Case Update: High Court rules entitlement to back wages limited to unexpired duration of fixed-term contract

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In this Case Update series, I share summaries of recent Malaysian court decisions to explore the current approach taken by the courts when deciding on employment-related issues. You can find all the posts in the series by clicking here, including case updates on other legal areas by TheMalaysianLawyer co-founder Lee Shih.

The issue of calculating back wages due to an unfairly dismissed employee has become fairly settled, at least when it comes to the upper limit of the award. The Second Schedule of the Industrial Relations Act states:

1. In the event that backwages are to be given, such backwages shall not exceed 24 months’ backwages from the date of dismissal based on the last-drawn salary of the person who has been dismissed without just cause or excuse.

However, the recent High Court case of Malayan Banking Bhd v. Mahkamah Perusahaan Malaysia & Anor [2017] 2 CLJ 70 considered a unique scenario, where the employee was dismissed while under a probationary period as part of a fixed-term contract. The Second Schedule of the Industrial Relations Act provides the following in respect of probationers:

2. In the case of a probationer who has been dismissed without just cause or excuse, any backwages given shall not exceed 12 months’ backwages from the date of dismissal based on his last-drawn salary.

The applicant (the Employer) applied to the High Court for an order to quash the decision of the first respondent (the Industrial Court). One of the issues that the High Court had to consider in this case (which is the issue we will focus on in this case update) was whether the second respondent (the Employee) should only have been entitled to back wages for the unexpired portion of her fixed-term contract (which was 5 months and 17 days), and not the 12-month maximum provided in the Industrial Relations Act for probationers.

Brief facts

The Employee was employed on a one-year fixed term contract, which included a probationary period of not less than six months. Following the expiry of the probationary period, the Employee was not confirmed, with 5 months and 17 days left on her contract.

The Employee was not satisfied with the Employer’s decision, and filed a claim that she was dismissed without just cause or excuse.

The Industrial Court ruled that the Employee was terminated without just cause and excuse, awarding back wages of 12 months (in line with the maximum permitted by the Second Schedule of the Industrial Relations Act), with a rescaling of 20% for post-dismissal earnings.

Issues to be decided by the High Court

The High Court deemed the following issues needed to be considered and determined:

  1. Whether the Industrial Court correctly found that the Employee was dismissed for just cause and excuse.
  2. Whether the Employee was only entitled to back wages of the unexpired portion of her fixed term contract or 12 months back wages pursuant to the Second Schedule of the Industrial Relations Act.
  3. Whether the Industrial Court was correct in only rescaling 20% from the back wages.

Did the Industrial Court correctly find that the Employee was dismissed for just cause and excuse?

The High Court found that the Industrial Court correctly found that the Employee had been dismissed without just cause and excuse, and this case update will not elaborate on this.

Was the Employee only entitled to back wages of the unexpired portion of her fixed term contract or 12 months back wages pursuant to the Second Schedule of the Industrial Relations Act?

The High Court noted that the situation in this case, where the Employee was both a probationer and employed on a fixed-term contract, was rather novel — employees are usually either a probationer or under a fixed-term contract, not both.

The High Court made reference to the case of Thangasamy Brown DN Gnanayutham v. Pelabuhan Tanjung Pelepas Sdn Bhd & Anor [2009] 6 CLJ 144, which preceded the Second Schedule of the Industrial Relations Act. In that case, the court held that the Industrial Court correctly awarded compensation consisting, inter alia, of the remuneration the employee would have earned for the balance of the fixed-term contract.

The question the High Court now had to consider was whether the position regarding probationers set out in the Second Schedule of the Industrial Relations Act rendered the Thangasamy Brown decision of no effect.

The High Court’s decision was that the fact that the Employee was both on probation as well as on a fixed-term contract did not alter or change the fixed-term nature of the contract. If the Employee had not been terminated, she would still have to leave the employment of the Employer at the end of the one-year period.

Because of this, the High Court ruled that although the Employee was also placed on probation, her entitlement to back wages for being unfairly dismissed has to be limited to the unexpired term of her fixed-term contract. The court stated that “any other construction would render the whole intent and purpose of having a fixed-term contract meaningless” and that Thangasamy Brown still applied.

The High Court therefore ruled that the Industrial Court committed a reviewable error when awarding back wages in line with that of a probationer under the Second Schedule of the Industrial Relations Act, and that the Employee was only entitled to back wages limited to the unexpired duration of her fixed-term contract, ie 5 months and 2 weeks.

Was the Industrial Court correct in only rescaling 20% from the back wages?

The High Court also decided to increase the rescaling of back wages to 40% from the 20% decided by the Industrial Court, as the Employee’s post-dismissal earnings was at least three times the salary she was earning from the Employer.

Comments

This decision underlines the position under the law that the maximum back wages award available to an employee under a genuine fixed-term contract who has been unfairly dismissed is limited to the unexpired duration of the fixed-term contract. The maximum awards provided in the Second Schedule of the Industrial Relations Act (12 months for probationers, and 24 months for confirmed employees) do not affect this.

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