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Wrongful Dismissal and Domestic Inquiry

December, 2018

It is an important element for businesses to consider at the start of setting-up the invaluable need of having proper HR policies and procedures. These policies and procedures shouldn’t be limited to recruitment and assessment of employee work performance to increase productivity and accountability in the workplace, for the sole aim of making the businesses more profitable.

Businesses should consider shifting their priorities and consider look into areas which include workplace conflict management and disciplinary processes to reduce liability arising from employee lawsuits.

Many companies and business owners can relate to the effect of how a minor disagreement can snowball into a major lawsuit in the event the employee was wrongfully dismissed. The ultimate result is that , the company faces losses.

One way to ensure businesses are protected from such claims is instill detailed disciplinary procedures which are fair and in-line with the overriding principles of natural justice. One might ask, what are the principles of natural justice? This principle of law stems from (1) rules against bias, (2) the Audi alteram partem rule and (3) reasoned decision.

Listen, listen, listen – Companies!

Audi alteram partem is a Latin phrase which means ‘ hear the other side’, or ‘no man should be condemned unheard’. Generally, the Courts will consider if the accused is given the right to be heard. It is also a sine qua non (essential condition) of the right to a fair hearing.

The company must be vigilant in ensuring that procedural fairness is followed. To put it simply, the accused employee must be given notice of the alleged wrongful act. The employee should be informed of:

  • the facts surrounding the alleged wrongful act; and
  • the evidence proffered or statements made against him to allow the employee to provide explanation necessary to defend himself.

After the above step is taken, the company’s next step is to issue a show cause letter to the employee. The allegations should be clearly spelt out and it is best that the relevant clauses in respect of the alleged misconduct in the Company’s policies are cited. The employee must be given reasonable time to respond to the allegations.

Upon receiving a response to the show cause letter from the employee, the company will then consider if the explanation given by the employee is acceptable to the company. If the explanation is deemed to be unsatisfactory or unacceptable, the company will then decide to either (1) take a disciplinary action or (2) proceed with a domestic inquiry.

Terminated without a domestic inquiry?

Some companies might prefer not to invest time and effort in conducting a domestic inquiry. Now, the question that frequently arises is whether the concept of natural justice is breached when a company fails to conduct domestic inquiry before dismissing the employee.

It was held by the Federal Court in Wong Yuen Hock v. Syarikat Hong Leong Assurance Sdn. Bhd. & Another Appeal [1995] 3 CLJ 344 and Milan Auto Sdn. Bhd. v. Wong Seh Yen [1995] 4 CLJ 449 that the initial defect in natural justice in not holding a statutory or contractual domestic inquiry is “curable” by the inquiry held by the Industrial Court itself. Therefore, it is not fatal if the company does not conduct a domestic inquiry.

The employee, on the other hand, should understand that the Court will look into the merits of the case and not depend on the findings of the domestic inquiry conducted by the company, as held by the Court of Appeal in the case of Hong Leong Equipment Sdn. Bhd. v. Liew Fook Chuan & Other Appeals [1997] 1 CLJ 665.

It is trite law that the function of the Industrial Court in determining dismissal cases on a reference under section 20 Industrial Relations Act 1967 is two-fold:

  • Firstly, it has to determine whether the misconduct complained of by the employer has been established; and
  • Secondly whether the proven misconduct constitutes just cause or excuse for dismissal, as held by the Federal Court in the case of Milan Auto Sdn. Bhd. v. Wong Seh Yen [1995] 4 CLJ 449. The Court will look at the company’s policies and decided case law when deciding whether there was misconduct.

Reasoned decision or too harsh?

Even if the Court finds that there has been a misconduct committed by the employee, the Court will then determine whether such misconduct is a just cause of dismissal by applying the doctrine of proportionality of punishment.

Here, the Court will consider the reasonableness of the company’s decision. The Industrial Court could substitute its own view as to what was the appropriate punishment for the employee’s misconduct, for the view of the employer concerned. Basically, the Court will consider if the decision to terminate the employee was too harsh or disproportionate to the misconduct of the employee.

In the event the misconduct is a minor one, the Company should consider issuing a written warning as a more appropriate measure, especially in cases where the employee retains an ‘unblemished’ record. However, it ultimately depends on whether the company followed procedural fairness and meted out a reasonable punishment that suits the misconduct.

Commercial considerations for the company resulting from a lack of following procedural fairness

The company must be cognizant of the compounding commercial liabilities to be incurred in the event that it does not follow procedural fairness appropriately.

The Court could award reinstatement with backwages or compensation in lieu of reinstatement with backwages in the event the employee is successful in establishing the lack of procedural fairness. Compensation in lieu of reinstatement is calculated on the basis of one (1) month’s salary for every one (1) year of service whereas backwages are calculated from date of dismissal to the date of award by the Industrial Court, subject to the maximum period of 24 months pursuant to the Second Schedule of the Industrial Relations Act 1967.

For example, calculations on the commercial liabilities to be potentially incurred by the company for an employee with a monthly salary of RM6,000.00 per month who had served the company for 8 years, is as follows:

  • A total sum of RM48,000.00 for compensation in lieu of reinstatement
    (8 month’s salary for 8 years of service); and
  • A total sum of RM78,000.00 for backwages calculated from date of dismissal and assuming it takes about 13 months till the award of the Industrial Court. [RM6,000 x 13 months]

The Company in this scenario will be made to pay a whopping amount of RM126,000.00.
This could have been avoided quite easily by setting up a proper HR policies and procedures framework from the get-go.
– By Shaun Paulian & Arsh Kaur

If you have any questions, kindly contact our Ms. Arsh Kaur and she’ll be happy to help