MALAYSIA: An Introduction to Employment & Industrial Relations

Malaysia: Employment & Industrial Relations

Firm: 

Messrs Bodipalar Ponnudurai De Silva

Authors: 

1. Alex De Silva

2. Jane Tan Yang Qian

3. Ponnie Govindasamy

RECENT LEGAL DEVELOPMENTS: LEGISLATION 

On 25.10.2021, the Employment (Amendment) Bill 2021 (“Amendment Bill”) was tabled for its first reading before Parliament which seeks to bring, amongst others, several key changes to the Employment Act 1955 (“EA 1955”) as follows:-

a) Increase in paid maternity leave entitlement 

- The maternity leave will be increased from the existing 60 days to 90 days.

- It is noted that the Amendment Bill also seeks to delete Section 44A, which at present, extends maternity protection to all female employees irrespective of their wages. A reading of the Explanatory Statement to the Bill reveals that the reason behind such proposed deletion is that it is a consequence of the extension of the scope of the EA 1955. It appears that the proposed change is not consistent with Parliament’s intention to allow an employee to bring any dispute before the Director General irrespective of wages he/she receives.

b) Introduction of paternity leave entitlement 

- A married male employee will be entitled to paid paternity leave for 3 consecutive days for each confinement. Such entitlement is restricted to 5 confinements irrespective of the number of spouses.

c) Introduction of a flexible working arrangement

- Employees may now apply in writing to their employer for a flexible working arrangement to vary “the hours of work, days of work or place of work”. An employer who receives such application, will be required to approve or refuse the application and in the case of a refusal, the employer must provide the grounds of such refusal.

d) Protection against discrimination in employment

- The Director General may inquire into and decide any dispute between an employee and an employer in respect of any matter relating to discrimination in employment and the Director General may, pursuant to such decision, make an order. The employer’s failure to comply with such an order would constitute an offence.

- Whilst this is a welcome change, there is much uncertainty around this provision as the term “discrimination” is not defined nor made an offence. Further, the Amendment Bill does not state any specific remedy which may be ordered by the Director General in the event an employer is found to have practised discrimination in employment.

e) An employer’s duty to exhibit a notice of sexual harassment

- The employer will be required to exhibit conspicuously at the place of employment, a notice to raise awareness on sexual harassment.

- It is also noted that the Amendment Bill seeks to delete Section 8IG which currently allows for employees to make complaints of sexual harassment against their employer, irrespective of their wages. There is no explanation provided for such deletion in the Explanatory Statement to the Amendment Bill. Again, it appears that the proposed change is not consistent with Parliament’s intention to allow an employee to bring any dispute before the Director General irrespective of wages he/she receives.

f) Protection against forced labour 

- The Amendment Bill makes it an offence for any employer to “threaten, deceive or force an employee to do any activity, service or work” and prevent that employee from leaving their place of employment. Upon conviction, the employer shall be liable to a fine not exceeding MYR100,000 or to imprisonment for a term not exceeding 2 years or to both.

g) Presumption as to who is an employee and employer

- In any proceeding of an offence under the EA 1955, in the absence of a written contract of service, a person is presumed to be an employee where: -

(a) his manner of work is subject to control or direction of another person;

(b) his hours of work are subject to the control or direction of another person;

(c) he is provided with tools, materials or equipment by another person to execute work;

(d) his work constitutes an integral part of another person’s business;

(e) his work is performed solely for the benefit of another person; or

(f) payment is made to him in return for work done by him at regular intervals and such payment constitutes the majority of his income.

RECENT LEGAL DEVELOPMENTS: CASE LAW  

RHB Bank Berhad & 4 Ors v Perwaja Steel and 786 Others

Court of Appeal Civil Appeal No: W-02(NCC)(A)-1532-08/2019

On 9.7.2021, the Court of Appeal deliberated on whether the priority of wages afforded under s.31, Employment Act 1955 (“EA”) is circumscribed by the priority provisions under the Companies Act 2016 (“CA”) in respect of liquidation and floating charges, namely s.527 and s.392 respectively. This interesting issue arose in the Appellants/ Debenture Holders appeal against the High Court’s decision which held that:-

(1) the Receiver and Manager (“R&M”) is required to pay (from the sale proceeds of the place of employment), the employees’ wages (up to 4 consecutive months) in priority to the debts of the secured creditors. Such priority is mandated irrespective of whether the employees were working at the time of sale of the place of employment;

(2) that such priority of wages includes the payment of termination and lay-off benefits, annual leave pay, sick leave pay, public holiday pay and allowance (“Statutory Payments”).

In short, the employees’ outstanding wages (up to 4 months) and the Statutory Payments have to be paid from the sale proceeds before the secured creditors. The High Court’s decision is reported at Perwaja Steel Sdn Bhd v RHB Bank & Ors[2020] 4 CLJ 535.

At the Court of Appeal, the Debenture Holders argued that the breadth of s.31, EA has to be limited as:

(a) it does not apply to companies in liquidation, which is subject to s.527, CA.

(b) it must be read subject to s.392, CA as s.31 deals with sale proceeds of charged lands;

(c) the priority provision should be restricted to the wages of employees working on the charged lands at the time of the sale of the charged lands; and

(d) finally, the priority of wages of 4 consecutive months excludes the Statutory Payments.

In rebuttal, counsel for the Respondent Employees argued that the priority provision in s.31, EA is not qualified in any way and hence, s.31, EA can be read independently and is not subject to s.527 and/or s.392, CA. Further, s.527 and/or s.392, CA have no application to s.31, EA and thus no conflict arises. This is because the respective provisions cater to different scenarios. S.31, EA is a special law regarding the rights of employees, catering specifically to priority of wages over secured debts, whereas s.527, CA and s.392, CA are general provisions on treatment of unsecured liquidation debts and floating charges respectively.

The Respondent Employees further argued that there is no restriction in s.31, EA which requires the employees concerned to be working at the place of employment, at the time of the sale. In so far as it concerns the Statutory Payments, the amendments made to s.31, EA clearly show that the legislative intent was to extend the priority of wages to Statutory Payments.

The Court of Appeal agreed with the arguments by the Respondent Employees that since the EA is a piece of social legislation, the Courts must be careful not to insert words which do not exist. So long as the requirements of s.31, EA are met (namely that the employees worked at the place of employment being sold and wages are due), it follows that the employees shall be paid their outstanding wages and the Statutory Payments in priority over the secured creditors. The Court of Appeal further ruled that there is no conflict between s.31, EA and s.527, CA, as s.31, EA is a specific provision which gives priority of employees’ wages in the event there is a receivership sale of the place of employment. Even assuming there is a conflict, the conflict ought to be resolved in favour of the employees who are in the vulnerable section of society. In the circumstances, the Court of Appeal upheld the High Court’s decision and dismissed the Debenture Holders’ appeal.

The above Court of Appeal’s decision represents a landmark ruling in both the employment law and company law in Malaysia, as it has established that when the Receiver & Manager disposes of a security held over property which is a place of employment, the Receiver & Manager would now be required to first pay the employees their wages for any 4 consecutive months’ work as well as the Statutory Payments, from the proceeds of the sale before the payment is made to the secured creditors. This legal position applies irrespective of whether the company is in liquidation or otherwise.

* The 2nd to 786th Respondent Employees were represented by Mr. Alvin Tang (Jane Tan Yang Qian together with him) of Messrs Bodipalar Ponnudurai De Silva.

Leong Chee Kong v Novartis Corporation (Malaysia) Sdn Bhd

Court of Appeal Civil Appeal No: W-01(A)-631-11/2019 (“Appeal 631”)

Novartis Corporation (Malaysia) Sdn Bhd v Leong Chee Kong & Anor

Court of Appeal Civil Appeal No: W-01(A)-638-11/2019 (“Appeal 638”)

On 4.10.2021, the Court of Appeal delivered a decision that may have an impact on the remedy of “reinstatement” that is ordered when an employee’s dismissal is found to be without just cause or excuse involving employees in “senior management” positions. The remedy of “reinstatement” is a statutory remedy that is provided for, pursuant to Section 20, Industrial Relations Act, 1967 (“IRA 1967”). It is accepted that in general, the remedy of reinstatement would be the remedy that is ordered when an employee’s termination is discovered to have been done without just cause or excuse. However, the Court of Appeal departed from this general principle when it found that the remedy of “reinstatement” was not the appropriate remedy when it came to employees in “senior management” positions despite there being no evidence led by the Company to depart from the general position.

In this case, the Claimant was dismissed on the basis that he had acted negligently in failing to secure, protect and/or keep the ‘safeword’ token and its password safe (both were required to access and authorise any of the Company’s online bank transactions), and this allegedly caused the Company to incur financial losses through various unauthorised online bank transactions committed by another employee of the Company. However, it was found that such transactions had taken place due to the Company’s own shortcomings and/or lack of controls to its payment process.

Upon conclusion of trial, the Industrial Court found that the Claimant had exercised reasonable care to ensure the ‘safeword’ token and the password were kept secured and as such, the Company had failed to prove its allegations of negligence against him. The Industrial Court ruled that his dismissal was without just cause or excuse and consequently, ordered the Claimant to be reinstated to his former position (“Reinstatement Order”) and awarded a backwages of 28 months of his last drawn salaries (being 50% of 56 months). Dissatisfied with the Industrial Court’s decision, the Company filed a Judicial Review Application at the High Court for an order of certiorari to quash the same.

Whilst the High Court had maintained the Industrial Court’s findings that the Claimant’s dismissal was without just cause or excuse, and that the Reinstatement Order was correct, the High Court ruled that the Claimant was only entitled to 12 months of backwages (being 50% of 24 months, which is the maximum backwages prescribed by the Second Schedule of the IRA 1967 (“Backwages Order”). Both parties appealed against the High Court’s decision in the following manner:-

(a) in Appeal 638, the Company appealed against the High Court’s Reinstatement Order (“Reinstatement Order Appeal”); whereas

(b) in Appeal 631, the Claimant appealed against the High Court’s Backwages Order (“Backwages Order Appeal”).

The Backwages Order Appeal 

At the Court of Appeal, counsel for the Appellant Claimant argued amongst others that the High Court ought to have substituted the Industrial Court’s decision by removing the 50% deductions imposed on the total backwages, although it had correctly applied the provision of the Second Schedule of the IRA 1967. This is because it would be unreasonable and unconscionable for an employee who had been deprived of his employment by virtue of unfair dismissal for 56 months to only be awarded 12 months of backwages.

The Court of Appeal agreed with this argument and ruled that the Appellant Claimant is entitled to the maximum backwages provided in the IRA 1967, i.e. 24 months.

The Reinstatement Order Appeal 

The primary argument raised by counsel for the Company is that the High Court had failed to take cognisance of the Court of Appeal’s decision in Hong Leong Bank Bhd v Phung Tze Thiam John Phung [2008] 1 LNS 921, which ruled that the remedy of reinstatement was inappropriate for a senior employee whose dismissal was found to be without just cause or excuse after five and a half years of being dismissed.

The Court of Appeal agreed with the said argument and held that the Reinstatement Order is not an appropriate remedy to be awarded to the Claimant. As a result, the Claimant’s Reinstatement Order was converted into an order for compensation in lieu of reinstatement effective from the date of the Court of Appeal Order.

It is to be noted that the Appellant Claimant has since filed an application for leave to appeal to the Federal Court against this Court of Appeal decision, premised on the following Leave Questions:-

“1. Whether the decision of the Court of Appeal in Hong Leong Bank Bhd v Phung Tze John Phung [2008] 1 LNS 921 stands for the principle that the remedy of reinstatement, is as a matter of course, not available to senior management employees of a company?

2. Whether the Court may infer or assume that there has been a breakdown of mutual trust between an employee and an employer that would cause industrial disharmony, when the employer presents no evidence in the trial Court of such a breakdown?

3. Is the principle as enunciated in Kumpulan Perangsang Selangor Bhd v Zaid bin Hj Mohd Noh [1997] 2 CLJ 11, that unless there are exceptional circumstances (that is to be proven by the employer) that warrant a departure from the principle that where the termination of an employee is unjustified and is not bona fide then the normal relief is reinstatement, displaced when the employee is in senior management?

4. Would factors pertaining to the age of the employee at the time of the decision and on availability of alternative employment constitute factors that will override the fact that the employee is in senior management when it comes to determining whether reinstatement is the appropriate remedy?”

Notwithstanding the Appellant Claimant’s leave to appeal application stated above, this Court of Appeal’s decision on the Reinstatement Order represents a landmark ruling in the Malaysian employment and industrial relations legal jurisprudence which has the effect of establishing the legal position that although reinstatement is the primary remedy under Section 20 of the IRA 1967, it may not always be a suitable remedy and the order of reinstatement is to be decided on a case to case basis.

* The Appellant Claimant was represented by Alex De Silva (Ponnie Govindasamy together with him) of Messrs Bodipalar Ponnudurai De Silva.