work is seasonal in nature. When such a project comes to an end or when the season ends, the need for the employee would also come to an end . The same thing was applied in the case of Sime Uep Development Sdn. Bhd. v. Chuah Poi [1996] 1 ILR 256 whereby the Industrial Court held as follows,“It would appear that after having worked for four years with the company and possessing a clean record of service the claimant is not guaranteed security of tenure. Should the company be empowered to throw him out on the grounds that his contract has expired and that the company is in no position to offer him a new contract? The Court opines that this is a highly undesirable state of affairs, unconscionable and repugnant to the principle of security of tenure and an injustice that social justice seeks to correct under s.20 of the IRA. In the circumstances and after considering the evidence and in light of the principles enunciated above, the Court is of the considered view that it was an implied term of the claimant’s contract of employment with the company that he was in fact and in law a permanent employee and that the contract between them was a permanent one dressed up in the form of fixed term contracts. As such, since the finding of this Court is that the claimant is a permanent employee his services can only be terminated with just cause and excuse.” The Company must give the employee the letter of non-renewal and stipulate the reasons for non-renewal (taking into consideration of the employee’s current employment status with the Company with no contract) with cogent evidence. As a conclusion, a mere fact that an employee is placed on a fixed term contract does not give companies carte blanche to get rid of unwanted employees by not renewing their contract when it expires. Next, the questions arise would be whether the Company need to conduct a Domestic Inquiry for the dismissal. S20 Industrial Relation Act (“IRA”) does not specifically mention Domestic Inquiry. Further, the reviews of the cases at the Industrial Court have shown 3 decisions: a. No Domestic Inquiry is curable b. Court reprimanded employer that did not conduct Domestic Inquiry but still continue to hear the case on merit and decide whether the dismissal is with just cause and excuse. c. Must hold Domestic Inquiry before terminating employees under EA Therefore, the Company should be very slow to dismiss upon the ground that the employee is found to be unsatisfactory in his performance or incapable of performing the work which she is employed to do without first telling the employee of the respects that she is failing to do his job adequately, warning him of the possibility or likelihood of dismissal on this ground and giving him an opportunity of improving his performance. It is for the Company to find out from the employee why she is performing unsatisfactorily and to warn him that if she persists in doing so she may have to go [IE Project Sdn Bhd v Tan Lee Seng Award No. 56 of 1987]. Employer must justify for unsatisfactory work performance. To avoid unfair dismissal for the employee, it is advisable for the Company to serve at least 2 warning letters to the employee for his/her underperformance and thereafter to issue a show cause letter for him/her to explain the underperformance and finally Domestic Inquiry before terminating an employee. Even though IRA does not required the Company to conduct a Domestic Inquiry but the termination/dismissal must be conducted according to the principle of natural justice on the 2 main principles that “No man shall be judged in his own cause (nemo debet esse judex in propria causa)” and “No one should be condemned unheard (audiatur et altera pars) & hear the other side (audi alterm partem)”. Notwithstanding the above, the employee still can file their suit to IR for his/her dismissal because the definition of underperformance is vague and the employees’ rights and status under their employment contract are not decided solely on the words of the contract alone. The Courts will interpret the employee’s rights based on fair labour practice, equity and good conscience to ensure that the principle of security of tenure is not undermined.