27/6/2023

Managing Employees’
Dismissals and
Redundancies
Sharija Che Shaari
Senior Lecturer (Law)
Faculty of Business, Economics and Accountancy
Universiti Malaysia Sabah

Malaysian Institute of Accountants (MIA), 27 June 2023

Outline

1 2 3 4 5
Introduction Statutes Managing Managing Summary
Dismissals Redundancies

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1. Introduction
• Time and money are invested to ensure the workplace is
harmonious so that employees are happy and working
well.
• But, the key in success in business is having the right
team.
• This means that difficult decisions and the termination of
individuals must occasionally be made.
• Managerial Prerogative – the right to hire and fire
• The right to fire must be dealt with cautiously.

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Why need to manage dismissal properly?

• The right to fire can only be done “with just cause
and excuse”.
• Otherwise, it amounts to unfair/wrongful
dismissal.
• Dismissal of wrong or bad employees is essential to
maintain a good, safe, trustworthy and positive
environment at workplace.
• Dismissal must done with respect throughout.
• Failure to do so can lead to claims of unfair or
constructive dismissals made against your
organisation.
• Your organisation could end up having to
compensate the employee, or even end up in a
civil suit or industrial court.
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2. Major Statutes

Applies to Sarawak Applies to the whole

Applies to Peninsular Applies to Sabah
Malaysia Federation of Malaysia

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3. Managing
Dismissal

Although the law in

Malaysia allow an
employer to dismiss an
employee if they have
“just cause and
excuse”. Otherwise, the
employee can
challenge the dismissal.

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Areas of focus
• Each organization must determine major and minor conduct
Show cause letter
Misconduct
•

• Domestic Inquiry (DI)

• Observance of the principles of Natural Justice.

Non-performing • consistent failure to meet the expected standards set

employees • The need to have periodical appraisals

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MISCONDUCT
• Misconduct is defined as bad management, mismanagement and
malfeasance or culpable neglect of an official in regard to his office.
• the term misconduct usually implies an act wilfully with a wrong intention,
even though such acts are not inherently wrongful, it also means a dereliction
or a deviation from duty(IC Awards 309/92).
• Misconduct is a non-compliance to the employment contract, violation to company
policy and breach of employment law.
• Example: unlawful conduct (including fraud, dishonesty, theft, insubordination, assault,
absenteeism, etc), harassment, and breach of confidentiality
• Misconduct may be categorized as:
• major misconduct
• minor misconduct

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Investigation
company to carry out investigation

The right to be heard & to prepare his defense

The employee must be informed of the charges against him & then
be allowed a reasonable amount of time to respond to those

Convening
charges.

Suspension

Domestic If he is suspended pending the inquiry, the employer must ensure that the inquiry
takes place as soon as possible following the commencement of his suspension

Inquiry (DI) The right against bias

Impartiality of the inquiry panel is key.

The proceedings of DI
must be properly documented and witnesses are allowed

After Due Inquiry

• The panel decide the verdict.
• HR shall propose to the management the suitable punishments:
• Dismiss without notice;
• Downgrade the employee;
• Any lesser punishment as deems just and fit.

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Poor Performance
• Performance, on the other hand, is something that can be measured. Poor
performance is a consistent failure to meet the expected standards set. It is
generally not intentional but likely a result of a competency issue.
• Employers are required to fulfil certain criteria before they can dismiss an
employee for poor performance. The requirements can be summarised as
follows:
• The employee must have been informed/warned about his unsatisfactory performance;
• The employee must have been given sufficient opportunity to improve (the remedial
steps; and
• Notwithstanding the above, the employee has failed to sufficiently improve his
performance.
• In the event an employee is dismissed on grounds of poor performance and
he files a complaint of unfair dismissal, the burden is on the employer to
prove that they have met the aforesaid criteria.
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Poor Performance
• Importance of realistic KPI.
• In Hong Leong Islamic Bank Berhad v Azhar bin Abdullah & Anor [2020] MLJU
286:
• the Courts found that:
• the employee was not given a genuine opportunity to improve as the targets set were
too unrealistic,
• there was insufficient time to improve, and
• the company’s branch was understaffed.
• The Court held that the company knew the employee would fail to achieve
the set targets.
• Hence, the dismissal was unfair.

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Important tips in managing non-performers

1) If there are specific standards expected of the
employee, this should be communicated from the
outset
2) employee’s job scope, targets, and KPIs are clear;
3) providing adequate guidance and supervision to help
an employee improve;
4) conducting consistent assessments and periodic reviews
as annual appraisals may be insufficient;
5) employees must be given the opportunity to explain
their shortcomings; and
6) keeping proper documentation and record of the
employee’s performance and the discussions held.

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Probationer
• An employee under probation enjoys similar rights as those who have
been confirmed; Khaliah Abas v Pesaka Capital [1997]
• Malaysian statutes do not differentiate the confirmed or non-confirmed
employee;
• Adrian Thomas de Costa v Times Academy [2009] 2 LNS 1026:
• An automotive instructor was placed on 6 months’ probation.
• He was dismissed after 3 months on the ground that he was not able to teach his
classes satisfactorily.
• Industrial Court:
• There are evidences that the claimant did not perform according to the company’s
expectation, yet the company did not produce documentary evidence, he was not
given sufficient notice and chance to improve himself.
• Hence he is being wrongfully dismissed and entitled to compensation in lieu of
reinstatement.
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Constructive Dismissal (CD)

• CD refers to an act of an employee terminating his employment due to
a breach of contract committed by the employer.
• an employer makes the workplace unpleasant for the employees to “encourage”
them to quit, intentionally neglecting an employee to demotivate them,
humiliating or being unnecessarily harsh to the employee, making them perform
only menial tasks, or unilaterally reassigning the employee’s functions to something
materially different or not within their skillset.
• For a claim of constructive dismissal to succeed, an employee must
prove: –
• A breach of contract by the employer;
• The breach was fundamental to justify the employee resigning;
• The employee left in response to the breach and not for any other
unconnected reasons; and
• The employee did not delay in doing so. Otherwise, the delay amounts to
condonation of the employer’s conduct.
• such a condonation is a waiver for a reinstatement
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…cont Constructive Dismissal (CD)

• Tan Cheang Hin v Prestige Scuba Sdn Bhd [2022] 3 ILR 314
• the company failed to pay the claimant’s commission and salary in full during the
MCO period. When the claimant enquired,
• the director had repeatedly requested to resign if he was not happy with the
company’s actions on multiple occasions;
• The Company asked him to investigate the electricity short-circuited at the premises
during MCO, when travelling beyond a certain distance is not permitted. Claimant was
a sales executive and not an electrician.
• the Claimant was instructed to be seated outside the office and not to serve any
clients.
• The Industrial Court: allowed the employee’s claim for constructive
dismissal.
• The claimant’s humiliation and grief when the company requested him to sit in the
lounge without doing any work were also taken into account by the court.
• The company’s conducts amounted to a fundamental breach of the employment
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Managing
Redundancies
It is settled law that an employer
is entitled to discharge the
services of employees which
become excess after a
reorganization (Managerial
Prerogative)

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REASONS FOR REDUNDANCY

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Grounds to
challenge the
retrenchment
• It was not a bona fide exercise;
• There was non-compliance with the
collective agreement;
• There has been statutory non-
compliance;
• There was non-observance of LIFO

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WOO VAIN CHAN v. MALAYAWATA STEEL BHD

[2016] 10 CLJ 176
• the Court of Appeal defined redundancy as follows:
• Redundancy refers to a surplus of labour and is normally the result of a
reorganisation of the business of an employer; and its usual consequence is
retrenchment, ie, the termination by the employer of those employees found to
be surplus to his requirements after the reorganisation. Thus, there must be
redundancy or surplus of labour before there can be retrenchment or termination
of the surplus.
• Another essential feature that needed to be considered in determining whether
redundancy existed in an organisation, would be to see whether "the work
continues to exist or whether the work although continuing to exist requires fewer
employees to carry it out. The restructuring or reorganisation that is carried out
must result in redundancy, that is, it must result in a situation of cessation of work
carried out by the employee(s) or a surplus of employees to carry out the
particular job function.

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Burden of Proof
• Employers carry the burden to prove on a balance of probabilities that the
case for redundancy was made out so as to justify any dismissal or termination
of their employees.
• Otherwise, it would tantamount to unfair/wrongful dismissal, thereby rendering
the dismissal or termination to be an unfair labour practice, invalid and
without lawful excuse.(see: Woo Vain Chan v Malayawata Steel Bhd.)
• If an employer fails to establish that the principal reason for dismissal was
redundancy, the dismissal or termination will likely be considered unfair under the
law and the employee may be able to initiate a claim against the employer at
the Industrial Court for unfair/wrongful dismissal.
• It should be noted that even if there was in fact redundancy, the employer
must implement a fair and reasonable selection process, eg LIFO or based on
the appraisals for the preceding 3-5 years.

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LIFO
• The LIFO (Last In, First Out) principle simply means that the most junior
employee shall be retrenched first. It is not the most junior employee in
the entire company which has to be retrenched first, but the most junior
employee in the relevant category.
• For example, if the retrenchment is due to the outsourcing of
accounting services, employees in the legal department would not be
included in the pool.
• The Industrial Court has the power to award compensation in lieu of
reinstatement in addition to back wages to the employee should the
employer fail to adhere to the LIFO rule under redundancy. (see: MAA
Services Sdn Bhd v Marlin Rajiman & Ors [2000] 8 CLJ 362 [HC])

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PROCESS PRIOR TO RETRENCHING THE

EMPLOYEES
• To prevent injustice or unreasonableness, it is advised that an
employer use the following process and procedure before
retrenching an employee:
➢ The employer has a duty to notify the employee as soon as feasible of any
potential redundancy;
➢ Before selecting an employee or employees to be retrenched, the
employer must reach out to all employees concerning how to avoid
redundancy; and
➢ Initially the employer must make a reasonable attempt by using alternative
measures(i.e. transfer, reduction of salary, unpaid leave or temporary lay-
off) prior to retrenching the employees.
➢ Strongly encouraged to adhere to the Code of Conduct for Industrial
Harmony 27 June
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NOTICE OF RETRENCHMENT
• The employer must give the affected employees a
notice of retrenchment.
• The notice period is based on the employment contract or
collective agreement, and the Employment Act (EA) and
both SLOs;
• Those who work less than 2 years: at least 4 weeks’ notice.
• Those who work between 2 – 5 years: at least 8 weeks’
notice.
• Those who work more than 5 years: at least 12 weeks’
notice.
• It is advisable to consult or inform employees of a
potential retrenchment as soon as possible.
• Employers are also required to submit a written
notification (PK Form) to the nearest Department of
Labour at least 30 days before conducting a
retrenchment exercise. 27 June
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UNFAIRLY RETRENCHED
• The court will consider the following two key questions:
• Firstly, was there an actual redundancy which justified a retrenchment?
• This will depend on all pertinent facts based on the justification given by the employer
for the retrenchment. For example, if an accounts manager is retrenched, and the
employer hires another accounts manager to perform the same work functions a
month after the retrenchment, it is likely to be concluded that there was not a genuine
redundancy.
• Secondly, if a retrenchment was justified, was the employee-selection process
fair?
• This goes back to the LIFO principle discussed earlier, and will also involve consideration
of whether the employee pool/category was properly defined.
• If the court decides that the retrenchment was unfair, the employer will
be ordered to reinstate the employee or pay compensation in lieu of
reinstatement.
• Back wages: max up 2 years from the retrenchment.

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The Code of Conduct for Industrial Harmony — a

guide for employers considering retrenchment
• Although it is not legally-binding, the Industrial Court encourages
employers to comply with the Code of Conduct for Industrial Harmony
which was established in 1975.
• The Code recommends that, where redundancy is likely, an employer
should take positive steps to avert or minimise reductions of workforce
by adopting appropriate measures such as:
• limitation on recruitment;
• restriction of overtime work;
• restriction of work on weekly day of rest;
• reduction in number of shifts or days worked a week;
• reduction in the number of hours of work;
• re-training and/or transfer to other department/work.
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The Code of Conduct for Industrial Harmony — a

guide for employers considering retrenchment
• Where a retrenchment becomes necessary, the Code encourages employers to take
the following measures:
• Giving as early a warning as practicable to the affected employees.
• Introducing schemes for voluntary retrenchment and retirement and for payment of
redundancy and retirement benefits.
• Retiring workers who are beyond the retirement age.
• Assisting workers to find alternative employment.
• Spreading the termination of employment over a longer period.
• Ensuring that the employees are informed or consulted before a formal announcement is
made.
• The Code also recommends that the employer should select the employees to be
retrenched based on an objective criteria, and that retrenched employees should be
given priority to be re-employed by the employer if the employer decides to employ
workers again in the future.

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Termination benefits or compensation

• According to Regulation 6 of the Employment (Termination and Lay-Off Benefits) Regulations
1980, employees within the purview of the EA 1955 shall be entitled to termination benefits:
• Those who work less than 2 years: at least 10 days’ wages for every year of employment under a
contract of service
• Those who work between 2 – 5 years: at least 15 days’ wages for every year of employment under a
contract of service
• Those who work more than 5 years: at least 20 days’ wages for every year of employment under a
contract of service
• Latest amendment of EA 1955 which came into effect on 1 Jan 2023: EA covers all employees
in Peninsular, but those whose wages are RM4K and above are not entitled to above
termination benefits.
• Those who are not covered by the above, their termination benefits due to redundancy would
be based on their employment contract or contract of service.
• If the contract is silent, it is for the employer to decide whether or not to provide termination benefits,
and on the amount to be given.
• In the case of Equant Integration Services Sdn. Bhd. (In liquidation) v. Wong Wai Hung [2012] 1
LNS 1296:
• the Court of Appeal held inter alia that a standard industry labour practice is to compensate the
employee with a salary of one month to one year of service. 27 June
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The Employees’ Legal Recourse

• Dismissal without notice:
• Lodge claim at Labour Department
• Entitled to get compensation in lieu of notice.
• Labour Department is not empowered to reinstate the dismissed employee.

• Unfair/Wrongful dismissal:
• File a representation for reinstatement at the Industrial Relations Department (IRD).
• Under Sec. 20 of the Industrial Relations Act 1967, an employee has only 60 days from their last
day of employment to file a complaint against their employer for unfair dismissal
• Conciliation at IRD, if no settlement is reached then the case is referred to Industrial Court.

• Civil suit
• The aggrieved party (the dismissed employee) sue the employer for breach of contract.
• Limitation period: 6 years from the dismissal. 27 June
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Summary
• The goal of Malaysian employment law is to
strike a balance between an employee's right to
a stable work or source of income and an
employer's freedom to choose how to run their
company, including who gets hired and who gets
fired.
• The law is not unduly skewed in favour of the
employee as long as the employer takes care to
ensure that the employee is treated in good faith
and with fairness and transparency throughout
the entirety of the employment relationship.

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“ Great things in business are

never done by one person.
They’re done by a team of

”
people.
Steve Jobs

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Q&A

Thank you
sharija@ums.edu.my

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