The worth of unjust dismissal

Siva Kumar Kanagasabai comments on the quantum available for unjust dismissal in light of two diametrically opposite High Court decisions


The Industrial Court (“IC”) derives its power to make an award (including to grant a remedy to an employee who is found to have been dismissed without just cause or excuse) from s.30(1) of the Industrial Relations Act 1967, which reads:


“The court shall have power in relation to a trade dispute referred to it or in relation to a reference to it under section 20(3), to make an award (including an interim award) relating to all or any of the issues.”


As is apparent, s.30(1) does not place any clear legislative parameters within which the Industrial Court is to act in granting a remedy to an employee.  The Supreme Court in the case of Hotel Jaya Puri v National Union of Hotel, Bar & Restaurant Workers [1980] 1 MLJ 109 confirmed the wide powers conferred on the I.C by s. 30(1) when it held that as long as there is a legal basis for the compensation, the Industrial Court has the full discretion to determine the quantum to be awarded to the employee.


In the absence of comprehensive legislative guidance, what has occurred is that as a matter of practice, the I.C would often make an award of compensation in lieu of reinstatement of 1 month’s salary for each year of service and back wages of up to 24 months salary (an award of reinstatement, although the primary remedy sought through the Industrial Court, has become quite uncommon).


The practice of limiting back wages to 24 months came up for consideration in 2 separate cases in the High Court recently.  The result : 2 conflicting decisions by 2 different High Court judges.  The issue of whether back wages should be limited to 24 months and also the creation of a new category of compensation known as ‘loss of future earnings’ will be dealt with below.




The President of the I.C issued Practice Note No. 1 of 1987 which states that backwages are to be paid in full from the date of dismissal to the date of the conclusion of the hearing, subject to the maximum of 24 months.  This Practice Note accords with the need to have some sort of certainty in Industrial Court awards and, as the High Court in Ter Ah Chai v The Times Packaging Co Sdn Bhd & Anor [1998] 4 CLJ 923 stated, the limiting of back wages to 24 months is also in consonance with the principle of equity and good conscience which the Industrial Court is statutorily obliged to apply in its adjudication. The 24 months back wages limit was also accepted by the High Court in Vadiveloo Munusamy v General Tyre Retreaders Sdn. Bhd. [1999] 7 CLJ 596.   For a number of years, most Chairmen have complied with the practice note.


Nevertheless, a few of the Chairmen have not followed the 24 month back wages limit in making their awards.  The reason appears to be that they do not consider themselves bound by Practice Note No.1 of 1987  and have decided to exercise their wide discretion conferred by s.30(1) based on what they consider to be fair.  It is for this reason that Telekom Malaysia v Ramil Akim [2005] 6 CLJ 487 and the case of J.T. International Tobacco Sdn. Bhd. v Low Thow Sin (unreported case no. R1-25-154-2003) is interesting as in these cases, the decision of the Industrial Court not to limit back wages to 24 months was challenged.


The outcome Telekom Malaysia v Ramil Akim Case was a blow to employers, as the High Court held that the I.C did not err in law when awarding 53 months back wages for the following reasons :-


  1. a) s.30 did not have a pre-set limit as to the number of months of back wages that can be awarded;
  2. b) the Federal Court in R Rama Chandran v The Industrial Court of Malaysia [1997]1 CLJ 147 allowed 88 months back wages (meaning that it is not per se wrong for an award of back wages to exceed 24 months as per the practice note); and
  3. c) as it was the employer who started the dispute by dismissing the employee, they should bear the consequence of any delay in hearing the case (even though the delay was not caused by the employer or the employee).


However it was not all doom and gloom for employers for long.  In February 2006, in the case of J.T. International Tobacco Sdn. Bhd. v Low Thow Sin (unreported case no. R1-25-154-2003), another High Court judge held that while the practice note to limit backwages to a maximum of 24 months is merely a guideline, it should only be disregarded when and if it can be proved that the delay in disposing a case is mainly contributed by the employer.  The High Court held that the I.C was committed an error of law in awarding 63 months back wages. The rationale used by the High Court judge in the J.T.International Tobacco Case was diametrically opposed to that used by the High Court judge in Telekom Malaysia case.  In the J.T.International Tobacco case, the High Court judge endorsed the following observation of the Industrial Court Chairman in Nestle Food Store Storage (Sabah) Sdn. Bhd. v Terrence Tan [2002] 1 ILR 280 :-


The effect of the decisions in Telekom Malaysia case and the J.T.InternationaI Case is that the confusion as to whether back wages should be limited to 24 months has not been resolved.  The issue will not have to be resolved by the appellate court or by Parliament.





Citing R Rama Chandran Case as authority, the learned High Court Judge in Telekom Malaysia case held that the award of loss of future earning is permissible under the law.  The Federal Court in the case of R Rama Chandran, in an extraordinary majority decision, found that the employee concerned had been dismissed without just cause or excuse by his employer and proceeded to unilaterally award the employee 88 months salary as loss on back wages (less three month's salary already paid to the employee as wages in lieu of notice) and 39 months salary as loss of future earnings.


Perhaps recognising that the decision in R Rama Chandran was extraordinary, the Industrial Court has largely not followed the formula used in that case in making its awards.  However, the reliance of the High Court judge in Telekom Malaysia case now puts that case back in the limelight.  In R Rama Chandran, the Federal Court awarded loss of future earnings as it felt that it was unlikely that the employee would be able to fit into his former employment and had lost touch with his work.  The Federal Court decision does raise the following questions (which unfortunately, will probably never be answered):-


a) Since the primary remedy which an employee seeks is reinstatement, why is it justifiable for the Court to award the employee, in lieu of reinstatement, loss of future earnings which effectively gives the employee the maximum sum of money that an employee would have earned after had he been reinstated  without having to work for his wages?  Is this not granting the employee a better remedy than what he is entitled to seek in the first place from the Industrial Court?

b) Why did the Federal Court not make the usual award of compensation in lieu of reinstatement of 1 month’s salary for each year of service?


In the case of Telekom Malaysia case, the High Court went further than R Rama Chandran. It not only compensated the employee in lieu of reinstatement with 1 month’s salary for each year of service, it also granted the employee loss of future earnings constituting the total amount the employee would have earned until retirement.  In effect, the claimant  was awarded double compensation.  He was awarded about 25 months more salary than the maximum amount he could have earned from Telekom had he been reinstated and worked there until retirement.  It is submitted that doubly compensating the employee in this manner is not in accordance with equity and good conscience.




In conclusion, the differences in the awards made in industrial adjudication is likely to continue as long as Parliament does not provide clear and comprehensive legislative guidelines to an Industrial Court chairman on the parameters of an award.  The present law, which leaves it almost entirely to the individual Chairman concerned to make an award at his discretion, creates great uncertainty in settling industrial disputes.


Furthermore, employers are being inflicted with large financial awards (in what must be amongst the highest awards for unjust dismissal in the world) for being unable to prove to the satisfaction of the I.C (often more than 2 years after the event) that the dismissal was justified.


It is imperative that Parliament make the requisite amendments to the law, not only in the sphere of determining the appropriate remedy but also in other aspects of employment law to preserve our competitive edge in the global economy.



SIVA KUMAR KANAGASABAI (skk@skrine .com)



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