Introduction: Why the Distinction Matters
If you've been terminated from your job in Malaysia, you might have heard the terms "wrongful dismissal" and "unfair dismissal" used interchangeably. However, these are two distinct legal concepts with different remedies, forums, and time limitations. Understanding the difference could mean the difference between receiving full compensation or losing your right to claim entirely.
This guide breaks down everything Malaysian employees and employers need to know about these two types of dismissal claims.
What is Unfair Dismissal?
Unfair dismissal is a statutory remedy governed by Section 20 of the Industrial Relations Act 1967 (IRA 1967). This provision allows a workman who considers that he has been "dismissed without just cause or excuse" to make representations to the Director General for Industrial Relations seeking reinstatement to his former employment.
Key Features of Unfair Dismissal Claims
Who Can Claim: Any workman, regardless of whether they are a member of a trade union, can file an unfair dismissal claim. The term "workman" under the IRA 1967 is broadly defined and includes most employees, from factory workers to senior executives.
The Test: The Industrial Court examines whether the dismissal was carried out "without just cause or excuse." This is a two-pronged test:
- Just cause refers to whether there was a valid reason for the dismissal (such as misconduct, poor performance, or redundancy)
- Excuse refers to whether the proper procedure was followed in effecting the dismissal
Forum: Claims are filed with the Industrial Relations Department and, if unresolved through conciliation, are referred to the Industrial Court for adjudication.
Time Limit: You must file your representation within 60 days from the date of dismissal. If you were given notice, you may file during the notice period but no later than 60 days after the notice expires. This is a strict deadline—miss it, and you lose your right to claim.
What is Wrongful Dismissal?
Wrongful dismissal, on the other hand, is a common law remedy based on breach of contract. It focuses on whether the employer breached the terms of the employment contract when terminating the employee.
Key Features of Wrongful Dismissal Claims
Who Can Claim: Any employee whose contract of service has been breached can bring a wrongful dismissal claim. This is not limited to "workmen" as defined under the IRA 1967.
The Test: The court examines whether the employer breached the employment contract. Common scenarios include:
- Termination without giving the required notice period
- Termination in breach of specific contractual terms
- Summary dismissal without valid grounds when the contract does not permit it
Forum: Claims are filed in the Civil Courts—either the Sessions Court or High Court, depending on the amount claimed.
Time Limit: Under the Limitation Act 1953, you have 6 years from the date of the breach to file a civil claim. This is significantly longer than the 60-day window for unfair dismissal claims.
The Critical Differences: A Side-by-Side Comparison
| Aspect | Unfair Dismissal | Wrongful Dismissal |
|---|---|---|
| Legal Basis | Statutory (Section 20, IRA 1967) | Common Law (Breach of Contract) |
| Forum | Industrial Court | Civil Courts (Sessions/High Court) |
| Time Limit | 60 days from dismissal | 6 years from breach |
| Primary Remedy | Reinstatement or compensation in lieu + backwages | Damages (typically limited to notice period) |
| Legal Representation | Lawyers require Court permission | Lawyers can represent freely |
| Standard | Equity, good conscience, substantial merits | Strict contractual interpretation |
Understanding the Remedies
Unfair Dismissal Remedies
Under Section 30 of the IRA 1967, the Industrial Court has broad powers when making an award. The primary remedies are:
1. Reinstatement: The Court may order that the employee be reinstated to their former position without loss of seniority or benefits.
2. Compensation in Lieu of Reinstatement: If reinstatement is not practical (for example, where the employment relationship has irretrievably broken down), the Court may award compensation. The Second Schedule of the IRA 1967 provides guidance on calculating this compensation.
3. Backwages: The Court may award backwages from the date of dismissal to the date of the award. However, there are guidelines limiting backwages to a maximum of 24 months, with deductions for any income earned during the period.
4. Interest: Following the 2020 amendments, awards for payment of money carry interest at 8% per annum from the 31st day after the award is made.
Wrongful Dismissal Remedies
Remedies in civil courts for wrongful dismissal are typically more limited:
1. Damages: Usually limited to the amount the employee would have earned during the notice period they were entitled to. Courts generally do not award damages for loss of reputation or future earnings.
2. Specific Performance: Courts are generally reluctant to order reinstatement in employment contracts due to the personal nature of the employment relationship.
Can You Pursue Both Claims?
Here's an important point: Section 20(4) of the IRA 1967 states that where an award has been made by the Industrial Court, it "shall operate as a bar to any action for damages by the workman in any court in respect of wrongful dismissal."
This means you generally cannot pursue both remedies for the same dismissal. If the Industrial Court makes an award on your unfair dismissal claim, you cannot subsequently sue for wrongful dismissal in the civil courts.
However, this does not prevent you from initially filing both claims. Some employees file an unfair dismissal claim within the 60-day window while also commencing civil proceedings, then decide which to pursue based on their assessment of the likely outcome.
The 2020 Amendments: Appeals to the High Court
The Industrial Relations (Amendment) Act 2020 introduced significant changes, including Section 33C, which now allows parties dissatisfied with an Industrial Court award to appeal to the High Court within 14 days of receiving the award. Previously, judicial review was the only avenue to challenge Industrial Court decisions, which was limited to questions of law and procedural fairness.
Practical Advice for Employees
1. Act Quickly: If you believe you've been unfairly dismissed, don't delay. The 60-day limitation period for unfair dismissal claims is strict and courts rarely grant extensions.
2. Preserve Evidence: Keep copies of your employment contract, termination letter, payslips, and any correspondence related to your dismissal.
3. Understand Your Contract: Review your employment contract to understand your notice period entitlements and any termination clauses.
4. Seek Legal Advice: Given the different remedies and forums available, consult an employment lawyer to determine the best course of action for your specific situation.
5. Consider Your Goals: Do you want your job back, or are you seeking compensation? This will influence which remedy is more appropriate for you.
Practical Advice for Employers
1. Document Everything: Before terminating an employee, ensure you have documented the reasons for dismissal and followed proper procedures.
2. Follow Due Process: Even if you have just cause for dismissal, failing to follow proper procedures (such as conducting a domestic inquiry for misconduct cases) can result in an unfair dismissal finding.
3. Give Proper Notice: Unless there is serious misconduct justifying summary dismissal, provide the notice period stipulated in the employment contract or pay salary in lieu of notice.
4. Seek Legal Advice Early: If contemplating termination, especially for poor performance or misconduct, consult an employment lawyer to ensure compliance with legal requirements.
Conclusion
Understanding the distinction between wrongful dismissal and unfair dismissal is crucial for anyone navigating employment termination in Malaysia. While unfair dismissal under the Industrial Relations Act 1967 offers potentially greater remedies including reinstatement and backwages, the 60-day filing deadline is unforgiving. Wrongful dismissal claims in civil courts offer a longer limitation period but typically result in more limited damages.
The best approach depends on your individual circumstances, the strength of your case, and your ultimate objectives. When in doubt, seek professional legal advice promptly to protect your rights.
Disclaimer
This article is intended for general informational purposes only and does not constitute legal advice. The information provided should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Employment law is complex and fact-sensitive, and the application of the law may vary depending on individual situations. If you are facing a dismissal or contemplating terminating an employee, you should consult a qualified lawyer to obtain advice specific to your situation. Naidu Chambers accepts no responsibility for any actions taken or not taken based on the contents of this article.