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

Rights Employer & Employee

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.

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.

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.

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.

Statutory Provisions - Employment Act, 1955

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.

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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 < 2 years 2 years to < 5 years 5 years & above

Length of notice 4 weeks 6 weeks 8 weeks

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S 12(3) Length of Notice

The length of notice provides under S12(2) shall apply if the termination of service is attributable wholly or mainly to the fact that:Employer has ceased, or intends to cease to carry on business for the purpose of which the employee was employed; (closed shop) Employer has ceased or intends to cease to carry on business in the place at which the employee was contracted to work;(relocate) 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)

a)

b)

c)

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S 12(3) Length of Notice

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)
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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

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S 13(2) Termination of contract 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.

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S 14(1) Termination of contract 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) b) c)

Dismiss without notice the employee; or Downgrade the employee; or 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.

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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.

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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 18 the reasons specified in S 14(3). (resignation)

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.

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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).
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Breach of Contract

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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 earliest opportunity during such absence. 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.
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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, Industrial Court, KL

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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 employees record.

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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.

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Probationers

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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.

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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.

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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.

2.

3.

that the workman was warned about his poor performance; that the workman was accorded sufficient opportunity to improve; and that notwithstanding the above, the workman failed to sufficiently improve his performance.
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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.
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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.
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Poor Performance

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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 Employees 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.

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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.

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Poor Performance

How to manage poor performers who are confirmed employees?

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
1.

Poor Performance
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 employees 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.
4.

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Poor Performance
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.
6.

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Poor Performance
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.
6.

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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.
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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.
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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.

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Frustration of Contract

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Frustration of Contract

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.

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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 periodillness 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.

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Factors & Principles

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 dismissal46

Factors & Principles

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.

2.

A conclusive medical report which states that the employee will not be able to perform the tasks he was hired to do; or 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.

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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 employees 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 MCs are obtained from registered medical practitioners? Reference cases:1.Kelang Port Management Sdn Bhd v Karuppiah Sinniah, Industrial Court, KL 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 claimants services.
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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 51 excessive medical leave.

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.

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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.

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Fixed Term Contract

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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.

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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,..
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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.

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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.

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Thank you.
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