Employee termination-laws-in-malaysia

Termination of
Employees:
Laws and Challenges
in Malaysia
Presented by
Miss Loh Sub Mui
27 April 2012 at
WomenBizSENSE meeting, YMCA Penang

Miss Loh Sub Mui, a HR generalist with 20+ years experience, is a Group HR
Manager with a locally established group of companies.
Her work requires her to deal with industrial relations matters in both unionized
and non-unionized environment.
She got her B.Arts from University Malaya and later obtained her MBA from the
University of Bath.
She has obtained certification too in Coaching & Mentoring, Neuro-Lingistic
Programing (Practitioner Certification), Human Performance Improvement and
Myer-Briggs Type Indicators (Accreditation).
WomenBizSENSE, a women entrepreneur's group in Penang, invited Miss Loh to
give a talk to its members on 27 April 2012 at the YMCA Penang.

Termination of Employees
- the Laws and Challenges
Agenda

Rights – Employer & Employee

Statutory Provisions
- Employment Act, 1955 - S12, S13, S14 and S15

Breach of Contract

Probationer

Poor Performance

Frustration of Contract

Fixed Term Contracts
3


Rights – Employer &
Employee
4

Rights of Employer
Promotion from lower to higher grade.
 Transfer within the organization provided
the change is not to the detriment of the
worker.
 Employment of any person to fill a vacancy.
 To reorganize and determine size of
workforce.
 Allocation of duties and specific tasks that
are consistent/compatible with the terms of
employment.
5

Rights of Employee
 Security of tenure.
 Provided with work compatible with what he was
employed to do when it is available.
 Safe and conducive working environment.
 Form Union and take part in its lawful activities.
6

Obligations of Employer

Offer work when worker is fit and willing to
work.

Provide a safe & conducive working
environment.

Support and co-operation to employee.

Not to dismiss employee unlawfully.
7

Obligations of Employee

To be diligent at work.

Not to absent from work without leave or a
reasonable excuse.

Respect authority of the employer.

Obey all lawful instructions.

Exercise due care and skill while at work.

To be loyal and faithful to the employer.
8


Statutory Provisions
- Employment Act, 1955
9

S 12(1) Termination of contract
with notice
Either party to a contract of service may at any time
give to the other party notice of his intention to
terminate such contract of service.
10

S 12(2) Length of Notice

Shall be the same for both parties.

Provision made in writing & in the terms of the
contract of service.

In absence of such terms, the length of notice shall be
Length of service Length of notice
< 2 years 4 weeks
2 years to < 5 years 6 weeks
5 years & above 8 weeks
11


The length of notice provides under S12(2) shall
apply if the termination of service is
attributable
wholly or mainly to the fact that:-
a) Employer has ceased, or intends to cease to
carry on business for the purpose of which
the employee was employed; (closed shop)
b) Employer has ceased or intends to cease to
carry on business in the place at which the
employee was contracted to work;(relocate)
c) Requirements of that business for the
employee to carry out work of a particular
kind have ceased or diminished or are
expected to cease or diminish; (redundancy) 12

d) Requirement of that business for the employee to
carry out the work of a particular kind in the place
at which he was contracted to work have ceased or
diminished or are expected to cease or diminish;
(redundancy)
e) Employee has refused to accept his transfer to any
other place of employment, unless his contract of
service requires him to accept such transfers ;(transfer)
f) A change has occurred in the ownership of the
business for the purpose of which an employee is
employed or of a part of such business, regardless of
whether the change occurs by virtue of a sale or other
disposition or by operation of law.(change of
ownership) 13

S 13 (1) Termination of
contract without notice – by
paying indemnity
Either party may terminate the contract without
notice by paying the other party an indemnity of a
sum equal to the amount of wages which would
have accrued to the employee during the term of
such notice
14

without notice – wilful breach of
the contract
Either party may terminate the contract without
notice in the event of any wilful breach by the other
party of a condition of the contract.
15

for special reasons
An employer may, on grounds of misconduct
inconsistent with the fulfillment of the express
or implied conditions of his service, after due
inquiry:-
a) Dismiss without notice the employee; or
b) Downgrade the employee; or
c) Impose any other punishment as he deems
just and fit, and where punishment of
suspension without wages imposed, it shall
not exceed a period of 2 weeks. 16

S 14 (3) Termination on being
threatened by violence or
disease
An employee may terminate his contract of
Service with his employer without notice
where he or his dependants are immediately
threatened by danger to the person by
violence or disease such as such employee did
not by his contract of service undertake to
run.
17

Regulation 4(1) Employment
(Termination & Lay-Off Benefits)
Regulations 1980
Subject to paragraph (2), (3) and (4) an employee shall be
entitled to termination benefits payment where his contract
of service is terminated for any reason whatsoever otherwise
than:-
a) by the employer, upon the employee attaining the age of
retirement if the contract of service contain a stipulation in
that behalf (stipulated retirement); or
b) by the employer, on grounds of misconduct inconsistent
with the fulfillment of the expressed or implied conditions of
his contract of service, after due inquiry (misconduct); or
c) voluntarily by the employee, other than under S 13(2) or for
the reasons specified in S 14(3). (resignation)
18

It is an established principle of industrial jurisprudence
that before the employer can dismiss the workman
there must be just cause or excuse and the just cause or
excuse must be based on the facts of each case, either a
misconduct, negligence or poor performance.
It is imperative that the employer prove the charges
against the workman and not the workman who has to
prove his innocence.
19

Consequences arising from the termination of
employment without justifiable reasons, the
Industrial Court may order:-

Reinstatement
Order reinstatement of the employee to his
previous position without loss of salary, status and
benefits (monetary or otherwise).

Monetary compensation
Order the company to pay backwages of 24
months
salary and compensation in lieu of reinstatement
(01 month for each year of service).
20

S 15 Termination for breach of
contract
Two (2) deeming provisions in which an employer or
employee is deemed to have breached the contract of
service:-
•
S 15 (1) The employer fails to pay wages in accordance
with Part III of the EA 1955.
•
S 15 (2) The employee has been continuously absent
from
work for more than 2 consecutive working days without
prior leave from his employer, unless he has a
reasonable
excuse for such absence and has informed or attempted
to inform his employer of such excuse prior to or at the
22

S 60F(2) Sick Leave – Deemed Absent

Employee who absents on sick leave:-
•
Not certified by a registered medical practitioner,
medical officer or dental surgeon; or
•
which is certified by such registered medical
practitioner, medical officer or dental surgeon, but
without informing or attempting to inform his
employer of such sick leave within 48 hours of the
commencement thereof,
Shall be deemed to absent himself from work without
the permission of his employer & without reasonable
excuse for the days on which he is so absent from
work. 23

S 60F(2) read together with S 15(2) and S 13(2) of the
EA 1955 would allow for termination without notice on
account of breach of contract.
Reference Cases:
1. Sykt Telekom Msia Bhd v Madurai Veeran a/l
Gopal,
Industrial Court, KL
2. Msia Airline System Bhd v Julais Stephen,
Industrial Court, Sabah
3. Cycle & Carriage Bintang Bhd v Kong Yuen Hoong,
24

Malingering – What is it?
•
Workers have no right to take leave on ground of
sickness when they are not actually sick.
•
Sometimes the workers feign sickness in order to get
leave which is called “malingering”.
•
Dictionary meaning is “to feign illness in order to
avoid duty.
•
Usually done by producing false medical certificates.
•
Malingering is a recognized misconduct but in order
to show that the worker has taken leave on false
grounds of sickness the MC has to be examined in
the light of the attendant & other circumstances.
Employer need to review the surrounding
circumstances and not just rely on the employee’s
record.
25

Malingering – What is it?
•
Malingering should not be confused with submitting
fake or forged or tampered MCs. In the case of a
fake/forged/tampered MC, is clearly a serious
misconduct as there is the element of intention to
cheat the Co.
26

Probationers

Not defined in EA 1955 nor IR Act 1967

Dictionary meaning
“who is on trial or in a state to give proof of
certain
qualifications for a place or state.”

Determined under the contract of service by the
employer to test the suitability for permanent
employment.

Employee tested for compatibility & suitability to
perform the job as well as in their conduct,
behaviour & attitude.
28

Probationers

Employer does not have unfettered right to
terminate.

Decision no to confirm should be bona fide &
not arbitrary or capricious.

Termination within the probationary period to
be on ground of misconduct or other sufficient
reason.

At the end of probationary period, employee has
right to terminate if he is reasonably satisfied
that employee is not suitable to be confirmed.

Could not be terminated without just cause or
excuse. 29

Basic principle:
As far as poor performance is concerned the
Industrial Court has laid down that in order to
justify the dismissal of the workman on this
ground, the employer has to establish:-
1. that the workman was warned about his poor
performance;
2. that the workman was accorded sufficient
opportunity to improve; and
3. that notwithstanding the above, the workman
failed to sufficiently improve his performance.
30

Managing probationers – the
practice:
If 3 months probationary period, appraisal should
ideally be carried out monthly.
If 6 months probationary period, appraisal should
ideally be carried out bi-monthly.

Appraisal form must be signed by Appraisor and
acknowledge by Appraisee irrespective of whether he
agrees with the appraisal or not. Appraisee should be
allowed to have his reasons for not agreeing to area(s)
appraised minuted.

The Probationer must be cautioned and warned about
his poor performance, attitude towards work,
incompetence and inadequacies.
31

Managing probationers – the
practice:
Sufficient opportunity must be given to the probationer
to improve and/or rectify his poor performance and/or
inadequacies. In appropriate cases, guidance should be
provided.

If the Company decides not to confirm the probationer
at the end of initial probationary period but wishes to
extend probation, the extension should be made in
writing on or before end of the probationary period.
Date of extension together with reasons should be
clearly
stated in the letter of extension of probation. Should be
included is a warning that if he fails to improve
sufficiently then the Company may have to let him go.32

Poor Performance

Poor performance is not a misconduct per se.
Misconduct deals with behaviour whilst poor
performance deals with ability.

More challenging to prove & very subjective in nature
Employee’s performance is very much a matter of
perception & degree.

Be slow to dismiss on grounds of poor performance.
While the easy option is to dismiss poor performing
employee as a quick-fix, the Courts frequently find
that
dismissals for poor performance are unjustified - Not
because the substantive reason for the dismissal in
unjustified, but because the process followed by the
employer was flawed. 34

Poor Performance

Generally, easier to establish poor performance in cases
of probationers compared to full-time employees,
since
the confirmation of probationers are subject to their
ability to perform to the satisfaction of the employer.
35

Poor Performance

How to manage poor performers who are
confirmed employees?
1. Identify the areas of poor performance, inefficiency,
incompetence or ineptitude.
2. After counselling, send a Note to Personal File
highlighting the areas counselled and improvement
expected. Get the employee to sign on the Note to
Personal File.
3.If no improvement after sufficient time or
opportunity given, issue a written warning and state
period in which improvement is expected. Get the
employee to acknowledge receipt of the warning
letter. 36

Poor Performance
4. If no improvement, issue another warning letter
and state that stern disciplinary action will be
taken if no improvement is made or if the
employee fails to meet the expectations of the
Company at the end of the period given.
5. Where no improvement is shown or if there is
insufficient improvement or if employee’s poor
performance carries on, issue a show cause letter
to employee stating the areas or repeated areas of
poor performance and his reason(s) as to why
disciplinary action should not be taken against
him.
37

Poor Performance
6. Is the explanation acceptable?
a) If Yes, proceed to issue a final letter, setting out
that if no improvement within reasonable time,
the employee will be dismissed.
b) If No, proceed to conduct domestic inquiry, in
case if employee is found guilty, take the
appropriate disciplinary action.
(** Generally, no need for domestic inquiry if
dismissal is solely on ground of poor performance
but advisable in any event.)
c) Proceed to terminate the employee, in
appropriate case.
38

Poor Performance
6. Is the explanation acceptable?
a) If Yes, proceed to issue a final letter, setting out
that if no improvement within reasonable time,
the employee will be dismissed.
b) If No, proceed to conduct domestic inquiry, in
case if employee is found guilty, take the
appropriate disciplinary action.
(** Generally, no need for domestic inquiry if
dismissal is solely on ground of poor performance
but advisable in any event.)
c) Proceed to terminate the employee, in
appropriate case.
39

Commonly committed mistakes by
superior in relation to managing poor
performance:

In relation to Probationer
•
Failure to carry out periodic performance appraisal.
•
Discovering the expiry of the probationary period later.
Recommends extension for probation graded above
average.
•
Recommends confirmation for probation graded below
average.
•
Failure to counsel or issue warning when situation calls
for.
•
Failure to put warning in writing or nor keeping
records. 40

Commonly committed mistakes by
superior in relation to managing poor
performance:

In relation to Confirmed employee
•
The “good guy” symptom.
•
Unable to carry out performance appraisal objective.
•
Over evaluation.
Common pitfall – Employer fail to set out the reasons
for dismissal ie poor performance in the letter of
termination.
Address the problem earlier rather than later since it may
be construed as condonation on the part of the employer.41

Poor Performance

Tedious process for poor performance cases and
may be impractical for small companies.

The underlying rationale of the entire process is
to assist the employee and not serve as
punishment.

The Court set a high standard for employers who
dismiss an employee for poor performance, in
terms of procedural fairness and justification.
42


43


Premature determination of an
agreement due to change of circumstances
striking at the root of the contract.

The intervening circumstances must be so
fundamental as to destroy the basis of the
agreement.

When frustration occurs it kills the contract
itself & discharges the parties of their
obligations.
44

Factors & Principles
•
Award No. 33/1973
“..change in circumstances that events make it physically
impossible for a contract to be performed eg illness of
the employee lasts or likely to last for a prolonged
period……illness or incapacity which is permanent..”
•
Award No. 64/1974
“…incapacity or illness should not be temporary but
serious & prolonged, so that the employee cannot be
expected to perform his duties in the foreseeable
future….”
45

•
MHS Aviation v Zainol Akmar Hj Mohd Noor [2001] 2
ILR 366 Award No. 419
“Where without the fault of either party, some
supervening event occurs which was not reasonably
foreseeable at the time when the contract was made &
which renders further performance of the contract totally
impossible or something radically different from what
the parties bargained for, the contract is forthwith
discharged by operation of law. Absence of ill health
may take the form of either of persistent brief absences
over a long period of time, or a single long absence from
work. ….Where this is the case, there is in law no 46

•
Spencer v Paragon Wallpapers Ltd [1976] IRLR 373
“Where there is dismissal, the starting point for analyzing
the duty of the tribunal in deciding whether or not the
dismissal is fair, the court emphasized the importance of
scrutinizing all the relevant factors. Every case depends
on its own circumstances. The basic question which has
to be determined in every case is whether, in all the
circumstances, the employer can be expected to wait any
longer and if so, how much longer? The relevant
circumstances include “the nature of the illness, the likely
length of the continuing absence, the need of the
employers to have done the work, which the employee
was engaged to do.” 47

For termination on medical grounds, it is necessary for
the employer to obtain:-
1. A conclusive medical report which states that the
employee will not be able to perform the tasks he was
hired to do; or
2. That his condition is such that it is unlikely in the
reasonable future that the employee will be able to
perform the tasks he was hired to do.
48

What if the report from the medical practitioner states
that he should only be given light duties?
•
Award No. 130 of 1985
“If an employee is incapacitated by ill health & is no longer
able to perform the job he was employed to do, his employer
should consider whether or not the man could be kept in
employment in another capacity. If there is an existing job,
even if it is a lower paid, the employer should offer the
alternative employment to the employee. If the employee
refuses any such offers then it seems to be reasonable for the
employer to dismiss the employee. It should be noted that
the employer is only required to consider the employee’s
ability to perform existing jobs – there is no duty on the
employer to create new job in order to continue the
employment.” 49

Excessive medical leave
•
Extent/Level of excessive MC
•
Termination – can this be done when the MC’s are
obtained from registered medical practitioners?
Reference cases:-
1.Kelang Port Management Sdn Bhd v Karuppiah Sinniah,
Taken 35 days of MC + 51 days medical leave.
Held:
The company had not acted in error or with malice to
victimise
him. The company has been lenient on the issue of his
excesses and abuses for the 4 years from 1994/97. They had
correctly decided that the final 6 months of monitoring him
was a final warning to him, made with all good intentions,
which had been flouted & abused. This left the employer no
option but to terminate the claimant’s services. 50

Reference cases:-
2. Dunlop Malaysian Industries Employees Union v
Dunlop Industries Bhd, Industrial Court, KL
Jan/Sep 1979 = 49 days medical leave
Aug/Sep 1980 = 32 days medical leave
8/8/80-9/8/80 and 16/8/80 – 23/8/80 = MC from 7
different clinics.
Held:
1. Considering that the Claimant has been certified
physically & mentally fit & in the absence of any
evidence that his state of health had deteriorated in
Aug/Sep 1980, the Court agrees that the Company
had established its case that the Claimant had no
serious or long-standing illness to account for the
excessive medical leave. 51

2. From the pattern of the medical leave taken by the
Claimant, the Court agrees with the Company that it
does indicate an intention not to perform his
contractual obligation to his employer.
52

What if medical leave taken is not grossly excessive but
in relation to others, is high?
•
In such an instance, the Co. will not be able to terminate
the services of the employee. Rather the Co. has to
manage this.
How?
One way ask the employee to go for a medical check-up
to try and determine e to be what exactly is causing the
employee to be constantly ill.
53

S 11(1) EA 1955 - Fixed
Term Contract
A contract of service for a specified period of time
or for the performance of a specified piece of work
shall, unless otherwise terminated in accordance
with this Part, terminate when the period of time
for which such contract was made has expired or
when the piece of work specified in such contract
has been completed.
55

Under the laws of contract – a party to a contract may
generally terminate the same by giving the requisite
notice of termination stipulated under the said contract.
However, the same does not apply to employment
contract in Malaysia due to the existence of the
Industrial Relations Act 1967 and in particular S20(1)
which provides as follows:-
“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 DG to be reinstated to his former
employment,……..”
56

Fixed Term Contract

As a general rule, fixed term contract does not
carry the right of renewal.

Normally fixed term contract allowed for jobs of a
certain duration only.

Employer not allowed to make a series of
contracts of finite duration with intention to
evade statutory protection.
57

What amounts to a Genuine
Fixed Term Contract

Intention of the parties.

The nature of the job.

The circumstances of the non-renewal/
termination.

Temporary, one-off jobs.

Seasonal work.

Understanding that the contract will not be
renewed on expiry.
58

Thank you.
Visit www.WomenBizSense.com
for business talks and networking events.
59

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