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JUST LAST week the Industrial Court (IC) ordered Football club Perak FC Sdn Bhd to pay RM1.04 million in compensation to former head coach Lim Teong Kim for unfair dismissal.In an earlier case, two former director-employees were awarded more than RM2 million. These outcomes underscore the significant financial risks businesses face when termination of employment are mishandled.

An ex- employee who believes they have been unfairly dismissed can file a complaint under Section 20(1) of the Industrial Relations Act 1967 with the Industrial Relations Department (IRD) within a strict 60-day window from the date of termination. The IRD’s initial step is to organise a conciliation session to help both the former employee and employer find an amicable resolution. If a settlement is reached, the IRD will facilitate the creation of a Memorandum of Agreement. If the dispute cannot be settled, the Director-General of the IRD will refer the case to the Industrial Court (IC).

Our employment laws are very different from the at-will employment such as in the US where there’s no requirement to establish “just cause” for termination. The Federal Court in Maritime Intelligence Sdn Bhd v Tan Ah Gek [2021] 10 CLJ 663, stated that the right to livelihood in the context of employment is a fundamental right guaranteed under Article 5(1) of the Federal Constitution. Section 20(1) exemplifies this very right. The Federal Court also emphasised the importance of giving clear reasons when terminating an employee as these will be closely scrutinised by the IC. Employment law in essence is a social legislation which is intended to protect employees but it allows employers to terminate employees if they have valid reasons. It puts in place, checks and balances on the employer to justify the reasons for termination.

Some examples of direct termination of employment Misconduct

Covers a wide spectrum of situations from absenteeism to sexual harassment and criminal breach of trust (CBT). Rules of natural justice require the employee to be given an opportunity to be heard and defend himself. The employee should be given a show cause letter with clear descriptions of his misconduct. 

Material facts such as description of the alleged misconduct, time and date, location and the parties (such as immediate superior, colleague or even a victim). This would enable the employee to understand the alleged misconduct and give a proper reply. 

The employee would either admit/plead guilty or deny. The employer may accept the employee’s explanation or disagree if the reply is found unsatisfactory. The employer may proceed to conduct a formal domestic inquiry (or due inquiry), an internal process to investigate whether the employee has committed the alleged misconduct. 

Based on the domestic inquiry findings, the management would be able to decide an appropriate punishment such as a written warning or dismissal being the heaviest punishment. 

Failure to conduct a domestic inquiry is not fatal or a must. Hence some employers may choose not to conduct a domestic inquiry and base their decision on their investigation and on the show cause letter.

However, the importance of having a domestic inquiry cannot be soft-peddled. The IC in Syarikat Telekom Malaysia Berhad v Saidon bin Puteh [1996] 1 ILR 619, observed that:

“A due inquiry properly conducted and well documented …provides a reliable record for the employer to turn to when, due to the effluxion of time witnesses have become unavailable or memories have faded, the employer is fixed with difficulties in having to prove his case before an industrial tribunal…”

There’s a possibility that witnesses and records may be unavailable to the employer when the case reaches the IC. Hence, conducting a domestic inquiry may still be relevant and practical. It is pertinent to note, that establishing misconduct doesn’t always justify dismissing an employee. 

The Doctrine of Proportionality of Punishment requires that the punishment must fit the offence or must be appropriate. The employer should consider the severity of the alleged conduct, the employee’s employment record and other relevant factors.

Non-confirmation and poor performance

These concern employees who don’t meet minimum standards or achieve targets. New hires would normally be on a probationary period (usually for three to six months) to test them on their suitability and ability to perform the job.

If they fall below the standards or do not perform, employers may choose not to confirm the employee. 

They must be appraised, warned of their shortcomings and given sufficient opportunity to improve and given guidance/coaching. If confirmed employees later become non-performers, it would be prudent to place them on a Performance Improvement Plan (PIP) to give them the opportunity to improve. Having a structured and documented process is a must.

Redundancy and rightsizing

Restructuring of a business may result in a position being redundant or irrelevant. Businesses might do so to cut losses or to be sustainable in the long term. But they have to adduce evidence to justify such reasons or reasonable steps they have taken before taking such drastic measures. 

Advancement of technology or automation can also make a job redundant. For example, Elevator Operators, a position which existed since the invention of elevators became almost extinct with automation by the 70s. More recently, with artificial intelligence, there is a possibility that some jobs will be redundant.

Incapacity or frustration of contract

The employment contract becomes frustrated when it has become impossible for both parties to perform their obligations under the contract. Some examples include:

Long-term illness or disability where the employee is unable to perform the job

Impossible for a driver of a bus to drive a bus legally if he has been banned from driving busses by the authorities

A new law or regulation which makes it impossible to conduct a business. If one day the government decides to ban vape/e-cigarettes, the manufacturer would be forced to cease operations.

Expiry of a fixed-term contract

Fixed-term employment contracts are employment contracts for a specified duration. Businesses commonly use such contracts for temporary work assignments or for a specific project. Such contracts merely end at the expiry of its term. The IC will scrutinise whether such contracts are genuine, based on business needs or not genuine, an attempt to circumvent protections afforded to employees.

Finale caution

The law mandates that employers must have a valid justification for terminating an employee. To successfully defend their actions in the Industrial Court, employers must ensure their termination process is meticulously structured and thoroughly documented.