Compliance Check: Malaysia: Navigating Unfair Dismissal Claims

Unfair dismissal remains one of the most common employment disputes in Malaysia. Under the Industrial Relations Act 1967 (IRA), employees who believe they have been dismissed 'without just cause or excuse' have a statutory right to challenge the termination of their employment. Understanding the dispute resolution framework is critical for both employers and employees.

'Just cause and excuse'

Notably, while section 12(1) of the Employment Act 1955 grants both employers and employees the statutory right to terminate an employment contract by giving notice at any time, the Malaysian courts have consistently held that termination on the basis of contractual notice alone does not amount to 'just cause or excuse'. Employees who are dismissed on this basis may seek remedies such as reinstatement or compensation by challenging the termination as being without 'just cause or excuse'.

Step 1: Filing a Representation

Employees must file a representation with the Director General of Industrial Relations (Director General) within 60 days of the dismissal. Employees will not be able to file a representation in respect of their dismissal if the 60 day time limit has passed.

When filing a representation for unfair dismissal under section 20 of the IRA, employees must primarily seek reinstatement as the remedy; claims for compensation alone are not accepted at this initial stage and may result in the Industrial Court declining jurisdiction over the dispute.

Step 2: Conciliation

The Director General will arrange and facilitate a conciliation meeting between the employer and employee. The purpose of the conciliation meeting is to provide the parties with a timely opportunity to reach an amicable resolution amongst themselves before the dispute escalates to formal adjudication.

Legal representation is not permitted during conciliation; parties may appear personally or through authorised non-legal representatives.

There is no fixed number of conciliation meetings; the number varies depending on the circumstances of the case. If the employee fails to attend two scheduled conciliation meetings, the Director General will send a notice to the employee requiring their attendance at a final conciliation meeting. If the employee fails to attend this final meeting and does not provide a reasonable excuse for their absence within 30 days of such meeting, the Director General may deem the representation to be withdrawn.

If conciliation succeeds, the matter ends with a settlement agreement.

Step 3: Referral to Industrial Court

If conciliation fails and no settlement is reached, the Director General is required to automatically refer the dispute to the Industrial Court for adjudication.

The Industrial Court will issue a Notice of Mention of Case outlining the key details such as the hearing dates, instructions on filing (if any) and other pre-hearing details.

Unlike conciliation, legal representation is permitted before the Industrial Court. Given the complexity of filing and procedural requirements, it is advisable for employers and employees to appoint a legal representative or authorised body (eg, union representative) to represent them.

At the hearing, the employer bears the burden of proving that the employee's employment was terminated for 'just cause and excuse' and that due process was observed.

Step 3: Referral to Industrial Court

If the employee succeeds in their claim, the Industrial Court may award:

• reinstatement of the Employee or compensation in lieu of reinstatement, which is usually one month's salary per year of service; and/or
• backwages (typically capped at 24 months for permanent employees) from the date of the dismissal to the date of the award.
  Any party dissatisfied with the Industrial Court's decision may file an appeal to the High Court within 14 days of receiving the decision.

Key Takeaways

Unfair dismissal claims in Malaysia pose significant financial and reputational risks for employers. To mitigate against these risks, employers should adopt proactive measures to minimise the risk of unfair dismissal claims and ensure compliance with Malaysian employment laws. Maintaining proper documentation of employment-related matters such as performance reviews, warnings, and disciplinary actions, is essential to demonstrate 'just cause and excuse' if a termination is challenged. Where there is any uncertainty about the validity of a termination, employers should seek legal advice before proceeding with the termination.

Employers should also approach conciliation constructively, as resolving disputes at this stage can prevent escalation to the Industrial Court, saving time, costs, and reputational harm. It is particularly useful for HR and legal teams to familiarise themselves with the conciliation process, as this knowledge enables them to prepare effectively, manage expectations, and explore settlement options that align with organisational objectives.

By prioritising documentation, procedural compliance, and early dispute resolution, organisations can significantly reduce exposure to claims and maintain workplace harmony.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.