When A Dismissal Becomes Dispute: Understanding Unfair Termination In Malaysia

Introduction: Not All Dismissals Are The Same

Losing a job is never easy. But for many employees in Malaysia, the pain of termination becomes even sharper when they believe they've been dismissed without just cause or excuse. Whether you're an employee who has just been let go, or an employer navigating a difficult separation, it's essential to understand what the law considers "unfair termination", and what remedies are available when a dismissal turns into a dispute.

What is Unfair Dismissal under Malaysian Law?

In Malaysia, the concept of unfair dismissal is grounded in Section 20 of the Industrial Relations Act 1967. An employee who feels they've been dismissed "without just cause or excuse" can file a representation with the Director General of Industrial Relations within 60 days from the date of dismissal.

So, what constitutes “just cause or excuse”? Courts have repeatedly held that dismissal must be based on valid and reasonable grounds, such as misconduct, poor performance, redundancy, or breach of contract. An employer cannot simply terminate employment at will or without a valid process.

Types of Unfair Dismissal

Unfair dismissal in Malaysia can take several forms. These include:

Constructive Dismissal  occurs when the employer makes the working environment so intolerable that the employee is forced to resign. Common examples include demotion without reason, unilateral changes in salary or job scope, or persistent harassment.

Retrenchment is allowed under Malaysian law, but it must follow proper procedure, including adherence to the Last-In-First-Out (LIFO) principle and consultation with employees. If an employer fails to demonstrate that retrenchment was genuine and necessary, the dismissal may be deemed unfair.If an employee is dismissed for misconduct without being given a chance to defend themselves in a domestic inquiry, that dismissal may be challenged as unfair.

The Importance of Procedural Fairness

Malaysian courts place a strong emphasis on procedural fairness, meaning the process of dismissal must be carried out fairly, even if the employer has a valid reason. This includes giving the employee an opportunity to be heard, investigating allegations thoroughly, and ensuring the disciplinary process is unbiased.

In the case of Goon Kwee Phoy v J & P Coats (M) Bhd [1981] 2 MLJ 129, the Federal Court ruled that for a dismissal to be valid, it must not only be substantively justified but also procedurally fair.

Burden of Proof: On the Employer

It is important to note that the burden of proof lies on the employer. Once an employee files a complaint alleging unfair dismissal, the employer must prove that the dismissal was carried out with just cause or excuse. Failure to provide sufficient evidence or failure to follow the proper procedure can result in the dismissal being declared unfair.

What Happens If the Dismissal Is Unfair?

If the dismissal is found to be unfair, the Industrial Court has the power to grant remedies under Section 30(5) of the Industrial Relations Act. The usual remedies are:

-Reinstatement to the former position.

-Compensation in lieu of reinstatement, often calculated at one month’s salary for each year of service, capped at 24 months.

-Backwages, which are calculated from the date of dismissal to the date of the award, subject to statutory limitations.

How Should Employees Respond to Termination?

If you are an employee who believes you’ve been unfairly dismissed, it is crucial to act promptly. The steps you should take include:

-File a complaint with the Department of Industrial Relations within 60 days.

-Gather documentation, including employment contracts, emails, letters of termination, and any evidence of misconduct or procedural flaws.

-Consult a legal practitioner or union representative to explore your legal options.

What Should Employers Keep in Mind?

Employers, too, must tread carefully. Before deciding to terminate an employee, consider:

-Whether the reason for dismissal can be objectively proven.

-Whether the proper procedures, including domestic inquiry and warning letters, have been followed.

-Whether the employee was given an opportunity to be heard.

Documentation is key. Courts rely heavily on written records, so ensure that performance appraisals, warning, and internal investigation reports are properly kept and dated.

Common Pitfalls in Dismissal Cases

Some of the most common mistakes employers make include:

-Terminating an employee without a show-cause letter.

-Failing to conduct a domestic inquiry.

-Retrenching employees without following LIFO or consulting the Ministry of Human Resources.

-Dismissing employees for poor performance without proof of poor performance or warnings.

These oversights not only weaken the employer's defence in court but may result in heavy financial consequences.

The Role of the Industrial Court

The Industrial Court serves as a specialized forum for resolving employment disputes. Unlike Civil Courts, it does not follow strict rules of evidence and aims to deliver a just and equitable outcome for both parties. Hearings are less formal, but the stakes are still high. Legal representation is advisable for both employees and employers.

Conclusion: Prevention is Better Than Litigation

Unfair dismissal cases in Malaysia continue to rise, often due to miscommunication, poor documentation, or lack of legal awareness. Whether you are an employee facing termination or an employer planning to dismiss, understanding the legal landscape can save both parties time, cost, and stress.

Employers should ensure that terminations are grounded in valid reasons and follow a clear, documented process. Employees, on the other hand, should be aware of their rights and the legal remedies available to them.

In the end, prevention, through transparent policies, clear communication, and fair procedures is always better than post-dismissal litigation.