Case Update: Is a clause in an employee handbook effective if an employee claims not to have read it?

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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.

Identifying the terms and conditions that apply to an employment relationship is often not as straightforward as reading through an employment contract.

It is the norm, particularly in large employer organisations which span multiple jurisdictions, for these terms and conditions to be set out in several documents. As a minimum, many employers would have an offer letter, the main employment contract, and an employee handbook. These are then supplemented by further individual policies, such as those in relation to personal data, BYOD, IT, benefits, discipline, workplace conduct, grievance procedures — the list is close to endless. The difficulty in determining which terms apply is further complicated when these documents (or parts of some of these documents) are amended or updated over the years.

Problems arise when an employer seeks to apply or enforce some of the terms set out in one of those documents, and the employee claims to not be aware of it — or contends that the document does not apply. The Industrial Court recently considered one such case in Ho Seng Fatt v. Strateq System Sdn Bhd (Award No. 279 of 2018).

Brief background

In Ho Seng Fatt, the claimant (“Employee”) had been employed by the company (“Employer”). On 14 February 2008, approximately 17 years into his employment, the Employer informed the Employee via a letter that, as he would soon be turning 55, he would be retired in line with the terms and conditions of the Employer’s Employee Handbook.

The Employee’s employment contract did not contain a retirement clause, and he contended that he was never informed of a retirement policy or practice, and was not aware of the contents of the Employee Handbook. The Employee responded in writing to the Employer’s retirement notice, clearly stating his position that the retirement clause in the Employee Handbook did not apply to him. The Employer did not respond to the Employee’s letter.

The Employee contended that he had been dismissed without just cause and excuse, while the Employer contended that it had retired the Employee in accordance with the law based on the retirement policy in the Employee Handbook.

While the Employer acknowledged that the Employee’s letter of appointment did not specify a retirement age, the Employer contended that it had the managerial right to amend the terms and conditions. The Employer further argued that fixing a retirement age was a commonly recognised managerial prerogative within an employer’s discretion.

The Employer asserted that the Employee should have had full knowledge of the compulsory retirement age policy, as it was set out in the Employee Handbook, which had editions dating back to 1993. The Employer further asserted that, although there was no signed or acknowledged documentary proof that the Employee was aware of and understood the said retirement clause, the Employee had in fact made various claims on benefits that he was entitled to under the Employee Handbook, and therefore it should be assumed that the Employee had known about the retirement clause.

The Employee admitted that he was aware of the existence of the electronic version of the Employee Handbook, and that he had made claims for certain benefits under it. However, the Employee explained that he made the benefits claims not because he had read the Employee Handbook, but did so when he became aware of his entitlements by word of mouth or from the company notice board. The Employee maintained that he was not aware of any of the actual contents of the Employee Handbook, and the Employer had never explained the retirement clause or its effect to him.

Court findings

The Industrial Court observed that, where a retirement clause (or any other employment term) is not contained in the employment contract, “merely stating such a provision in the company’s Employee Handbook which may contain the full terms and conditions of service […] will not suffice to make it effectual”. The Court went on to explain that for such provisions to be effective and contractually binding, a set of those terms and conditions of service should be made available to the workman for his inspection and more importantly his cognition” and that the burden is on the employer to show that this was done.

The Court concluded in this case that there was no persuasive evidence from the Employer that the Employee was informed of the retirement clause. The Employer’s contention that the Employee’s exercise of some entitlements under the Employee Handbook indicate that he was aware of its contents was rejected, with the Court stating that it “does not go far enough to safely allow the assumption that the claimant was indeed aware of the retirement clause or that he had the opportunity to manifestly give serious reflection upon such a clause”.

Although accepting the Employer’s contention that a retirement policy is a management prerogative solely at an employer’s discretion, the Court pointed out that any changes to the employment terms and conditions “must be brought to the attention of the workman at the earliest possible time” and in this case the Employer failed to do so.

The Court therefore supported the Employee’s contention that the retirement policy did not apply to him because he was not expressly informed of it. The Court further stated that “the fact that the company did not specifically direct his attention to the clause on retirement in a timely fashion can be seen as an instrument of administrative failure committed by the company” and that an employer “must be expected to have taken reasonable steps in the overall scheme of things to ensure reasonable familiarity by its employees to the general terms and conditions of service”.

For the reasons above, the Industrial Court found that the Employee’s cessation of employment was without just cause or excuse, and ordered the payment of 24 months’ backwages.

Comment

It is crucial that employment terms and conditions are properly communicated to employees in order for those clauses to be effective. As can be seen from the Ho Seng Fatt case, failing to do so may mean that even where the creation or revision of certain employment clauses can lawfully be done at the employer’s discretion, those clauses may not be applicable or effective if there is an administrative failure to communicate them to the relevant employee.

In practice, an employer should ideally deliver a copy of all applicable employment terms to every employee, and obtain a written sign-off acknowledging that the employee has received and had the opportunity to read and understand the contents of any document.

Where delivering individual copies of obtaining individual sign-offs may not be practical, an employer should either host a group employee briefing to inform employees of the relevant clauses, or issue a notice regarding the said clauses, and ensure that this notice is e-mailed to all affected employees or posted up in a prominent and easily-accessible area, such as a noticeboard.

Also, in companies where the original employee handbook may be decades old, and has since been updated numerous times or been supplemented with many individual guidelines or policies, it may be advisable to consolidate the current clauses and communicate this to employees.

One thought on “Case Update: Is a clause in an employee handbook effective if an employee claims not to have read it?

  1. Don James November 12, 2018 / 10:17 am

    Is the Company filing an application to review this decision?

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