LAW OF UNFAIR DISMISSAL

I. MISCONDUCT
II. POOR PERFORMANCE
III. RETRENCHMENT
IV. RELIEFS & REMEDIES

CPD CAMP 2017

Janice Anne Leo
Partner,
Messrs Shook Lin & Bok
Dismissal for Just Cause or Excuse
Section 20. Representations on dismissals
(1) 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 representations may be
filed at the office of the Director General
nearest to the place of employment from
which the workman was dismissed.
Dismissal for Just Cause or Excuse
Difference between termination for just cause or excuse and
termination simpliciter.

The employer does not have right to terminate by invoking

termination clause.

In Assunta Hospital v. Dr. A. Dutt [1981] 1 MLJ 304, the Federal

Court held:-
[A] termination by contractual notice and for no reason, if
ungrounded on any just cause or excuse would still be a
dismissal without just cause or excuse
Dismissal for Just Cause or Excuse
What is just cause or excuse?

Not defined in the IRA, but generally misconduct, poor

performance or retrenchment.

Burden on proof on employer to establish:-

a) misconduct committed by employee; and
b) the misconduct would amount to just cause or excuse for
dismissal.
(see Milan Auto v. Wong Seh Yen [1995] 4 CLJ 449)
Misconduct
No statutory definition of misconduct in the IRA.
Some form of wrongdoing on part of the employee contrary
to express/implied conditions of employees contract of
service.
Definition of misconduct under s. 2 of the EA 1955 couched
as:-
any conduct inconsistent with fulfilment of express or
implied conditions of service.
Not ALL misconducts will attract ultimate punishment of
dismissal.
Misconduct
Broadly under three (3) heads:-
1. Misconduct relating to duty dishonesty, carelessness, theft,
breach of confidential information.

2. Misconduct relating to discipline breach of the employers

disciplinary rules, etc. fighting, gambling, assault, coming late to
work, drug abuse, sleeping on duty.

3. Misconduct relating to morality immoral conduct, e.g. indecent

acts, sexual harassment, pornography.
What is appropriate punishment?
The type of punishment must commensurate the
seriousness of the misconduct.
Depends entirely on the particular facts and
circumstances of the case for example:-
Nature of the misconduct;
Type of industry;
Scope and duties of the employee;
Length of employees service;
Employees disciplinary record prior to the current
misconduct.
Forms of Punishment/Disciplinary
action
Warnings;
Transfer/relocation of duties;
Downgrading/demotion;
Suspension of the employees participation in the
performance pay schemes;
Deferment of annual increment/cancellation of
annual increment;
Dismissal.
Poor Performance
Subjective expectations of employer v objective evaluation
of Industrial Court.
Not a misconduct per se, as the elements of moral
turpitude/wilful breach of contract of service may be
absent.
Not always a question of behaviour (misconduct) but
rather ability (or the lack of it).
Generally, the Industrial Court is concerned with due
process given to the employee to improve (i.e. sufficient
warning, opportunity and assistance to improve) and not
mere lip service.
Poor Performance Employee &
Probationer
Test : Whether probationer has met reasonable
expectations of the employer?

Recent cases have emphasized the necessity for

compliance with the Rooftech Principle, where
the employee must be told of his shortcomings, the
employee must be given prior warning that he had
not been performing satisfactorily and that if there is
no improvement, then poor performance would be
established.
Poor Performance Senior
Management Employee
Warnings are less apparent for senior management.
However, the Industrial Court has accepted that the
requirement that the employee be given notice prior to
dismissing him on grounds of poor performance is
equally applicable to senior employees, as illustrated in
the case of Steven Ferenc Palis v. Ogilvy One Worldwide
Sdn Bhd & Anor [2006] 1 ILR 61.
In short, it is always advisable to warn.
The 3 essential steps Poor
Performance
Before the employer dismisses on grounds of poor
performance, must establish the following:-

1. that sufficient counselling and warning given to

employee on shortcomings;
2. that the employee was given a reasonable time and
opportunity to improve, and,
3. that the employee failed to sufficiently improve on
performance after a final warning at the pain of
dismissal.
Constructive Dismissal
Constructive dismissal summary
termination of contract of employment by
the employee by reason of the employers
conduct.
Doctrine of constructive dismissal
established in English case of Western
Excavation (EEC) Ltd v. Sharp [1978] ICR 221.
Section 20 of IRA 1967 is silent on issue of
constructive dismissal.
Supreme Court in Wong Chee Hong v.
Cathay Organization (M) Sdn Bhd (1988) 1
MLJ 92 confirmed that constructive
dismissal falls within ambit of Section 20 of
IRA 1967.
Constructive Dismissal
Contract test laid down in the case of Wong Chee Hong v. Cathay
Organisation (M) Sdn. Bhd. [1988] 1 CLJ (Rep) 298; [1988] 1 CLJ
45 as follows:-

[W]hether or not there has been constructive dismissal is to be

determined by the contract test, that is, did the employer's
conduct amount to a breach of contract which entitled the
employee to resign? And did the employee make up his mind and
act at the appropriate time soon after the conduct of which the
complained had taken place.

Burden of proof on employee to show employers conduct

amounted to breach of contract.
Constructive Dismissal
In order to establish constructive
dismissal, employee must prove the
following elements:-

(a) there must be a breach of contract by

the employer (actual breach or an
anticipatory breach);
(b) that breach must be sufficiently
important to justify the employee
resigning immediately;
Constructive Dismissal
c) he must leave in response to the breach and not for some other
unconnected reason; and
d) he must not delay too long in terminating the contract in
response to the employer's breach, otherwise he may be
deemed to have waived the breach and agreed to vary the
contract .

If the employee leaves in circumstances where

conditions are not met, he will be held to have
resigned and there will be no dismissal.
Constructive Dismissal
Whether employers conduct amounts to
repudiatory conduct depends very much on
circumstances of each case.
In practice constructive dismissal is a difficult
area and is open to abuse as every disagreement
could potentially give rise to claim that the
employer is in repudiatory breach of the
contract.
Typical examples of conduct which may amount
to repudiatory conduct on the part of employer:-
Unilateral reduction of salary
Constructive Dismissal
Transfer coupled with reduction in responsibilities
Demotion

An adjunct of constructive dismissal law is the

advent of the principles of implied term of
mutual trust and confidence.
Implied term of mutual trust and confidence
expounded in the case of Lewis v. Motorworld
Garages Ltd [1986] ICR 157
Constructive Dismissal
The implied term requires the employer to maintain the duty of
mutual respect and confidence, without which the contract of
employment itself cannot be sustained.

In Lewis v. Motorworld Garages Ltd [1986] ICR 157 Justice

Glidwell LJ, inter alia, held:-
"However, there are normally implied in a contract of
employment mutual rights and obligations of trust and
confidence. A breach of this implied term may justify the
employee in leaving and claiming he has been constructively
dismissed.
Constructive Dismissal
Breach of implied term of mutual trust and confidence
also cover situations where a particular conduct of the
employer (single act) is not in itself sufficient to a
breach of the contract.
Cumulative acts/conduct of the employer is regarded
as a whole in determining whether or not employee
may deem himself as having constructively dismissed.
Cumulative conduct
Chin Sooi Chon v. Tamco Corporate Holdings Sdn. Bhd.
[2007] 2 LNS 2279
Retrenchment
Generic word includes
reorganisation, re-engineering and
restructuring
Some of the grounds for
retrenchment:-
Business loss/financial loss;
Closure of a business (department or
section);
Reduced turnover/productivity;
Contracting out/out-sourcing.
Retrenchment
Retrenchment has been defined by the Court of Appeal in
Williams Jacks & Co (M) Sdn Bhd v. S Balasingam [1997] 3 CLJ
235 as follows:-
Retrenchment has been defined as the discharge of surplus
labour of staff by an employer for any reason whatsoever
otherwise than as a punishment inflicted by way of
disciplinary action. Whether the retrenchment exercise in
a particular case is bona fide or otherwise is a question of
fact and of degree depending on the peculiar circumstances
of the case.
A management prerogative that must be exercised bona fide
and as a measure of last resort.
Retrenchment
Before there can be retrenchment, there must
be a redundancy situation first.

In Stephen Bong v. FCB (M) Sdn Bhd & Anor

[1999] 3 MLJ 411, the High Court held as
follows:-
"[I]t is not the law that redundancy means the job
or work no longer exists. Redundancy situations
arise where the business requires fewer employees
of whatever kind. The Industrial Court was right
when it held that the applicant was redundant as
there was reduced work and reduced business
within the Company which made the applicant's
position as an executive director in charge of one
of the groups redundant.
Retrenchment
General
principles Managements prerogative to reorganise the business
governing in any manner for the purposes of economy or
retrenchment convenience, provided management acts bona fide.

If retrenchment not bona fide, the dismissal will be

unfair.

Managerial prerogatives of the employer are qualified

rights. The employer must act fairly and conduct the
retrenchment in a manner untainted by any unfair labour
practice (see Cycle & Carriage Bintang Bhd v. Cheah Hian
Lim [1992] 2 ILR 400).
Retrenchment
General
principles Management should comply with the
governing
retrenchment
principle of LIFO (Last in First Out) unless
there are sound and valid reasons for
departure.

Management should also comply with the

Code of Conduct for Industrial Harmony
1975, which sets out the measures the
employer should take before embarking on a
retrenchment exercise.
Retrenchment
General The Code of Conduct for Industrial Harmony 1975
principles has no legal force but common practice of the
governing Industrial Court to rely on it as a form of guideline in
retrenchment determining the reasonableness of the actions of the
employer in a retrenchment exercise (See Mamut
Copper Mining Sdn v. Chau Fook Kong @ Leonard &
Ors. [1997] 2 ILR 625

If employee covered by Employment Act 1955,

employer required to pay termination benefits
pursuant to Employment (termination and layoff
benefits) Regulations 1980.
Mala Fide Retrenchment
Managements prerogative to carry out rationalisation of
business but must not be used for other co-lateral purposes
(getting rid of certain employees).

In Harris Solid State (M) Sdn Bhd & v. Bruno Gentil s/o Pereira
& Ors [1996] 3 MLJ 489 held that retrenchment motivated by
mala fide intentions would render the dismissal to be unfair. In
that case, the termination of the services of several employees
was carried out for union busting purposes.
Retrenchment Procedural
Aspects
i. The Code of Conduct for Industrial Harmony
1975
ii. Notification to Trade Union under Collective
Agreement (See Dunlop Industries
Employees Union v. Dunlop Malaysian
Industries Bhd & Anor [1987] 2 MLJ 81).
iii. Notice to workman notice of termination
of contract as required under the contract of
employment (Section 12 of the EA).
iv. Notification to labour department (Section
63 of the EA 1955).
Code of Conduct for Industrial
Harmony 1975
Useful starting point: Compliance with The Code of
Conduct for Industrial Harmony 1975, which generally sets
out the guidelines/measures or industrial practices and
procedures which the employer should adopt before
embarking on a retrenchment exercise.
In the case of Nor Salehan Ahmad v. Alcatel-Lucent
Malaysia Sdn Bhd [2008] 3 ILR, the Court held as follows:-
It is admitted that the Code has no legal force but it is a
relevant factor for the purpose of determining the overall
reasonableness of the employer's actions in dismissal
cases. (emphasis added)
Other Procedural Aspects
If there is a collective agreement, check terms to see whether
advance notice needs to be given to the Union before
implementing a retrenchment.

In the absence of a collective agreement, adequate notice ought

to be given to the staff affected by retrenchment (Failure to do so
may lead to finding of unreasonableness on part of employer).

Notice must also be given to the nearest Labour Office by

completing and submitting Form PK 1/98. Failure to do so can
attract a hefty fine.
Redundancy
Main reason for retrenchment redundancy (see Stephen Bong
v. FCB (M) Sdn Bhd & Anor [1999] 3 MLJ 411)

Redundancy can also arise when there is duplicity of work.

In Tuan Syed Hashim bin Tuan Long v Esso Production Malaysia

Inc (1998) 5 MLJ 535:-
It must be brought to the attention of all parties that the right to
reorganise the company is the prerogative of the management to
achieve maximum efficiency and effectiveness and to avoid any
kind of duplicity of work in the company. (emphasis added)
Last In First Out (LIFO)
The selection process in identifying
employees to be retrenched should be in
accordance with the LIFO unless there are
sound and valid reasons for departure.
LIFO principle requires employer to select
more junior employee in the category of
employment for retrenchment.
LIFO principle applicable to groups or
categories of employees who do work of a
similar nature.
Last In First Out (LIFO)
In Kumpulan Perangsang Selangor Bhd v. Zaid Hj.
Mohd Noh [1997] 2 CLJ 1 the then Supreme Court
noted as follows:
But the rule of "last come first go" could have obviously
no application to the case of retrenchment of the only
employee in a particular category of workmen
because in such a case it is retrenchment of the post
itself, and therefore if for reasons of economy and any
genuine interest of reorganization the services of a single
employee of a category have to be dispensed with, there is
no scope for the application of this principle.
Exceptions to LIFO
LIFO not an absolute rule (and not a statutory
provision) which cannot be departed by the employer
when retrenching (See Supreme Corporation Bhd v.
Doreen Daniel Victor Daniel & Ong Kheng Liat [1987] 2
ILR 522).
Departure from the LIFO principle:-
Objective and fair selection criteria;
A more senior employee who was retrenched (in breach
of LIFO) had a record of poor performance;
A more junior employee who was retained in favour of a
more senior employee has special skill or qualification.
Exceptions to LIFO
Objective and
The selection based on an objective criteria
fair selection is also provided in Article 22(b) of The Code
criteria of Conduct for Industrial Harmony which
stipulates:-

The employer should select employees to

be retrenched in accordance with an
objective criteria. Such criteria, which
should have been worked out in advance
with the employees representative or trade
union, as appropriate, may include:
i. Need for the efficient operation of the
establishment or undertaking;
Exceptions to LIFO
Objective and
ii. ability, experience, skill and occupation
fair selection qualifications of individual workers
criteria (cont.) required by the establishment or
undertaking under (i);
iii. consideration for length of service and
status (non-citizens, casual, temporary,
permanent);
iv. age;
v. family situation;
vi. such criteria as may be formulated in the
context of national policies.
Exceptions to LIFO
Objective and
In the case of Malaysia Shipyard &
fair selection Engineering Sdn Bhd Johor Bahru v.
criteria (cont.) Mukhtiar Sing & 16 Ors. [1991] 1 ILR 626, the
employer had had adopted its own selection
criteria based on age, performance, medical
records and disciplinary records in place of
LIFO when undertaking its retrenchment
exercise.

The Industrial Court examined the above

criteria and found them to be reasonable,
having regard to the objective, inter alia, of
achieving efficiency of operations.
Exceptions to LIFO
Records of poor performance of an employee is
Poor justification for a departure from the LIFO
performance principle. However, warnings must have been
given.
In Plantation Agencies Sdn Bhd v. National
Union of Commercial Workers [1983] ILR 206,
the employer sought to retrench the workers
based on their poor performance. The Industrial
Court found that the retrenchment exercise was
unfair on the grounds that the employer had not
shown any evidence that the retrenched workers
lacked paper qualifications, capability or even
had been given warnings.
Exceptions to LIFO
Evidence that junior employees possess special skills
Special compared to senior employees is also recognised as
justification to depart from LIFO principle.
Skill In the case of Cordoda Corporation Sdn Bhd v. Kuan
Chi Meng [2007] 4 ILR 457, the Court upheld that
the employer was justified in departing from the
LIFO rule on the basis that the claimant did not
possess special skills or better academic
qualifications compared to another junior employee
who was not retrenched.
However, the employer must be able to show and
identify the special skills possessed by the junior
employees (See Fabulous Management (M) Sdn Bhd
v. Samsul Abu Seman & Anor [2004] 1 ILR 590).
Foreign Workers First Out
(FWFO)
Employers must first retrench foreign
workers before any Malaysian employees
doing similar work (Section 60N of the EA
1955).
If foreign workers fall within scope of the
EA 1955, then statutory termination
payments must be paid.
Section 60M of the EA 1955 prohibits an
employer from retrenching a Malaysian
worker for the purposes of hiring a
foreigner.
Computation & Payment of
Retrenchment Benefits
Employees within scope of Employment Act 1955 who are
retrenched are entitled to receive termination benefits as
stated in the Employment (Termination & Lay-off Benefits)
Regulations 1980.

Regulations 3 and 4 of the Employment (Termination &

Lay-off Benefits) Regulations 1980 provide that an
employee would be entitled to termination benefits
calculated in accordance with the aforesaid regulations if
his employment is terminated other than:
i. the attainment of the age of retirement;
ii. on grounds of misconduct; or
iii. on a voluntary basis by the employee.
Computation & Payment of
Retrenchment Benefits
In order to be entitled for termination benefits, the
employee must be employed under a continuous
contract of employment for a period not less than 12
months before the date of termination.
Basis of computation:-
i. Employed for period of less than 2 years 10 days wages
for every year in service.
ii. Employed for period of more than 5 years but less than
five years 15 days wages for every year in service
iii. Employed for period of five years or more 20 days
wages for every year in service.
Computation & Payment of
Retrenchment Benefits
Employees not within the scope of the EA 1955, than they are
only entitled to termination benefits if:-
(i) the payment for such benefits are expressly stipulated in their
individual contract or exist by implication through past practices
of the company or industry; or
(ii) they are within scope of a collective agreement which expressly
provides for the payment of such benefits.
Although employer not legally bound to pay termination benefits
to employees outside scope of the EA 1955 and in the absence of
any contractual obligation for payment of such benefit, it is
advisable to pay some sort of payment to alleviate the impact of
retrenchment.
Computation & Payment of
Retrenchment Benefits
In recent times, the Courts have
relied on Clause 22(a)(ii) of The
Code of Conduct for Industrial
Harmony to find that the
employer should make payment
of redundancy benefits and
failure to do so may render the
retrenchment unfair (See Fong
Yoke Heong v. LH Technology
[2008] 2 LNS 0770).
Relief: Reinstatement & Back
wages
Two main relief for employees who
succeeds in claim for unfair dismissal:-
a) Back wages and compensation in lieu of
reinstatement; and
b) Order of reinstatement with no loss of benefits.
Reinstatement
Primary remedy, effect is to reinstate employee in
the service of the employer and restore employee
to his former position and status as if employee
was not dismissed.
Reinstatement
Reinstatement may be refused where relationship
between parties have broken down. In such cases,
Court may award monetary compensation i.e.
compensation in lieu of reinstatement.
Compensation in lieu of reinstatement calculated at
rate of one months salary for every year of service.
Back wages
Back wages calculated from date of employees dismissal
up to the last day of the Courts hearing of the case.
Limited to twenty four months.
Contributory Conduct
Employees contributory conduct effects
deductions in the award of back wages and
the amount of compensation may be reduced
accordingly.
A number of exceptions to usual
compensation formula introduced over the
years:-
a) Where employee partially at fault and his behaviour
was a factor in the dismissal, a reduction may be
made.
b) Where there is delay in reaching final decision
caused by actions of employees and/or employee's
lawyer, a reduction may be made.
Contributory Conduct
c) Where employer have deliberately trampled on employees
rights i.e. right to join union. Court may order compensation to
be increased twofold.

Post-dismissal earnings
Where employee secures gainful employment after dismissal,
Court will make reasonable deduction in compensation to
account for post-dismissal earnings.
Deduction ranges from 20 50% of back wages.
Challenging Awards of the
Industrial
Primarily by way of judicial review in the High Court.

Must be commenced within 40 days of receiving the

Award.

To succeed, must show Industrial Court committed

errors of law.

Examples of errors of law: Took into account irrelevant

factors, failed to take into account relevant
considerations, misunderstood and misapplied relevant
legal principles.