MESSRS Bodipalar Ponnudurai De Silva (BPD) views with concern the recent statement issued by the Malaysian International Chamber of Commerce and Industry (MICCI) that suggests that an employer may opt not to pay employees’ salaries if no work has been done in view of the implementation of the movement-control order (MCO).

MICCI, in its statement, goes on to suggest that employers may rely on the legal concept of “force majeure” to break an employee’s contract.

Prerogative to manage business

It is recognised that an employer has the prerogative to manage their business as they think fit, for the better administration of the said business. The prerogative may be exercised in the interest of profitability and/or productivity. However, such a prerogative is not absolute.

The employer has the obligation to ensure that the exercise of the prerogative of how to run their business will not cause a change in the terms of the employment contract to the detriment of the employee, unless absolutely justified and is absent of bad faith.

Human Resources Ministry statement dated March 19, 2020

We urge employers to be mindful of the directive issued by the Human Resources Ministry (MOHR) on the aforesaid date. At the outset, we recognise that the statement by MOHR does not have the force of law. However, we believe that it would be highly persuasive in a court of law.

Employers are advised to pay full wages and allowances to all employees during the duration of the MCO. As it stands, we are of the view that the directive by MOHR is consistent with the applicable law in Malaysia. It mirrors the position taken by the laws of Malaysia particularly, the Industrial Relations Act 1967 (IRA 1967), that an employee may not be terminated “without just cause or excuse”.

The courts have, over the years, recognised that the laws of Malaysia provide protection to employees in terms of security of tenure. This rings especially true in these dire times.

Force majeure

A force majeure clause in a contract is a provision that excuses a party for not performing its contractual obligations on the grounds that it has become impossible or impracticable due to an event that the party could not have anticipated or controlled.

Before one can even rely on force majeure, there must be a clause in the employment contract that provides for it. In the absence of any provision in the contract providing for the termination of the said contract by reason of force majeure, an employer cannot terminate the contract on this premise.

We are of the opinion that the courts will still look at all the circumstances of each case, to see whether an employer has just cause or excuse to terminate an employee. The MCO, in our view, does not, per se, justify the termination of employment contracts on the grounds of force majeure.

Hence, we are of the considered view that the stand taken by MICCI in this regard, that “a business can terminate staff (who) can’t work under the MCO”, as being overly simplistic and simply erroneous.

Options open to an employer

The Covid-19 outbreak has a growing impact on Malaysia’s economy and society, which may result in employers having to take a big financial hit. Following this, such employers may resort to a retrenchment exercise or temporary layoff in order to recover from the same.

Other options include shortening hours or even the temporary suspension of work.

In so far as the employees covered under the Employment Act 1955 (EA 1955) are concerned, it provides for the payment of layoff benefits to employees whose remuneration depends on work being provided by the employer, subject to the fulfilment of the conditions for a layoff.

Employers are expected to undertake all possible measures to avoid retrenching employees. This includes, but is not limited to, reducing employees’ working hours and/or overtime, freezing new recruitment, exploring alternative employment for redundant employees in positions available within the company, and reducing or eliminating unnecessary overheads.

However, when it becomes apparent that a layoff or retrenchment exercise is inevitable, an employer should comply with the industrial principle of last in, first out (Lifo), unless there are valid reasons for departure. In applying the Lifo principle, an employer is required to examine the length of service in a particular category of employees selected for retrenchment.

In cases where companies employ both foreigners and locals for the same job (workers who earn RM2,000 and below and who are covered by EA 1955), and retrenchment is necessary, the foreigners must be retrenched first before any locals are. This overrides the Lifo principle.

Unauthorised deductions

In the event that employers are still minded to make unauthorised deductions on an employee’s salary, we would caution the employers of the following potential liabilities:

i. In respect of the employees covered under EA 1955, the employer, upon conviction, can be liable to a fine not exceeding RM10,000.

ii. Further, the affected employees can file complaints against the employer with the Labour Department to claim back the unauthorised salary deductions and/or unpaid leave.

iii. Alternatively, the affected employees can file representations under Section 20 of IRA 1967 for constructive dismissal by the employer with the Industrial Relations Department (which will then refer to the industrial court for an adjudication). In the event that the court rules in favour of the employees, the employer may be ordered to pay the employees back wages and compensation in lieu of reinstatement.

Conclusion

We reiterate that employers do not have the absolute right/prerogative to deduct employees’ salaries during the MCO period, and/or terminate their services in light of the implementation of the MCO. Just because the employees concerned are not able to work during the MCO, it does not give employers the automatic right to terminate employment contracts on the grounds of force majeure or other reasons, unless the employer may justify the termination.

The termination of employment is always the last resort. Employers must consider other options, like reducing hours/salaries, temporary layoffs and redundancy, before considering termination. The courts would be wary about justifying the termination of employment contracts merely because of the MCO without further scrutiny and justification.

In these trying times, we urge all employers to act in accordance with the MOHR directive, and work together, transparently, with employees to find the best solution moving forward. – March 28, 2020.

* Jane Tan Yang Qian and Ponnie Govindasamy are with BPD.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.