BBUI3103 Employment and Industrial Law - Eaug20

BBUI3103
Employment and Industrial Law
Copyright © Open University Malaysia (OUM)

BBUI3103
EMPLOYMENT AND
INDUSTRIAL LAW
Assoc Prof Dr Asmah Laili Yeoh
Che Thalbi Md Ismail
Khadijah Mohamed
Asiah Bidin
Nazruzila Razniza Mohd Nadzri

Project Directors: Prof Dr Widad Othman
Prof Dr Shamsul Nahar Abdullah
Open University Malaysia
Module Writers: Assoc Prof Dr Asmah Laili Yeon

Che Thalbi Md Ismail
Khadijah Mohamed
Universiti Utara Malaysia
Asiah Bidin
Universiti Sultan Zainal Abidin
Nazruzila Razniza Mohd Nadzri

INTI International University
Moderators: Cyrill Ponnu

Universiti Malaya
Tuan Fatma Tuan Sulaiman
Enhancer: Rhymie Mohd Ramli
Developed by: Centre for Instructional Design and Technology

First Edition, March 2008

Second Edition, August 2013 (rs)
Third Edition, August 2020 (MREP)
Copyright © Open University Malaysia (OUM), August 2020, BBUI3103

All rights reserved. No part of this work may be reproduced in any form or by any means
without the written permission of the President, Open University Malaysia (OUM).

Table of Contents
Course Guide ix–xiv
Topic 1 Labour Relations and Employment Law 1

1.1 Employment Law and Administration of Labour Relations 2
1.2 Employment Relations 3
1.2.1 Contract of Employment/Service 4
1.2.2 Forms of Contract of Service/Employment 6
1.3 Differences Between Contract for Service and Contract of 7
Service
1.3.1 Contract for Service 7
1.3.2 Contract of Service 8
1.4 Tests to Determine Employer-employee Relations 9
1.4.1 Control Test 9
1.4.2 Organisational Test 11
1.4.3 Multiple Test or Mixed Test 12
1.4.4 Mutuality Obligation Test 13
1.4.5 Economic Reality Test 14
1.5 Determination of Elements of Labour Relations by Court 16
1.6 Characteristics of Contract of Service/Employment as Per 18
Employment Act (EA) 1955
1.7 Definitions of Employer and Employee 19
1.8 Rights and Responsibilities of Employers and Employees 21
Summary 22
Key Terms 23
References 23
Topic 2 Justice System Related to Employment and Industrial Relations 25

2.1 Inquiry and Arbitration 26
2.2 Labour Court 26
2.2.1 Jurisdiction of Labour Court 27
2.2.2 Inquiry Procedure 28
2.2.3 Appeal Procedure 28
2.3 Industrial Court 29
2.3.1 Trade Dispute 29
2.3.2 Members of Industrial Court and Reference by 30
Minister
2.3.3 Powers of Industrial Court 33
2.4 Judicial Review 35

iv  TABLE OF CONTENTS
Summary 37
Key Terms 37
References 38
Topic 3 Terms and Conditions of Employment 39

3.1 Employment Act 1955 40
3.2 Terms Not Contained In Employment Act 1955 40
3.3 Utilisation of Collective Agreement, Contract of Service 42
And Employment Act 1955
3.4 Difference Between Terms and Conditions of Employment 43
3.5 Division of Terms 45
3.5.1 Implied Terms 45
3.5.2 Express Terms 51
Summary 51
Key Terms 52
References 52
Topic 4 Pecuniary and Non-pecuniary Terms 53

4.1 Pecuniary Terms 54
4.1.1 Wages or Salaries 54
4.1.2 Period of Wages or Salaries 56
4.1.3 Payment of Salaries 56
4.1.4 Advances of Wages 57
4.1.5 Deduction of Wages 58
4.1.6 Minimum Wages 59
4.2 Allowances 61
4.2.1 Maternity Allowance 62
4.3 Bonus and Ex-gratia Payments 63
4.3.1 Bonus 63
4.3.2 Ex-gratia Payment 64
4.4 Pecuniary Benefits 65
4.4.1 Lay-off and Termination Benefits 65
4.4.2 Retirement Benefits 67
4.4.3 Resignation Benefits 68
4.4.4 Medical Benefits 68
4.4.5 Insurance Benefits 69
4.5 Non-pecuniary Terms 69
4.5.1 Duration of Work 70
4.5.2 Overtime Work 72
4.5.3 Rest Days 73
4.5.4 Annual Leave 74

TABLE OF CONTENTS  v
4.5.5 Sick Leave 75

4.5.6 Public Holidays 76
4.5.7 Maternity Leave 78
Summary 79
Key Terms 79
References 79
Topic 5 Management Prerogatives 81

5.1 Exercising Prerogative 82
5.2 Prerogative Power and its Limitations 83
5.2.1 Recruitment of Workers 85
5.2.2 Placement and Training 85
5.2.3 Promotion and Transfer of Workplace 86
5.2.4 Principle in Reducing Workers 88
5.2.5 Retirement and Resignation 91
5.2.6 Termination and Dismissal 94
5.2.7 Remedies in a Case of Unfair Dismissal 100
5.2.8 Discipline and Punishment 103
Summary 103
Key Terms 104
References 104
Topic 6 Misconduct of Workers and Domestic Inquiry 106

6.1 Definition of Misconduct 107
6.2 Types of Misconduct 108
6.2.1 Coming in Late or Being Absent from Work 109
6.2.2 Insubordination and Insolent Behaviour 111
6.2.3 Negligence in Carrying Out Tasks 112
6.2.4 Gambling and Drunkenness 112
6.2.6 Stealing and Dishonesty 113
6.2.7 Sexual Harassment 113
6.3 Other Issues Relating to Misconduct of Employees 115
6.3.1 Doctrine of Condonation 115
6.3.2 Past Misconduct 116
6.3.3 Single Misconduct 116
6.4 Punishment for Misconduct 117
6.5 Domestic Inquiry 119
6.6 Principle of Natural Justice 122
6.6.1 Right to be Heard 122
6.6.2 Rules Against Bias 124
6.7 Procedural Defects in Domestic Inquiry 126

vi  TABLE OF CONTENTS
Summary 130
Key Terms 131
References 131
Topic 7 Trade Union and Collective Bargaining 132

7.1 Definition of Trade Union 133
7.2 Registration of Trade Union 135
7.2.1 Procedures in Trade Union Registration 136
(S. 10 of TUA 1959)
7.2.2 Refusal to Register, Cancel or Suspend 137
Trade Union by Director-general
7.2.3 Consequences of Failure or Cancellation of 139
Registration (S. 19 of TUA 1959)
7.3 Membership of Trade Unions 140
7.4 Powers, Rights and Responsibilities of Trade Unions 141
7.5 Representation and Recognition 144
7.6 Definition of Collective Bargaining 145
7.7 Collective Agreement 148
7.8 Scope of Collective Agreement 148
7.9 Period of Collective Agreement 149
7.10 Cognisance and Effects of Law on Collective Agreement 150
Summary 151
Key Terms 153
References 153
Topic 8 Trade Disputes and Dispute Resolution 154

8.1 Definition of Trade Dispute 155
8.2 Definition of Strikes, Lockouts and Pickets 156
(S. 2 of TUA 1959)
8.3 Provisions of Law Regarding Strikes, Lockouts 158
and Pickets
8.3.1 Legal Consequences of Trade Dispute Actions 159
that Breach the Law
8.3.2 Procedures for Strikes and Lockouts for Essential 163
Services
8.4 Trade Dispute Resolutions 164
8.5 Conciliation 165
8.5.1 Representations in Conciliation (S. 19b of IRA 1967) 165
8.5.2 Process of Conciliation 166

TABLE OF CONTENTS  vii
8.6 Inquiry and Investigation 168

8.6.1 Composition of Members and Responsibilities of 168
Committee of Investigation and Board of Inquiry
8.6.2 Responsibility of the Board of Inquiry to 169
Prepare Reports (S. 37 of IRA 1967)
8.7 Arbitration 169
Summary 170
Key Terms 171
References 171
Topic 9 Social Security Protection for Employees (EPF) 172

9.1 Employees Provident Fund 173
9.1.1 Membership In EPF Board 174
9.1.2 Powers of the Board to Make EPF Investments 175
9.2 Responsibility towards EPF Contributions 177
9.3 Types of MembersÊ Savings Accounts and Their Uses 179
9.3.1 Account 1 179
9.3.2 Account 2 179
9.4 Schemes Offered by EPF 181
9.5 EmployeesÊ Social Security Act 1969 and Social Security 184
Organisation
9.6 Responsibility Towards Insurance and Contribution 185
9.7 Socso Protection Scheme 188
9.7.1 Employment Injury Insurance Scheme 189
9.7.2 Invalidity Pension Scheme 195
9.8 Appeal on Sum of Compensation 199
9.9 Employment Insurance System 200
9.9.1 Coverage and Contribution Rate of Employment 201
Insurance System
9.9.2 Employee Eligibility for Claims 201
9.9.3 Eis Benefits 202
Summary 203
Key Terms 204
References 204
Topic 10 Occupational Safety and Health 205

10.1 Factories and Machinery Act 1967 206
10.2 Occupational Safety And Health Act 1994 207
10.3 Responsibilities of Employers and Self-employed Persons 208
10.3.1 Responsibilities Towards Workers 208
10.3.2 Responsibility to Formulate Health and Safety 211
Policy

viii  TABLE OF CONTENTS
10.3.3 Responsibility to Inform About Accidents, 212

Dangerous Incidents, Poisoning of Workers
and Work-related Illnesses
10.4 General Responsibilities of Designers, Manufacturers 212
and Suppliers
10.5 General Responsibilities of Workers 214
Summary 215
Key Terms 216
References 217

COURSE GUIDE  ix
COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through the
course material. It also suggests the amount of time you are likely to spend in order
to complete the course successfully. Please keep on referring to the Course Guide
as you go through the course material as it will help you to clarify important study
components or points that you might miss or overlook.
INTRODUCTION
BBUI3103 Employment and Industrial Law is one of the courses offered at Open
University Malaysia (OUM). This course is worth three credit hours and should be
covered over 15 weeks.
COURSE AUDIENCE
This is a core course for Bachelor of Management learners and an elective course
for Bachelor of Business Administration learners who specialise in the field of
human resource management. It is also a major core course for Bachelor of Human
Resource Management learners.
As an open and distance learner, you should be able to learn independently and
optimise the learning modes and environment available to you. Before you begin
this course, please confirm the course materials, the course requirements and how
the course is conducted.

x  COURSE GUIDE
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.
Table 1: Estimation of Time Accumulation of Study Hours
Study
Study Activities
Hours
Briefly go through the course contents and participate in initial discussions 3
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 12
Revision 15
Assignment(s), Test(s) and Examination(s) 20
TOTAL STUDY HOURS ACCUMULATED 120
COURSE LEARNING OUTCOMES

By the end of this course, you should be able to:
1. Explain the judicial system and written laws related to employment and
industrial relations in Malaysia;
2. Evaluate the legal principles and practices of employer-employee
relationship in employment and industrial law; and
3. Apply the principles in employment and industrial relations and
employment and industrial law to real cases.

COURSE GUIDE  xi
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented as
follows:
Topic 1 defines labour relations, employer and employee. The discussion revolves
around the differences between contract of service and contract for service. Besides
that, it focuses on the various tests used by the courts to determine the existence of
an employer-employee relationship. The different criteria and considerations
employed by the courts are explained in this topic.
Topic 2 emphasises the judicial system, which is responsible for the trial of labour
and industrial cases.
Topic 3 gives the definition of laws related to the terms and conditions of
employment as stipulated in statutes and employment contracts.
Topic 4 discusses the responsibilities of employers towards their employees,

namely, those related to pecuniary and non-pecuniary terms. The pecuniary terms
include salaries and allowances, bonuses, ex-gratia payments and other related
matters. The topic also touches on the responsibilities of employers as well as the
rights of employees with regard to non-pecuniary terms. Non-pecuniary terms
include hours of work, rest days, public holidays, leave entitlements and other
relevant matters.
Topic 5 highlights the prerogatives of employers towards their employees. The

issues discussed include the conditions of employee recruitment, transfer,
reduction, retirement, resignation, termination and dismissal.
Topic 6 focuses on employee misconduct. The issues discussed are acts and types
of misconduct and the actions that can be taken by employers towards employees
who are guilty of misconduct. The topic also discusses domestic inquiry, the
principle of natural justice and remedies that are available to employees in the
event of unfair dismissal.
Topic 7 touches on trade unions. The issues discussed are related to the
registration, composition, power, responsibilities and membership of trade
unions. This topic also explains matters related to collective bargaining between
the employer and the employees.

xii  COURSE GUIDE
Topic 8 explains trade disputes and dispute resolution. It also covers strikes and
pickets by employees, lockouts by employers and the extent to which such actions
are allowed by the law in Malaysia. The resolution of disputes is divided into
several other divisions such as inquiry and investigation, mediation and
arbitration. These represent alternatives aimed at cooperation between employers,
employer unions and trade unions.
Topic 9 discusses legal provisions for the social security of employees. The main
Acts are the Employees Provident Fund (EPF) Act 1951, EmployeesÊ Social Security
Act 1969 and WorkmenÊs Compensation Act 1952. This topic also covers matters
related to the EPF Board and its two powers, namely, the contribution to EPF and
the benefits derived from the contribution. It further discusses aspects such as
contribution to the Social Security Organisation (SOCSO) by employers and
employees, protection scheme by SOCSO and the rate of distribution of interest
among dependants. Lastly, it touches on issues related to the WorkmenÊs
Compensation Act 1952. The matters discussed include compensation scheme for
foreign workers and the types of benefits and compensation provided under this
Act.
Topic 10 explains the Occupational Safety and Health Act 1994. The provisions of
this Act include the responsibility of employers and the rights of employees with
regard to safety and health during employment. Provisions on liabilities and
penalties are also discussed in this topic.
TEXT ARRANGEMENT GUIDE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:
Learning Outcomes: This section refers to what you should achieve after you have
completely covered a topic. As you go through each topic, you should frequently
refer to these learning outcomes. By doing this, you can continuously gauge your
understanding of the topic.
Self-Check: This component of the module is inserted at strategic locations

throughout the module. It may be inserted after one subtopic or a few subtopics.
It usually comes in the form of a question. When you come across this component,
try to reflect on what you have already learnt thus far. By attempting to answer
the question, you should be able to gauge how well you have understood the
subtopic(s). Most of the time, the answers to the questions can be found directly
from the module itself.

COURSE GUIDE  xiii
Activity: Like Self-Check, the Activity component is also placed at various

locations or junctures throughout the module. This component may require you
to solve questions, explore short case studies, or conduct an observation or
research. It may even require you to evaluate a given scenario. When you come
across an Activity, you should try to reflect on what you have gathered from the
module and apply it to real situations. You should, at the same time, engage
yourself in higher order thinking where you might be required to analyse,
synthesise and evaluate instead of only having to recall and define.
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should be
able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.
References: The References section is where a list of relevant and useful textbooks,
journals, articles, electronic contents or sources can be found. The list can appear
in a few locations such as in the Course Guide (at the References section), at the
end of every topic or at the back of the module. You are encouraged to read or
refer to the suggested sources to obtain the additional information needed and to
enhance your overall understanding of the course.
PRIOR KNOWLEDGE
Learners of this course are required to pass the BBPB2103 Human Resource
Management course.
ASSESSMENT METHOD
Please refer to myINSPIRE.

xiv  COURSE GUIDE
REFERENCES
Anantaraman, V. (1999). Malaysian industrial relations, law and practice (2nd ed.).
Serdang, Selangor: UPM Press.
OTHER REFERENCES
Ayadurai, D. (2003). Industrial relations in Malaysia, law and practice (3rd ed.).
Kuala Lumpur: MLJ Sdn Bhd.
Goh, C. C. (2007). Guide to the employment act & the labour law in Malaysia
(revised and updated). Kuala Lumpur: Leeds Publications.
Maimunah Aminuddin. (2011). Malaysian industrial relations and employment

law (7th ed.). New York: McGraw-Hill.
ACTS
EmployeesÊ Social Securities Act 1969
Employment (Amendment of First Schedule) Order 2012
Employment (Limitation of Overtime Work) Regulations 1980
Employment (Termination and Lay-off Benefits) Regulations 1980
Employment Act 1955
Employees Provident Fund Act 1991
Industrial Relations Act 1967
Minimum Retirement Age Act 2012
Minimum Wages Order 2012
Occupational Safety and Health Act 1994
Trade Unions Act 1959
Wages Consultative Council Act 2011
WorkmenÊs Compensation Act 1952

COURSE GUIDE  xv
TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for the
use of its learners. This comprehensive digital library, which is accessible through
the OUM portal, provides access to more than 30 online databases comprising
e-journals, e-theses, e-books and more. Examples of databases available are
EBSCOhost, ProQuest, SpringerLink, Books24×7, InfoSci Books, Emerald
Management Plus and Ebrary Electronic Books. As an OUM learner, you are
encouraged to make full use of the resources available through this library.

Topic  Labour
Relations and
1 Employment
Law
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the concept of labour relations and the scope of
employment law;
2. Define contract of service based on supporting provisions of the
Employment Act 1955, Industrial Relations Act 1967 and decided
cases;
3. Distinguish between contract of service and contract for services;
4. Determine the status of an employee based on tests adopted by the
courts;
5. Examine the characteristics of contract of service/employment; and
6. Identify who is the employer and employee based on the provisions
of relevant Acts.

2  TOPIC 1 LABOUR RELATIONS AND EMPLOYMENT LAW
 INTRODUCTION
This topic focuses on labour relations in Malaysia. Among the areas discussed are
employment contract as well as its place and effects within the framework of
relevant laws. The discussion also touches on the rights and responsibilities of
employers and employees, and the differences between a contract of service and a
contract for services.
This topic discusses the system of labour relations in Malaysia with reference to
employment laws. Labour relations or employment relations refer to a system that
encompasses the relationship between employers and employees. It may extend
to a bigger scope of relationship, that is, between the trade union of workers and
the employer or the trade union of employers. In Malaysia, this is also called
industrial relations. The system of employment relations in Malaysia operates
within a legal framework known as employment laws. The laws provide the rights
and obligations of employers and employees. In addition, this topic examines the
meaning of employment, the requirements to form an employment relationship
and the tests that are adopted from common law in order to determine the status
of a worker.
1.1 EMPLOYMENT LAW AND

ADMINISTRATION OF LABOUR
RELATIONS
There are various laws currently in force to govern employment relations. Majority
of the laws are enforced or administered by departments and agencies under the
Ministry of Human Resources. The Employment Act 1955 (EA 1955) is the most
important of all employment legislations. It is a federal Act and a principal tool for
the Labour Department of Peninsular Malaysia under the Ministry of Human
Resources. The Director-General who is responsible to the Minister of Human
Resources heads the Labour Department. The provisions of the Act apply to
Peninsular Malaysia and the Federal Territory of Labuan. The states of Sabah and
Sarawak are governed by their respective Labour Ordinances which to a certain
extent are similar to the Act. The application of the Act covers employees within
the private sector.
Visit the official website of the Ministry of Human Resources at

http://www.mohr.gov.my/ for further information on the structures and roles of
relevant departments under the Ministry of Human Resources in enforcing and
administering employment laws.

TOPIC 1 LABOUR RELATIONS AND EMPLOYMENT LAW  3
Other acts that have provisions to protect and address the interests of employees
are:
(a) Industrial Relations Act 1967:
(b) Employees Social Security Act 1969;
(c) Occupational Safety and Health Act 1994;
(d) Factories and Machinery Act 1967;
(e) Employees Provident Fund Act 1991;
(f) Children and Young Persons (Employment) Act 1966;
(g) WorkerÊs Minimum Standards of Housing and Amenities Act 1960;
(h) National Wages Consultation Act 2011;
(i) Minimum Retirement Age Act 2012; and
(j) Employment Insurance System Act 2017.
1.2 EMPLOYMENT RELATIONS

An organisation comprises a group of individuals who work together to achieve a
common objective. An organisation usually does not carry out its operations on its
own. Instead, it employs a group of individuals to carry out the required tasks to
fulfil its objectives. So, the organisation will offer employment to certain
individuals to carry out the various tasks.
Two options are open to employers when they offer employment. These are
indicated in Figure 1.1.

Figure 1.1: Options for employers in making an offer of employment
Further discussion on the differences between contract of service and contract for
services is in the next subtopic.
1.2.1 Contract of Employment/Service

English common law provides the basis of a contract of service/employment. The
relationship between the employer and employee is also known as a relationship
between master and servant. The relationship is based on a contract entered by
both parties. It consists of rights and responsibilities. These rights and
responsibilities are continuous during the tenure of the contract. The contract may
be terminated as per the terms provided under the contract. If any of the parties
breach the terms and conditions that have been agreed upon, the aggrieved party
can rescind the contract and claim damages.

In the context of Malaysian employment laws, the Employment Act 1955 (EA 1955)
and the Industrial Relations Act 1967 (IRA 1967) show that the employer-employee
relationship is based on an ordinary contractual relationship as provided for under
common law. EA 1955 recognises the contractual relationship as a contract of
service, while IRA 1967 recognises it as a contract of employment. Both the
terminologies carry the same meaning and thus, are used interchangeably in this
module.
Now, let us see how the contract of service/employment is provided for in both
the Acts as shown in Figure 1.2.
Figure 1.2: Definition of contract of service/employment as per EA 1955 and IRA 1967
In Melaka Farm Resorts (M) Sdn Bhd v Hong Wei Seng (2004) 6 MLJ 506, Low Hop
Bing J in delivering the High Court judgment stated as follows:
„A contract of service may be orally entered into, as in here, where the defendantÊs
executive director testified that the plaintiffÊs monthly salary was RM2,000.
Further a contract of service could also be implied by the conduct of the parties i.e.
when the defendant allowed the plaintiff to work in the defendantÊs place of
employment and subsequently paid him RM4,000 as salary for two months⁄‰

Based on the provision of EA 1955, IRA 1967 and the above case, it can be
concluded that a contract of service/employment is defined as any agreement, oral
or in writing, implied or expressed, where a person is engaged as an employee and
serves his employer.
1.2.2 Forms of Contract of Service/Employment

The contract of service/employment can be made orally or in writing, whether
expressed or implied. However, there are contracts of service/employment that
have to be made specifically in writing as shown in Figure 1.3.
Figure 1.3: Contracts of service/employment which must be in writing
It is a normal practice that when an employee accepts an offer to work, the

employer shall issue a letter of offer to the employee. Even though the laws
provide that a contract of service can be in writing or oral, under Rules 5(b) and 8
of the Employment Regulations 1957, the following terms must be given to an
employee in writing on or before the commencement of his employment:
(a) Name of employee and identity card number;
(b) Type of job and post;
(c) Rate of wages (excluding other allowances);
(d) Other allowances that are payable and their rates;
(e) Rate of payment for overtime;
(f) Other benefits (including approved facilities and services);

(g) Approved number of work hours per day;
(h) Approved duration of notice for termination of employment and wages to
be paid in lieu of the agreed notice;
(i) The number of public holidays and paid annual leave that the employee is
entitled to; and
(j) The duration for wages period.
1.3 DIFFERENCES BETWEEN CONTRACT FOR

SERVICE AND CONTRACT OF SERVICE
Most working people have a contract of employment/service and are employees.
However, some are more likely to be engaged on contracts for services, in other
words, independent contractors.
In Hoh Kiang Ngan v Industrial Court [1996] 4 CLJ 687, the Federal Court held
that a „workman‰ under the Act (IRA 1967) is one who is engaged under a contract
of service. An independent contractor who is engaged under a contract for services
is not a „workman‰ under the Act. Similarly, in Ramayah A/L Marapan v Sungai
Raja Marbles Industies Sdn Bhd (1995) 1 LNS 200, the High Court affirmed the
decision of the labour officer that decided the appellant is not an employee under
S. 2(1) of EA 1955 but engaged as a contractor under a contract for service.
The distinction is important because it determines the statutory protection that

applies. The rights and remedies provided for under EA 1955 and IRA 1967 only
apply to employees under a contract of service.
1.3.1 Contract for Service
Definition
A contract for service exists when an organisation or employer offers an outside
party (not an employee of its own) a particular piece of work.

For example, Murni Company contractually agrees with Mulus Company for the
supply of security services. In this case, what is the situation of the security guards
who are working with Murni Company? Are they employees of Murni Company?
The answer is no. They only provide services to Murni Company but their wages
are paid by Mulus Company. In this context, the status of the security guards
working with Murni Company is that of an independent contractor. This type of
contract does not create labour relations (employer-employee relationship)
between both the parties involved.
1.3.2 Contract of Service
Definition
A contract of service exists when an employer takes an individual to work for
him and in consideration pays a certain amount of wages. The terms and
conditions are mutually agreed upon by both parties.
For example, Amin offers Bobby to be a clerk for three years. The daily working
hours, scope and type of work, monthly wages, rights for leave and other benefits
are mutually agreed upon in the contract. In such a case, a contractual relationship
exists between the person offering work as an employer and the acceptor of the
offer as an employee. Refer to Table 1.1 for the differences between a contract of
service and a contract for services.
Table 1.1: Differences between Contract of Service and Contract for Service
Contract of Service Contract for Service
• Status of employee. • Status of independent contractor,

consultant, etc.
• Payment of wages and salaries. • Payment of fees or retainer. The

contractor needs to submit a payment
invoice for each piece of work
completed.
• The employer-employee relationship • There is no statutory requirement to

is regulated by employment subject the independent contractorÊs
legislation e.g. the employer is fees or retainer to the deduction of
responsible for contributing a certain income tax or contributions to the EPF
percentage of the employeeÊs wages to or SOCSO.
the EPF and SOCSO on behalf of the
employee and subjecting the wages to
deduction of income tax.

• The concept of vicarious liability • Generally, the principle of vicarious

exists. The employer is liable in tort for liability is absent in this contractual
the wrongdoing committed by the relationship. Independent contractors
employee while at work. under a contract for services are
personally responsible for their own
torts except if the employer
authorised them explicitly or
implicitly.
• Termination of contract – the employee • Termination of contract – the

can make representation through the independent contractor can sue for
Industrial Court if he is dismissed. breach of contract in the civil courts.
1.4 TESTS TO DETERMINE

EMPLOYER-EMPLOYEE RELATIONS
There are several tests adopted by the courts to decide whether an individual has
the status of an employee. Five tests are usually used by the courts, namely, control
test, organisational test, multiple test and mutuality obligation test and economic
reality test.
Apart from these tests, there are also other elements that the courts in Malaysia
will consider in order to determine the employer-employee relationship, namely,
through expressed and implied terms in the contract of service, collective
agreements and employment rules as decided upon by the employers.
1.4.1 Control Test
Definition
The control test, which is also known as the traditional test, refers to the level
of control that the employer has over his employee.
The control held by the employer over the employee possibly arises from the
division and enforcement of jobs, time and work time and other factors.
Bramwell L J, in the case of Yewens v Noakes (1880) 6 QBD 530, described the word
„control‰ as whether the master controlled or had the right to control not only
what the worker did but also the manner in which he did it.

In the Malaysian case of Chye Hin Co (Perak) v PP [1960] MLJ 137, all the
sawmill workers made claims that the company did not make contributions to
the EPF in accordance with the Employees Provident Fund Ordinance 1951.
In order to decide whether a company has to contribute to the EPF, the court has
to decide in advance whether the workers are employees as per the Act. If they are
employees, then they are bound by the EPF Ordinance.
In this case, the court used the control test to decide the status of the workers who
made the claims. From the observations made, the court decided that all the saws
belonged to the company. The workers worked at the factory. The company did
not have control over the workers. However, the company had the right to reject
any wood that was wrongly sawn and the right to dismiss the workers collectively.
Based on this, the court decided that the workers were not employees as per the
contract of service. Thus, the company did not have any responsibility to make
contributions to the EPF.
In the case of Bata Shoe Co (Malaya Ltd) v Lembaga KWSP (1967) 1 MLJ 120, the
plaintiff company appointed a manager to manage the company. The company
also required him to appoint workers. The terms of the contract were to be decided
upon by the manager. The main question was whether there existed an employer-
employee relationship between the plaintiff company and the workers appointed
by the manager.
The court decided that no such relationship existed. The manager was an
employee of the company as the plaintiff company had control over him. The
others were in fact employees of the manager and not the company.
However, it is suggested that the control test is not conclusive, which means it is
not the sole criterion to determine the existence of labour relations (Hoh Kiang
Ngan v Industrial Court [1996] 4 CLJ 687).
The control test has its inherent weaknesses. The measure of the degree of control
to ascertain if a worker is an employee or not becomes less effective because in the
modern industrial set-up, there are several specialists who monopolise a particular
skill or speciality. Thus, the degree of control becomes less or loose. The same goes
for a situation where an employer has many employees. The degree of control over
the employees decreases. Thus, the use of the control test is, at times, found to be
unsuitable.

ACTIVITY 1.1
1. Apart from the situation explained earlier, can you give
another situation that shows the unsuitability of the control
test?
2. What are the aspects that the courts refer to in order to decide
upon the employer-employee relationship when using the
control test?
1.4.2 Organisational Test
Definition
The organisational test is also known as the integrational test. It refers to the
fact that employees are an essential group in an organisation.
The degree of importance of the employees to the organisation reflects the fact that
they form part of the organisation and are not merely parties or groups that
function as complements to the organisation (Lord Denning in the case of Cassidy
v Ministry of Health [1951] 2 KB 343 (CA).
In the case of Lembaga KWSP v M.S Ally & Co (1975) 2 MLJ 89, the plaintiff
assisted the company in securing workers and skills. The capital was contributed
by the company concerned. The rewards given to the plaintiff were derived from
the returns of the company. The main issue in this case was whether the plaintiff
was an employee or otherwise.
Sulaiman J. held as follows:

„..There are suitable controls and the person rendering assistance forms part of
the organisation and the work done is an integral part and not merely an addition
to the business. They are employees of the company. Therefore, under the KWSP
Ordinance 1951, the contract entered into is a contract of service and not a contract
for services⁄‰

1.4.3 Multiple Test or Mixed Test
Definition
The multiple test or mixed test refers to the entire situation. In other words,
all the related and relevant factors are considered.
The multiple test is by definition much wider than either the control test or
integration test.
In the case of Morren v Swinton Pendlebury Borough Council (1965) 1 WLR 576,
the factors looked into by the courts include the following:
(a) Number of work hours;
(b) Normal work hours;
(c) Geographical limitation of work;
(d) Skills and perception of society regarding the worker;
(e) Methods of appointment and termination;
(f) Types of wages;
(g) Rights of ownership over the tools of trade; and
(h) Tax situation.
In this case, the court considered all the factors simultaneously and not separately.
The clearest illustration of the test is in the judgement of the case Ready Mixed
Concrete (South East) Ltd v Minister of Pensions (1968) 2 QB 497. MacKenna J set
out three conditions to satisfy before a contract of service exists, namely:
(a) The employee agrees that in consideration of wage or other remuneration,
he will provide his own work and skills in performing some services for the
employer;
(b) The employee agrees, expressed or implied, that in the performance of that
service he will be subject to the employerÊs control to a sufficient degree; and
(c) The other provisions of the contract are consistent with it being a contract of
service.
The above case concerned the appellant companyÊs liability for social security
contributions of their workers, which arose only if they had contracts of service.

The workers drove ready-mixed concrete lorries that they were buying on hire
purchase agreement from the appellant company. In a detailed contract they must,
among others, use the lorry only for company business, maintain it in accordance
with the companyÊs instructions and obey all reasonable orders. Although this
suggested a measure of close control, there were no requirements about the hours
of work and the times at which the drivers took their holidays. Moreover, they
could generally hire out the driving of their vehicles to others and still get paid.
The High Court, after taking into consideration all the three conditions, decided
that the workers were not employees and were not qualified for social security
contributions.
The test was also applied in a local case in Casio (Malaysia) Sdn. Bhd. v Wahab
Tuan Idris (2001) 2 ILR 115.
ACTIVITY 1.2
Explain the differences between control test, organisational test and
multiple test from the perspective of the status of a worker.
1.4.4 Mutuality Obligation Test
Definition
Mutuality obligation test requires that the employer feels obliged to offer
work and the worker feels obliged to take up the work when offered.
The House of Lords in the case of Carmichael v National Power Plc [2000] IRLR 43
found that mutuality of obligation is vital within a contract of employment. Guides
who were employed as tour guides on a „casual as required‰ basis decided to be
self-employed. National Power had no obligation to offer them work and the
guides were free to accept or decline any work that was offered to them.

1.4.5 Economic Reality Test

The above test which is also referred to as Entrepreneur test is used in a situation
whereby an employer engages an employee in a non-traditional form of
employment e.g. work from home, work on a flexible hour arrangement or
employed to conduct a survey or field research. The issue is who is the actual boss
in this kind of relationship. The court may determine the employment relationship
by asking certain questions as follows:
(a) Who prepared the equipment used to performed the work?
(b) Did he engage other workers to assist in performing the work?
(c) To what extent is he involved with the financial risk pertaining to the
business?
(d) To what extent is his involvement with the investment and administration of
the business?
(e) To what extent are his chances of obtaining profit from the business?
In Market Investigation Ltd v Minister of Social Security (1968) 3 All ER 732, the
question which needed to be answered by the court was whether Ms Anne Irving
was engaged under a contract of service for the purpose of National Insurance Act
1965. She was engaged as an interviewer. She would conduct interviews for each
survey. She would be paid for each interview conducted. She was required to
follow the interviewerÊs guide and other terms in her contract. Cooke J. in
delivering the judgment inter alia held that:
„M was free to work for others, although she did not in fact do so. Although she
had to deploy her own personality and skill, the opportunity to do so was
frequently present in what was undoubtedly a contract of service. Those factors
were not enough to lead to a conclusion that M was in business on her own
account. She did not provide her own tools or risk her own capital, nor did her
opportunity of profit depend in any significant degree on the way she managed
her work. The Minister was right in concluding that M was employed by the
company under a series of contracts of service.‰
In Malaysia, the test was applied in Ekajaya (M) Sdn Bhd v Ahmad Mahad & Ors
(2014) 6 CLJ 1005 in which the High Court held that:

„There are also cases where because of the circumstance and complexities in the
working relationship, the true nature of the contract may be better ascertained
under the „entrepreneur test‰ or „economic reality test‰ by considering the
question of „whose business is it‰ by examining the following factors:
(a) Control (as in the „control test‰);
(b) Ownership of tools;
(c) Does the individual have a chance of profit;
(d) Who bears the risk of loss?‰
The above cases clearly demonstrate that the said test is suitable to determine the
real contractual relationship in a non-conservative employment relationship.
Apparently, most businesses will try to use creative ways in engaging with
employees to limit their liability and maximise profits.
ACTIVITY 1.3
1. You are a subcontractor of the MEWAH Phase II housing project,

which is being developed by TLS Development Sdn Bhd. You are
assigned the responsibility of fixing electrical supply in the
housing project and the payment promised is RM100,000. You
employ a number of workers to carry out this project. Are these
workers of TLS Development Sdn Bhd or are they your
employees? Justify your answer.
2. Explain the elements involved in determining employer-

employee relations using the multiple test.
3. What are the differences between contract of service and contract

for services? How do both the contracts affect the relationship
between employers and employees?
4. In what ways can one determine whether an individual is an

employee or independent contractor?

1.5 DETERMINATION OF ELEMENTS OF

LABOUR RELATIONS BY COURT
It should be noted that the courts in Malaysia have agreed that the question of
whether a person is a workman is a question of mixed law and fact. The fact is that
the ascertainment of the relevant conduct of the parties under contract and the
proper inference to be drawn from there as to the terms of the contract as well as
the question of law (once the terms have been ascertained) is the classification of
the contract as one of service or one for services (per Chang Min Tat FJ in
Dr A Dutt v Assunta Hospital (1981) [1981] 1 LNS 5).
The courts in Malaysia often use a mixture of various elements that are drawn from
the terms of contract between the parties. Table 1.2 shows the elements that the
courts have considered in deciding the employer-employee relationship.
Table 1.2: Elements Considered in Deciding Employer-Employee Relationship
No. Element
1. The employerÊs right in controlling the worker especially in situations where the
skill level is simple or there is a greater degree of control.
2. Whether the worker is a part of the business.
3. If the worker has agreed to partake in the profits and losses, then this is evidence
that there is no contract of service between both parties.
4. The factor with regard to the ownership of the goods and its supply is also
important, especially where they belong to the individual who has agreed to
work and the goods are of high value. In such case, the contract is known as a
contract for services.
5. The right of exclusiveness to the work performed, though not conclusive, is

indicative of an employer-employee relationship.
6. The payment of rewards for a long period of time, such as salary as well as
medical and sick allowances from one party to another, is also indicative of an
employer-employee relationship.
7. The power to make choices and employment is an indicator of a contract of

service. Such a situation would show that one party has power over the other.
This is also indicative of an employer-employee relationship.
8. Normally, in a contract of service, the employer has the right to suspend or

terminate the services of an employee.

9. The power to decide on the place, work time and leave days shows the element
of control. The existence of such power is one of the indicators of the existence of
a contract of service between the employer and employee.
10. The written agreement between the employer and employee is evidence of an
employer-employee relationship.
In addition, the court looks at and refers to the collective agreement through the
normal behaviour or action of the parties involved and through the internal rules
of service set by the employer.
In the case of Secretary of State for Employment v ASLEF (No. 2) (1972) 2 QB

455, it was stated that, „the rules as regard to work do not form the terms in a
contract of service. They are directions to employees as regard to how to do the
work.‰
For a more detailed discussion, please refer to the following case laws on the issue
of deciding employer-employee relations with regard to whether there is in
existence a contract of service or a contract for services:
(a) Harrisons Malaysian Plantations Bhd v National Union of Commercial
Workers (Award 102 of 1986);
(b) Woodard Textile Mills Sdn Bhd v Penang and Prai Textile and Garment
Industry Employees Union (Award 148 of 1989);
(c) Persatuan Pengeluar-pengeluar Pertanian PTM v Kesatuan Pekerja-pekerja
Ladang (Award 80 of 1988); and
(d) Casio (Malaysia) Sdn Bhd v Wahab Tuan Idris (2001) 2 ILR 115.
SELF-CHECK 1.1
Give five elements that are used by the courts in Malaysia to decide
upon employer-employee relations.

1.6 CHARACTERISTICS OF CONTRACT OF

SERVICE/EMPLOYMENT AS PER
EMPLOYMENT ACT (EA) 1955
Apart from providing the guidelines on the employer-employee relationship, EA
1955 also specifies the minimum standards that the employer has to follow with
regard to various terms and conditions pertaining to employment. The employer
must observe the following terms in the contract of service/employment
according to EA 1955 in Table 1.3.
Table 1.3: Characteristics of the Contract of Service/Employment as per EA 1955
Section Explanation
S. 7 The terms and conditions of employment depend upon the contract that
has been agreed upon between the employer and the employee. However,
it must not provide terms and conditions that are less favourable than those
stated in the Act. If the conditions and terms are less favourable to the
employee, it shall be deemed to be void and have to be replaced with more
favourable provisions of the Act .
S. 7A Employer and employer may agree to any terms and conditions of

employment which is more favourable than any provisions under the Act.
S. 7B If there is a matter that is not provided for in the Act, then it is not to be
construed as an obstacle to insert the matter into the terms and conditions
of the contract of service/employment. It is entirely up to the contracting
parties to incorporate the matter or otherwise.
S. 8 A contract of service/employment shall not restrain the right of an

employee to be a member of a trade union, participate in the activities or
associate with others in the formation of a trade union.
S. 10(1) Contracts of service that exceed one month must be in writing.
S. 10(2) The condition as to the manner the contract of service/employment is to be

terminated has to be stated in each contract.
S. 26 The contract cannot stipulate conditions as to where or how or to whom an

employee should spend the wages received.

Termination of the Contract of Service/Employment

Each contract of service/employment that has been mutually agreed upon can be
terminated by either party at any time. The contract that has been agreed upon
between the employer and employee usually states how the contract can be
terminated. EA 1955 contains provisions on how the contract of
service/employment can be terminated. Further discussion of this issue is found
in Topic 5.
ACTIVITY 1.4
Explain the characteristics of the contract of service/employment as

per the Employment Act 1955.
1.7 DEFINITIONS OF EMPLOYER AND

EMPLOYEE
The following are the definitions of employer and employee:
(a) Employer
The definition of employer according to EA 1955 and IRA 1967 is explained
in Figure 1.4:
Figure 1.4: Definition of employer as per EA 1955 and IRA 1967

(b) Employee
The definition of employee according to EA 1955 is as follows:
Definition
According to S. 2(1) of EA 1955, an employee refers to any person or class
of persons who is:
• Included in any category in the First Schedule; or
• In respect of whom the Minister of Human Resources makes an
order under subsection (3) or section 2A.
First Schedule of EA 1955

The First Schedule of EA 1955 classifies employees into two categories. For
the first category, the employees are classified based on the wages they
receive, that is, not exceeding RM2,000 a month.
For the second category, the employees are classified based on the type of
work they do, even though the wages received may exceed RM2,000 a
month. The second category comprises:
(i) Manual labour including those having skills such as artisans and
apprentices;
(ii) Employees involved in the operation or maintenance of any
mechanically propelled vehicles operated for the transport of
passengers or goods, or for commercial purposes;
(iii) Employees involved in the supervision of other employees engaged in
manual labour;
(iv) Employees involved in any capacity that is related to shipping, with
the exception of officers, holders of a local certificate and who have not
entered into any agreement with the merchant shipping ordinance
1952; and
(v) Domestic servants.
Therefore, it can be concluded that not all employees are covered by EA 1955
and do enjoy the protection provided by the Act.

With regard to the status of part-time workers, they are also covered by EA
1955 by virtue of Employment (Part-Time Employees) Regulation 2010. S. 2
of EA 1955 defines part-time employees as those whose work hours exceed
30 percent but do not exceed 70 per cent of the normal work hours worked
by full-time workers employed in that job capacity.
The definition of workman according to the Industrial Relations Act 1967 is

as follows:
Definition
According to S. 2 of IRA 1967, a workman is:
Any person, including an apprentice, who is employed by an employer
under a contract of employment to work for hire or reward and for the
purpose of any proceedings in relation to a trade dispute. It includes any
such person who has been dismissed, discharged or retrenched in
connection with or as a consequence of that dispute or whose dismissal,
discharge or retrenchment has led to that dispute.
ACTIVITY 1.5
State the definitions of employer and employee according to the
Employment Act 1955 and the Industrial Relations Act 1967.
1.8 RIGHTS AND RESPONSIBILITIES OF

EMPLOYERS AND EMPLOYEES
The contractual relationship that is created between the employer and employee
gives rise to mutual rights and responsibilities. This means the employer has to
carry out his rights and responsibilities as an employer while the employee has to
carry out his rights and responsibilities as an employee. However, many of these
rights and responsibilities are not expressly stated in the statutes of this country.
Hence, a lacuna (loophole) is created and that invites the use of common law to
supplement it. The method of using common law and decision of cases underlines
several of the principles with regard to the rights and responsibilities that bind
both parties, namely, the employer and employee. This will be discussed further
in Topic 3.

• The Employment Act 1955 is the most important of all employment legislation.
It is a Federal Act and the principal tool for the Labour Department under the
Ministry of Human Resources. However, only the provisions of the
Employment Act 1955 apply to Peninsular Malaysia and are applicable only to
the private sector.
• Based on the Employment Act 1955 (EA 1955) and the Industrial Relations Act
1967 (IRA 1967), a contract of service/employment is any agreement, oral or
writing, implied or expressed, where a person is engaged as an employee and
serves his employer.
• A contract for services exists when an organisation or employer offers an

outside party (not being an employee of its own) a particular piece of work.
Conversely, a contract of service exists when an employer takes an individual
to work for him and pays a certain amount of wages. The terms and conditions
are mutually agreed upon by both parties.
• There are several tests adopted by the courts to decide whether an individual
has the status of an employee or otherwise. The most common tests usually
used by the courts are control test, organisational test, multiple test, mutuality
obligation test and economic reality test.
• EA 1955 specifies the minimum standards that the employer has to follow with
regard to the various terms and conditions pertaining to employment. There
are seven sections according to EA 1955 that define the characteristics the
employer must observe in the contract of service/employment. The sections
are S. 7, S. 7A, S. 7B, S. 8, S. 10(1), S. 10(2) and S. 26.
• There are two statements that define an employer based on EA 1955 and IRA
1967. S. 2(1) EA 1955 states that an employer is any person who has entered
into a contract of service to employ any other person as an employee and this
includes the agent, manager or representative. As for S. 2 IRA 1967, it states
that an employer is any person or body of persons, whether corporate or
incorporate, who employs a workman under a contract of employment and
includes the government and any statutory authority unless otherwise stated
expressly in the Act.

• S. 2(1) of EA 1955 defines an employee as any person or class of persons

who is:
− Included in any category in the First Schedule; or
− In respect of whom the Minister of Human Resources makes an order

under subsection (3) or section 2A.
• S. 2 of IRA 1967 defines an employee as any person, including an apprentice,

who is employed by an employer under a contract of employment to work for
hire or reward and for the purpose of any proceedings in relation to a trade
dispute. It includes any such person who has been dismissed, discharged or
retrenched in connection with or as a consequence of that dispute or whose
dismissal, discharge or retrenchment has led to that dispute.
Contract for services Economic reality test

Contract of service Integration test
Control test Multiple test
Employee Mutuality obligation test
Employer Termination
cljlaw.com
Employment Act 1955 (Act 265)
http://www.mp.gov.my/en/statistics/analysis-of-awards-of-non-dismissal-
cases-2005-2011
Industrial Relations (Amendment) Act 2019
Industrial Relations Act 1967 (Act 177)

Netto, M. (2009). Contract of employment & Malaysia Industrial Law, (1st ed).
Ellen Burke.
Rules of Court 2012
Siti Zaharah Jamaluddin (2002). Pengenalan kepada Akta Kerja 1955, (2nd ed).
Universiti Malaya Publication: Petaling Jaya.

Topic  Justice System
Related to
2 Employment
and Industrial
Relations
LEARNING OUTCOMES
1. Define inquiry and arbitration;
2. Explain the steps that can be taken by the employer or employee
when there is an industrial dispute; and
3. Apply legal provisions that exist in resolving employer-employee
disputes.
 INTRODUCTION
In the world of industry and employment, it cannot be denied that there exist
disputes and grievances among employers and employees and vice-versa. When
such disputes ensue, it becomes necessary for the existence of a justice system to
handle and resolve them. In this aspect, relevant provisions in the Employment
Act 1955 (EA 1955) and the Industrial Relations Act 1967 (IRA 1967) are analysed.

26  TOPIC 2 JUSTICE SYSTEM RELATED TO EMPLOYMENT AND
INDUSTRIAL RELATIONS
2.1 INQUIRY AND ARBITRATION

Disputes can be resolved according to any method that the parties involved would
like to adopt. In the early stage, they may resolve the matter internally among
themselves. If this fails, the relevant departments in the Ministry of Human
Resources may be referred to, for instance, the Industrial Relations Department or
Labour Department, depending on the nature of the dispute.
Definition
Inquiry is a form of investigative process. An aggrieved party may lodge a
report with an official empowered by law to inquire into such complaints and
make the necessary decision. Such a process is less complicated than going to
a court of law.
2.2 LABOUR COURT

The terminology above is frequently used to refer to the inquiry proceeding
conducted under the Employment Act 1955. It is not to be confused with a court
proceeding. In Austral Amalgamated Tin Bhd v Abdul Wahab Kopon & Ors &
Anor. Appeal (2004) 2 CLJ 316, the Court of Appeal held that the inquiry
proceeding before the labour officer was an inquiry under the Act. It is not a court
as it is not provided under the Act or a judicial proceeding. The Director-General
is empowered to initiate inquiry and resolve any disputes among employers and
employees (Part XIV and XV of EA 1955). These powers are exercised by officers
appointed under S. 3 of the Act.
EA 1955 recognises the rights of employees who are covered by the First Schedule
(as per the earlier discussion) to direct their complaints relating to non-compliance
of terms of employment contract to the Labour Department. The labour officer will
then inform the parties to attend, explain the nature of the complaint and provide
them with an avenue to settle the matter accordingly. If no amicable settlement can
be reached, an inquiry will be conducted by the officer acting as the presiding
officer in order to inquire and decide on the complaint lodged. The objective is to
resolve the disputes in a fair, fast and inexpensive manner as no lawyers are
involved and it is a straightforward procedure at the Labour Court. In Ram Singh
Hazura Singh v. Bright Steel (1988) I CLJ (Rep) 272, the Supreme Court held that
while it recognised that the Labour Court proceeding was informal, it must act
fairly and decide according to the evidence. In summary, the department has a

TOPIC 2 JUSTICE SYSTEM RELATED TO EMPLOYMENT AND  27
quasi-judicial function to hear and resolve disputes between the employer and
employee at the departmental level. The decision and/or order by the Labour
Court is binding upon the parties involved.
2.2.1 Jurisdiction of Labour Court

The jurisdiction of the Labour Court is vested in the Director-General of Labour. It
is prescribed under the Employment Act 1955 as shown in Table 2.1.
Table 2.1: Jurisdiction of the Director-General According to the Employment Act 1955
Section Inquiry Jurisdiction of the Director-General
S. 69 (1) Provides for the power of the Director-General to investigate and decide
upon any employer-employee dispute regarding wages or any other
payments under the contract of service or any provisions of this Act or
the Wages Councils Act 1947.
Example: Claims for non-payment of wages, overtime, maternity
allowance, denial of sick pay, termination benefit and others.
S. 69C Empowers the Director-General to investigate and decide on any claims

concerning any indemnity in lieu of notice due or for any unexpired
period of notice of termination to the employer or by the employee, or
vice-versa.
S. 69(3) Empowers the Director-General to inquire, affirm or set aside any

decisions by the employer after domestic inquiry under S. 14 of the Act if
it causes any loss to the employee provided that the complaint is made
within 60 days from the date of the decision.
S. 69B The Director-General may inquire into any complaint made by

employees not within the first schedule relating to wages and other
payment provided under their contract of service provided that their
wages exceed RM2,000 but do not exceed RM5,000.
With the development of employment law, the jurisdiction of the Labour Court
has also expanded. The Labour Court may inquire into the complaint made by an
employee relating to sexual harassment against a sole proprietor under S. 81D(3)
of EA 1955. In addition, the Labour Court has the jurisdiction to inquire into
complaints in relation to dispute on retirement age.
The decisions of the Labour Court are binding on the parties involved. S. 69(4) of
EA 1955 provides that whichever party failed to abide by the decisions of the Director-
General commits an offence and if convicted, shall be liable for a fine not exceeding
RM10,000 and for continuous offence, a daily fine not exceeding RM100 per day.

Furthermore, non-compliance with the Director-GeneralÊs orders shall be enforceable

by either the Sessions Court or Magistrates Court regardless of the amount of the order
(S. 75 of EA 1955).
ACTIVITY 2.1
1. Give two examples of employer-employee disputes that can be
referred to the Labour Court.
2. If you are an employee who is dissatisfied with the decisions of

the Director-General, do you know what steps can be taken right
away?
Share your answers with your course mates in the myINSPIRE online
forum.
2.2.2 Inquiry Procedure

S. 70 of EA 1955 provides the procedure to conduct an inquiry. The procedure is
compulsory to be followed as failure to comply would result in the whole decision
being nullified. In Central Holdings Management Services Sdn Bhd v Muhamad
Zailani Mat Zain & Ors (2006) 6 CLJ 197, the High Court held that provision under
S. 70 is mandatory and it is a trite law that failure comply would render the
decision a nullity.
2.2.3 Appeal Procedure

S. 77 of EA 1955 provides that any person who is dissatisfied with the decision or
order of the Director-General can make an appeal to the High Court, subject to the
appeal rules in Section 4 of the Subordinate Court Rules Act 1955. The appeal
procedure is as if it is an appeal from the Sessions Court to the High Court.
SELF-CHECK 2.1
What are the procedures to be followed for resolving disputes at the

Labour Court?

2.3 INDUSTRIAL COURT

The Industrial Court is formed under the Industrial Relations Act 1967 (IRA 1967).
It is an industrial tribunal. Its main role is to settle industrial disputes. As a statute
creature, its power is as provided under IRA 1967.
A tribunal is a body outside the hierarchy of the courts with administrative or

judicial functions. The significant features of the Industrial Court which best suit a
tribunal are as follows:
(a) It is not bound by the strict rules of evidence; and
(b) It is not described as a court in the Subordinate Courts Act 1948 and Courts
of Judicature Act 1964.
The Industrial Court has two main functions, particularly to hear and decide on
trade dispute cases referred to it by the Director-General of Industrial Relations by
the amended IRA 1967 (S. 8 and S. 20 of IRA 1967). It is also empowered to grant
cognisance to collective agreements jointly deposited by an employer or a trade
union of employers and a trade union of employees (S. 16 of IRA 1967).
Definition
Arbitration is a method of resolving disputes between two or more parties by
inviting a third party to get involved in order to resolve the dispute without
resorting to the court of law.
2.3.1 Trade Dispute

The cases handled by the Industrial Court relate to trade disputes only. Section 2
of the Industrial Relations Act 1967 defines a trade dispute as thus:
Definition
„⁄any dispute between an employer and his workmen which is connected
with the employment or non-employment, the terms of employment or the
conditions of work of any such workmen.‰

Examples of trade dispute cases are denial of rights or victimisation in connection

with trade union activities under S. 4, S. 5 and S. 6 of IRA 1967, dismissal under S.
20 of IRA 1967 and disputes between an employer and a trade union of employees.
It may take place in a situation where the trade union counterclaims or after the
claims by an employee whom it represents are regarded as unfavourable. Disputes
can arise from differences in opinion between a trade union and an employer or
when a trade union demands the enforcement of an agreement that has been
agreed upon by an employer. When a dispute arises with regard to the definition
of an agreement between an employer and an employee, it is considered an
industrial dispute and can be referred to the Industrial Court. Statistics from the
Industrial Court show that from 2005 to 2012, the majority of cases brought to the
Industrial Court concerned claims of unfair dismissal.
SELF-CHECK 2.2
Which type of disputes are under the responsibility of the Industrial

Court? Explain and provide examples.
2.3.2 Members of Industrial Court and Reference by

Minister
References to the Industrial Relations Department shall be made by the employer
or trade union of employees. The Director-General can commence the reference if
there are no complaints made if it is believed that his intervention is necessary to
resolve a dispute which would otherwise remain unresolved.
If the dispute cannot be solved, the Director-General can report to the Minister
who will refer the case to the Industrial Court under S. 26 of IRA 1967. Further
provisions with regard to the Industrial Court can be found in Part VII of IRA 1967.
According to S. 21 of IRA 1967, the Industrial Court shall consist of a President

appointed by the Yang di-Pertuan Agong and also members of the panel as shown
in Figure 2.1.

Figure 2.1: Constitution of the Industrial Court
In the absence of the Chairman or during his incapacity to carry out his duties, The
Yang di-Pertuan Agong can appoint other members whom he thinks are suitable
to take over his duties. The Court can also carry out any proceeding without the
presence of members or any trial where the members are insufficient. It can
appoint other persons to represent the members concerned.
Section 26(1) of IRA 1967 provides the powers of the Minister to refer any dispute
to the Court upon notification by the trade union and employer who are parties to
the dispute.
However, upon his own motion, the Minister can also refer the matter to the Court
if he feels that it is expedient to do so (S. 26(2) of IRA 1967). If the dispute is
regarding government services or statutory bodies, the MinisterÊs own motion
cannot be followed unless with the consent of the Yang di-Pertuan Agong or the
state authority.
When the case has been referred to the Industrial Court by the Minister, then other
courts cannot get involved in the matter, as was decided in the following case.
In the case of In re Sreedharan (1974) 1 LNS 130, the services of the applicant were
terminated by the employer. The Minister directed that an investigation be carried
out and finally decided that the matter should be tried before the Industrial Court
under Section 16A (9) of IRA 1967. The applicant applied for a certiorari order from
the High Court to stop the Industrial Court from proceeding with the hearing of
the case. The High Court turned down the application and decided that the
Minister has powers to refer the matter to the Industrial Court.

During a proceeding, a person can represent himself or be represented by his trade

union. The employer can be represented by an officer or the employersÊ union (S.
27 of IRA 1967). If there arises an issue regarding representation in the proceeding,
it is to be resolved by the President or Chairman. The presence of lawyers to
represent the parties in dispute is only allowed with permission from the
Industrial Court (S. 27(1)(d)).
ACTIVITY 2.3
At present, who is the Minister responsible for the portfolio and who
is responsible for appointing panel members to the Industrial Court?

2.3.3 Powers of Industrial Court

Section 29 of the Industrial Relations Act 1967 provides for the powers of the
Industrial Court as shown in Figure 2.2.
Figure 2.2: Powers of the Industrial CourtÊ
The powers given by the Act to this court enables it to resolve employer-employee
disputes because it is free from technical procedures as in the ordinary courts of
law as expounded in the following case:
In the case of Marlin Rajiman & Ors. v MAA Services (1994) 2 CLJ 591, upon the
preliminary objection made by the company, the Industrial Court in its award
decided that the claimants were estopped from challenging the retrenchment
exercise as they have been paid retrenchment benefit. The matter was referred to

the High Court for an order of certiorari to quash the award of the Industrial Court.
The High Court, however, refuses to issue certiorari as the merit regarding the
validity of dismissal have been dealt with by the Industrial Court. The Supreme
Court on the appeal by the appellants in its judgment pointed out that the
Industrial Court has made jurisdictional error by making an award by relying on
the principle of estoppel. The Court further held that the Industrial Court in
determining the issue before it must not decide based on legal technicalities such
as estoppel as the Industrial Court is bound to decide based on S. 30(5) which
requires the court to determine the issue based on equity, good conscience and the
substantial merits of the case without regard to technicalities and legal. The
Supreme Court decision shows that legal technicalities are not applicable in
industrial arbitration.
The Industrial Court must also abide by the principles of natural justice and among
them is the following:
Definition
Audi alteram partem means listening to evidence from both sides before
making decisions because this is important for a fair and balanced trial.
In the case of Re Application Union Omnibus Co Sdn Bhd (1976)1 LNS 188, the
High Court decided there was no breach of natural justice by the Industrial Court
when it decided even though the applicant was of the view that he was not given
the right to be heard sufficiently. The High Court explained that the Industrial
Court has jurisdiction not to receive evidence, which was considered irrelevant.
Furthermore, the Industrial Court can make decisions after listening to the entire
trial proceedings for many days and when it feels that it is unnecessary to proceed
with the case as it is wasting the time of the court.
After a decision has been made, the Industrial Court expects the parties to abide
by them.
Provision
Section 56 of IRA 1967 provides the steps that can be taken in the event a party
does not abide by the award. This section also empowers the court to make
other orders that it thinks are necessary.

In the event that an employer fails to comply with an award, a complaint may be
lodged with the Director-General of Industrial Relations. He may direct the
complaint to be investigated by an investigating officer appointed by him as
provided by Part IXA of IRA 1967. The amendment of S. 56 (3) of IRA 1967
provides that non-compliance of an award is an offence. A person convicted will
be punished with a fine not exceeding RM50,000 or imprisonment for a term not
exceeding one year or both. A further fine of not exceeding RM500 will be imposed
for every day during which such offence continues. The new subsection of 3A will
enable the Industrial Court to order a person convicted under subsection 3 to pay
the worker as per the order made under S. 30 of IRA 1967.
Alternatively, S. 56(4) provides that the award may be registered by the Registrar
either in the High Court or Sessions Court to be enforced as a judgment of the High
Court or the Sessions Court as the case may be.
Provision
Section 33A of IRA 1967 provides that the Industrial Court may refer questions
of law that arise in its proceedings to the High Court upon the application of
any party during the proceedings. Such reference is only made if it is important
and shall have an effect upon the award.
SELF-CHECK 2.3
What are the powers conferred upon the Industrial Court by the
Industrial Relations Act 1967?
2.4 JUDICIAL REVIEW

S. 33B of IRA 1967 states that „... an award, decision or order of the Court...shall be
final and conclusive...‰ However, the Industrial Court as a tribunal is subject to the
court of law. The High Court has the authority to review the proceedings of the
Industrial Court by way of judicial review under Order 53 of the Rules of the High
Court. Judicial review is not an appeal proceeding. The process confers power
particularly to the High Court to examine the decision-making process of the
Industrial Court. The application of judicial review is done by applying for an
order of certiorari. The High Court may quash the award of the Industrial Court if
has made an error in law. The High Court may also quash an award of the
Industrial Court that exceed its powers. In such a situation, the Industrial Court

has acted ultra vires and an order of certiorari can be applied to quash the decision
of the court that is excessive. If the decision has not been made, an injunction can
be applied in order to prevent the action of excessiveness.
The situations that can give rise to ultra vires actions in the Industrial Court are
shown in Table 2.2.
Table 2.2: Situations that Give Rise to Ultra Vires
Situations that Give Rise to Ultra Vires
When the quorum in the Industrial Court is insufficient as required under S. 22(1)
or the parties involved do not give their consent.
There is no jurisdiction regarding the matter under dispute or the parties. For
example, according to S. 26 of the Industrial Relations Act 1967, only the Minister
has the power to refer. Alternatively, the Industrial Court only has jurisdictions
to hear trade disputes.
When the partiesÊ actions are excessive or when they fail to make use of the power
given to them.
An example of a case where the High Court pronounced that the Industrial Court
had acted in excess of its jurisdiction is illustrated in the case of Lee Wah Bank v
National Union of Bank Employees [1981] 1 MLJ 169. The Industrial Court initially
held that the reasons for the employeeÊs dismissal were justifiable, therefore, it was
a dismissal with just cause. However, taking into consideration the employeeÊs
long service and that the complaints were not about something which is criminal
in nature, the Industrial Court ordered the employer to pay benefits due in
accordance with the collective agreement. The decision was quashed by the High
Court as it was held that the Industrial Court had acted in excess of its jurisdiction
by awarding compensation after finding the dismissal had a just cause.
However, with the recent amendment of IRA 1967, judicial review will no longer
be applied to challenge the decision of the Industrial Court with the removal of
subsection (1) S. 33B. Furthermore, S. 33C was introduced to provide that any party
to the proceeding dissatisfied with the award of the Industrial Court may appeal
to the High Court. The appeal procedure as if from the Sessions Court to the High
Court is as provided under the Rules of Court 2012.

SELF-CHECK 2.4
Explain the differences between Labour Court, Industrial Court and

the court of law.
• Arbitration is a method of resolving disputes between two or more parties by

inviting a third party to get involved in order to resolve the dispute without
resorting to the court of law.
• Labour Court is a term used to refer to the inquiry proceeding under the
Employment Act (EA) 1955. The Industrial Court is an industrial tribunal
formed under the Industrial Relations Act (IRA) 1967.
• S. 77 of EA 1955 provides that any person who is dissatisfied with the decision
or order of the Director-General of Industrial Relations can appeal to the High
Court, and the procedure to appeal is as if an appeal from the Sessions Court to
the High Court.
• There are many legal provisions in EA 1955 and IRA 1967 that exist to resolve
employer-employee disputes. For example, Section 33A of IRA 1967 provides
that the Industrial Court may refer questions of law that arise in its proceedings
to the High Court upon application by any party during the proceeding. Such
a reference is only made if it is important and has an effect upon the award.
Appeal Inquiry proceeding

Arbitration Judicial review
Audi alteram partem Labour Court
Criminal offences Trade dispute
Industrial Court

cljlaw.com
http://www.mp.gov.my/en/statistics/analysis-of-awards-of-non-dismissal-
cases-2005- 2011
Industrial Relations (Amendment) Act 2019
International Law Book Services (2005). Industrial Relations Act 1967

PractitionerÊs. International Law Book Services: Petaling Jaya.
Minimum Retirement Age (Inquiry) Regulations
Minimum Retirement Age Act 2012 (Act 753)
Ellen Burke.
Rules of Court 2012

Topic  Terms and
Conditions of
3 Employment
LEARNING OUTCOMES
1. Identify the terms contained in the Employment Act 1955 and also
those agreed upon by the employer and employee but are not found
in the Act;
2. Identify three sources of the provisions regarding the terms of
contract of employment;
3. Differentiate between terms and conditions of employment; and
4. Differentiate between implied and express terms.
 INTRODUCTION
Apart from making provisions regarding employer-employee relations, the
Employment Act 1955 (EA 1955) also contains provisions regarding terms and
conditions pertaining to employment. Among the provisions are:
(a) Duration of work (including overtime);
(b) Wages;
(c) Rest days;
(d) Public holidays;
(e) Annual leave, medical leave;
(f) Maternity leave and benefits; and
(g) Termination of contract.

40  TOPIC 3 TERMS AND CONDITIONS OF EMPLOYMENT
What differentiates a contract of service from other forms of contract is that the terms
and conditions are not limited to what is stated in the document of contract entered
between the parties. In reality, a contract of service may comprise other forms of
documents such as an employee handbook. There is no limitation for the employer
to introduce new terms, especially terms which are beneficial for the worker. This
has been deliberated in Wilayah Bhd v Ng Weng Chow LNS (2004) 1 674. In this
case, the High Court in determining an appeal against the decision of the Labour
Court held that contract of service is not static as it can evolve from time to time
depending on time and business expansion. In addition, the terms and conditions
can be found impliedly or expressly in contracts between the employer and the
employeesÊ union (collective agreement) or in EA 1955 itself.
3.1 EMPLOYMENT ACT 1955

Terms and conditions of employment are required to form the basis of the
relationship between employers and employees. Employers are required to
formulate these terms and conditions, so that the employees know in advance their
rights and responsibilities while at work. Section 7 of EA 1955 states that the terms
are to provide benefits that are more favourable to the employees. If the terms are
less favourable than those provided for in EA 1955 or any regulations, then the
more favourable provisions of this Act or any other regulations shall be the
substitute thereof. In other words, more beneficial terms in EA 1955 shall prevail
over the less favourable terms in the contract of employment.
Section 7A of EA 1955 provides that nothing shall prevent an employer and an

employee from agreeing to any term or condition of service that is more favourable
to the employee than the provisions of this Act or any other regulations.
3.2 TERMS NOT CONTAINED IN

EMPLOYMENT ACT 1955
According to Section 7B of EA 1955, nothing therein shall be construed as
preventing the insertion of terms and conditions as mutually agreed upon by the
employer and employee even though they are provided for in the Act. Such terms
can be contained in the contract of service or other collective agreements. In the
case of Leng Huat Omnibus Co Sdn Bhd v Transport Workers Union
(Award 23/1973), the court decided the terms and conditions as contained in EA
1955 are to be considered the minimum requirements that the employer has to
provide for the employees. The contract of service or agreement may contain terms
that provide more benefits than those provided for in the Act or which are not
stated therein.
TOPIC 3 TERMS AND CONDITIONS OF EMPLOYMENT  41
In the case of Equatorial Hotel v National Union of Hotel, Bar and Restaurant
Workers (Award 88/1982), the courts stated that EA 1955 only provides for the
basic provisions of the contract of service. It only covers:
(a) The minimum wages to be paid;
(b) Rest days and public holidays;
(c) Total wages;
(d) Work hours and number of work days;
(e) Termination of contract;
(f) Probationary period (if any); and
(g) The general term that the employee is to abide by the directions, regulations
and methods issued by the employer from time to time.
At present, there are many matters such as allowances and additional benefits,
which are not stated in the Act, but are given to workers. Such terms can be
claimed in the courts if employers do not honour them even though they are not
provided for in the Act. In the case of Poominathan Kuppusamamy v Besprin
Stationers Sdn Bhd (2003) 3 CLJ 118, the High Court decided that the insurance
policy taken by the employer in favour of his employees constitute a term under
the contract of service. As such, the employee is entitled to it as an additional
benefit and is also entitled for the indemnity payment from the policy. Therefore,
it is necessary for employees to have an awareness of these rights and the
knowledge to enforce them accordingly.
ACTIVITY 3.1
Apart from the basic matters that are provided for in the contract of
service, what do you think are other matters that are mutually agreed
upon by the employer and employee?

3.3 UTILISATION OF COLLECTIVE

AGREEMENT, CONTRACT OF SERVICE AND
EMPLOYMENT ACT 1955
Section 17(1) of IRA 1967 is a mandatory provision. This section provides for the
following matters:
Provision
A collective agreement which has been taken cognisance of by the court shall
be deemed to be an award and shall be binding on:
(a) The parties to the agreement including in any case where a party is the
trade union of the employees, all members of the trade union to whom the
agreement relates to and their successors, assignees or transferees; and
(b) All workmen who are employed or subsequently employed in the
undertaking or part of the undertaking to which the agreement relates.
Therefore, a collective agreement that has been entered into by the employer and
employees is binding on the employer, the workersÊ trade union and all workers.
However, if the contents of the collective agreement are of no benefit to the workers,
the terms already found in the Employment Act 1955 can be used. This was decided
upon in the case of Palmex Industries Sdn Bhd v S Poobalan (1984) 2 ILR 734.
Similarly, if the contents of the collective agreement do not state the elementary
terms contained in the Act, then such terms in the Act shall be used. Apart from
the rules and regulations made by employers from time to time, the contract of
service can also exist jointly with the collective agreements made between the
employers and the workersÊ trade union. Therefore, in conclusion, the terms and
conditions of employment may derive from the following sources:
(a) Individual contract of service;
(b) Collective agreement; and
(c) Employment Act 1955.

In the case of Len Seng Omnibus Co Ltd v TWU (IC Award No.43/1972), the High
Court decided that the collective agreement is not a contract of service but it must
and can coexist with the contract of service. The terms of the collective agreement
can become part of the contract of service of the employees. Both the documents
must contain terms that are not lesser than those provided in the Employment Act
1955. This is because the Act only provides the minimum terms that must be
followed by employers.
3.4 DIFFERENCE BETWEEN TERMS AND

CONDITIONS OF EMPLOYMENT
Definition
„Term‰ in a contract of service is the product of the decision reached between
the employer and employee. It refers to contractual obligations that the parties
have agreed to undertake.
When a person is offered work at a place, matters related to wages, characteristics

of work, annual leave and hours of work shall be discussed with the employer.
The product of this discussion becomes the terms in the contract of service
concerned. The terms of a contract of service shall include important aspects such
as wages, working hours, overtime work, holiday benefits, procedure of
termination and dismissal from employment.
Any breach of the term by the employee enables the employer to terminate the
contract of service. Alternatively, any breach of the term by the employer enables
the employee to consider that he has been dismissed constructively. However,
„condition‰ has a different meaning.
Definition
„Condition‰ is an instruction given by the employer to the employee from
time to time.
Here, the employer does not have to obtain an agreement from the employee if he
wishes to change the condition given. For example, the employer can decide that
employees are to wear uniforms each workday. This decision can be changed later
to make it not compulsory for employees to wear their uniforms on Saturdays.

In the case of Brenda Dunne Ltd v Pitzpatrick (1958) IR 29, the meaning of
„condition‰ was explained thus:
Definition
„The physical conditions under which a workman works such as appertain to
matters of safety and physical comfort.‰
This definition is sufficient to embrace all forms of preparation pertaining to

welfare regarding safety, health and physical comfort. For example, sports club,
drama society, cabinets to store things, bathroom, air conditioners, flow of clean
air and rest time. Since the word „condition‰ of work is broad, it embraces a broad
range of matters in accordance with the suitability of time.
It can thus be noted that „term‰ is more important than „condition‰. This is
because the breach of a „condition‰ such as failure to provide certain facilities does
not lead to constructive dismissal. On the other hand, the breach of a „term‰ can
by itself be construed as constructive dismissal. Since the word „term‰ is more
important, the following discussion shall focus on this aspect.
SELF-CHECK 3.1
1. What is meant by a contract of service and a collective
agreement?
2. Explain the difference between term and condition.

3.5 DIVISION OF TERMS

Terms can be divided into various categories as shown in Figure 3.1.
Figure 3.1: Division of terms
Generally, terms can be divided into two, express terms and implied terms. Both
terms are explained in the following subtopics.
3.5.1 Implied Terms
Definition
An implied term is deemed to exist in law, even though it is not expressed in
any agreement or contract of service.
Although they are not stated in the contract of service, implied terms are binding
on both employers and employees. In Sababumi Sandakan Sdn Bhd v Datuk Yap
Pak Leong (1998) 3 CLJ 503 the Federal Court explained that there are three
categories of implied terms, namely, implied by operation of law, implied by
conduct and implied by custom of any market or trade. We shall further discuss
regarding the type of implied term in this topic.

(a) Implied by Operation of Law

In Len Seng Omnibus Co. Ltd v TWU (Award 43/72 page 421), the Industrial
Court decided that the collective agreement does not constitute an individual
contract of service. However, the terms and conditions provided under the
Collective Agreement impliedly becomes part of the contract of service due
to operation of law. Secondly, such implied term originated from common
law principles and mostly deal with the duties and responsibilities of
employers and employees as follows:
(i) Implied Terms for Employers

The following are the identified implied terms relating to employers:
• It is the duty of the employer to provide work for the employee

In the contract of service, the employee has to perform work as
instructed by the employer. As a consideration, the employer shall
pay wages to the employee concerned.
In the case of Turner v Sawdon (1901) 2 KB 653, the court decided

that the employer does not have the duty to provide work for the
employee. The duty only arises if the employer employs workers
who are paid by way of commission or by way of work done.
On the other hand, the court took a different approach in the case
of Breach v Epsylon Industries Ltd (1976) ICR 316. The court
decided that providing work for the employee is important in order
to decide upon the status of the employee and to ascertain his
incentive.
• It is the duty of the employer pay wages

The employer is required to pay wages for the work performed by
the employee. However, if the wages are not paid depending on the
amount of work performed, the common law provides that the
employer has the obligation to pay such wages provided that the
employee is ready to perform the work. In M/S Viking Aiskim Sdn
Bhd lwn. National Union of Employee in Companies
Manufacturing Rubber Products & Anor (1990) 2 ILR the High
Court held:
„As to Common Law, it was submitted by Counsel for the Union,

and I agree, that if an employee is ready to perform his services
during the period covered by his contract of employment, which
provides for payment of wages at certain times, he is entitled to the
wages, although the employer has no work for him.‰

• It is the duty of the employer to provide a safe and proper system

of work
In the contract of service, it is required that the employer shall
provide a system of work that is safe at the workplace. It also
includes the avoidance of exposing employees to unnecessary risks
of injuries.
In the case of G Theong Wee Meow v Goh Poh Chan (1981) 1 LNS
86, a worker died because of inhalation of poisonous gas that
emanated from a well at the workplace of the employer. Before the
death of this worker, another worker had fainted while working at
the same place and the employer was aware of this matter.
The court ruled that the employer knew at all times, or ought to
have known, that the workplace was not safe and his failure in
giving warning on this matter made him liable for the death of the
worker concerned.
In the case of Lian Ann Lorry Transport and Forwarding Sdn Bhd
v Govindasamy (1982) 2 MLJ 232, an employee sustained serious
injuries caused by a carpet while unloading from a lorry.
The court ruled that the employer had failed to ensure occupational
safety for the purpose of transferring carpets from the lorry.
Thus, based on these two decided cases, it can be summarised that

employers are responsible for ensuring that occupational safety is
maintained. If employees sustain injuries due to their own
negligence and if the employer had provided all the relevant
precautionary measures at the workplace, the employer cannot be
held liable.
(ii) Implied Terms for Employees

Similar to employers, employees also have implied terms that must be
fulfilled such as the following:
• The employee shall always be sincere and faithful towards the

employer
The employee has to perform all the instructions given by his
employer. The relationship between the employer and the
employee has to be cordial and requires the sincerity and
trustworthiness of the employee to do as required by the employer.
This means that the employee at all times has to perform what is

considered reasonable in the interest of the employer. Failure to

comply can be regarded as insubordination which is a form of
misconduct. In Habibah bte Mohd Zaman v. Pan Global Insurance
& Anor (2001) 6 MLJ 339, Faiza Thamby Chik J. held as follows:
„Disobedience to a lawful order of the employer is insubordination,

and this would result in disciplinary action.‰
However, an employee may choose not to comply with such

instruction if the employee believed that such instruction is wrong.
In Ngeow Voon Yean v Sungei Wang Plaza Sdn Bhd & Anor (2004)
1 CLJ 8, the Court of Appeal held that:
„⁄it can be discerned that obedience is expected of an employee

where he is in doubt of the legality or reasonableness of an order of
the superior. But if it is obvious to an employee that an order given
is manifestly wrong and he is very conscious of such fact, we are of
the opinion that the general rule should not apply.‰
• The employee shall at all material time protect the interest of the
employer.
It is an implied term that an employee should protect the
employerÊs interest. One such interest is by not disclosing the
employerÊs confidential information. This duty will remain even
after the contract of service expires.
According to the case of Faccenda Chicken Ltd v Fowler (1986) 1

All ER 625, the court explained that restraint of trade can be
imposed by the employer towards past employees from divulging,
using or relaying to others confidential information about the
employerÊs business. This is especially so if an employeeÊs former
position is of a high rank. In such a case, there is a presumption that
he shall have several pieces of confidential information as well as
the inclination to divulge the information to others.
This does not mean that the employee is being dishonest with the
employer. Such divulging of confidential information is necessary
if it involves public interest, for example, when such information
concerns an act of crime or fraud. Such an act is called whistle
blowing. Whistle blower Protection Act 2010 will accord immunity
(S.6) provided that the information is submitted to the enforcement
agency (S.9).

The landmark case in such an issue is the case of Syed Omar Syed
Agil v Institut Profesional Baitulmal Sdn Bhd [2018] 6 CLJ 397. In
this case, the plaintiff was the CEO of the institute (defendant). He
submitted information of certain irregularities of the defendant to
the police and Malaysian Anti-Corruption Commission (MACC).
Disciplinary action was taken against him. He later filed an
injunction application against the defendant for taking such an
action. The High Court ruled that the plaintiff was accorded
protection under the Act as he had lodged the complaint with the
relevant authority. No investigation was conducted by the
defendant of the alleged misconduct at the material time and the
disciplinary action was taken against him only after the presence of
the police and MACC in the defendantÊs premises.
• The employee has to perform the work assigned with full care and
caution
The employee has the implied duty to perform work with full care
and caution, and to use his skills efficiently. For example, a driver
has the responsibility of ensuring that care and caution is exercised
while driving the employerÊs vehicle.
In the case of Lister v Romford Ice Ltd (1957) AC 555, the driver
caused an accident involving a fellow worker and the victim
brought an action against their employer. After paying damages to
the victim, the employer initiated an action for negligence against
the other employee, namely, the driver. He was accused of not
performing his duty with full care and caution.
In the case of Majlis Perbandaran Pulau Pinang v Lin Soo Eng (1991)
1 MLJ 162, the same principle was applied. In this case, the Federal
Court decided that the employer did not have vicarious liability for
injuries or losses of third parties incurred as a consequence of
employees who had been negligent while performing their work.
Therefore, the driver was ordered by the court to pay back the
damages to the company.
Therefore, an employee has to be careful and look after the interest of the
employer at all times, in any work that involves the business and affairs of
the employer. This is in line with the implied term regarding care and caution
with the employment throughout the tenure of the contract of service.

ACTIVITY 3.2
State situations where an employee is required to divulge information

regarding his employer.
Apart from the implied term discussed above, it is imperative to emphasise

that the court or tribunal based on the evidence adduced could determine
whether certain implied terms existed in a contract of employment. Such
implied terms may be derived through conduct or custom.
(b) Implied by Conduct

The conduct of each party under the employment contract can be construed
as agreeing to a certain term. One example is whether the employerÊs conduct
can be implied as confirming the salary of the worker. In Healthcare Medical
Screening Centre (M) Sdn. Bhd. v Raymund Dominic Ignatius Louis [1997] 3
ILR 879, the Industrial Court observed that the employerÊs conduct of paying
a commission instead of a training allowance and paying one monthÊs salary
in lieu of notice instead of a pro-rated weekly sum denotes that the claimant
was no longer a probationer but a confirmed staff.
(c) Implied by Custom

Certain terms can be implied due to customs or practices. However, such an
implied term must exist in a particular trade or area. In Ahmad bin Selamat
& Ors v MBSB LNS (2009) 1 805, the workers filed a complaint under S. 69B
of EA 1955 claiming that the employer failed to pay a service gratuity benefit
when they retired. Their case was dismissed by the Assistant Director of
Labour, hence, the appeal to the High Court. One of the issues that need to
be determined is whether service gratuity benefits is an implied term by way
of custom or practice. The High Court in its judgment held that:
„Further, in order for such a term to be implied, it must be shown that the
practice or custom of paying service gratuity benefits exists within a
particular trade or market. In this case, the evidence shows that the
respondent paid service gratuity from 1996 to 2003; this practice relates only
to the respondent, a single business entity. There is no evidence to show that
the payment of service gratuity extends to any particular trade or market. For
this reason, this Court will not imply a term in the contract of service that the
employees are entitled to service gratuity on retirement.‰

SELF-CHECK 3.2
1. What is meant by implied terms and what are the implied terms
used in the contract of service?
2. Explain the provisions of the Employment Act 1955 that can be

construed as implied terms. Can other terms which are not
stated in the Act be made into terms?
3.5.2 Express Terms
Definition
Express terms are terms that are stated clearly in the contract of service either
oral or written.
Express terms become part of the contract of service. They are divided into:
(a) Pecuniary terms (terms that are financial in nature); and
(b) Non-pecuniary terms (terms that are non-financial in nature).
Further discussion on express terms is found in Topic 4 (Pecuniary and Non-

Pecuniary Terms).
• Terms contained in the Employment Act 1955 are duration of work (including
overtime), wages, rest days, public holidays, annual leave, medical leave and
maternity leave as well as resignation and maternity benefits. The terms agreed
upon by the employer and employee but are not found in the Act are
allowances and additional benefits.
• Three sources of provisions regarding terms of contract of employment are

individual contract of service, collective agreement and Employment Act 1955.
• „Term‰ in a contract of service is the product of the decision reached between

employer and employee. It refers to contractual obligations that the parties
have agreed to undertake. On the other hand, „condition‰ is an instruction that
is given by the employer to the employee from time to time.

• An implied term is deemed to exist in law, even though it is not expressed in

any agreement or contract of service whereas express terms are terms that are
stated clearly in the contract of service.
Conditions of employment Terms of employment

Express terms Whistle blowing
Implied terms
cljlaw.com
International Law Book Services (2005). Industrial Relations Act 1967

PractitionerÊs. International Law Book Services: Petaling Jaya.
Ellen Burke.
Whistle Blower Protection Act 2010 (Act 711)

Topic  Pecuniary and
Non-pecuniary
4 Terms
LEARNING OUTCOMES
1. Describe what are pecuniary terms and their components;
2. Identify at least five types of allowance;
3. Differentiate between bonus and ex-gratia payments;
4. Explain pecuniary benefits such as retirement, medical and
insurance; and
5. Describe non-pecuniary terms and their categories.
 INTRODUCTION
The Employment Act 1955 (EA 1955) provides the minimum rights that should be
provided for by employers towards employees. If the provisions are lesser than
those spelt out in EA 1955, Section 7 shall be invoked. EA 1955 as stated in the
previous topic stipulates the express terms in regulating the employment
relationship. The express terms are further divided into two categories, pecuniary
and non-pecuniary terms. Pecuniary terms refer to the terms in a contract of service
that are financial in nature e.g. wages, allowances, bonuses, ex-gratia payments
and pecuniary benefits. Meanwhile, non-pecuniary terms are terms in a contract
of employment that are non-monetary, which means they do not directly relate to
money e.g. duration of work, overtime work, rest days, public holidays, annual
leave and sick leave.

54  TOPIC 4 PECUNIARY AND NON-PECUNIARY TERMS
4.1 PECUNIARY TERMS

In this subtopic, we will discuss the pecuniary terms in more detail.
4.1.1 Wages or Salaries

Section 2(1)(a) – (f) of EA 1955 define wages or salaries as shown in Figure 4.1.
Figure 4.1: Definition of wages or salaries as per Section 2(1)(a) – (f) of EA 1955
Determining whether certain types of payment such as allowances or fixed

remuneration are wages as defined by Section 2 of EA 1955 is very important for
the purpose of computation of overtime allowance, pay for rest days and public
holidays as well as termination and lay-off benefit.

TOPIC 4 PECUNIARY AND NON-PECUNIARY TERMS  55
In the case of Chin Swee Hin v Md Arif (1977) 2 MLJ 31, the court decided that the
food allowance paid to the respondent by the appellant was part and parcel of the
contract of service and therefore was within the definition of wages as stated in
Section 2 of EA 1955.
The court decided that since the principal aim of EA 1955 is to protect workers
from exploitation, certain types of payment paid in cash to workers could be
included for the purpose of computing overtime pay.
In order to determine whether any payment made by the employer is part of

wages, the definition of wages must be interpreted in a liberal manner. Secondly,
such payment is contractually provided under the contract of service (includes
collective agreement) unless it is excluded under Section 2 of the Act. In Neoh
Choo Ee & Co Sdn Bhd v Vasalamany Govindasamy & Anor (2004) 3 321, the Court
of Appeal through Gopal Sri Ram J. stated as follows:
„The EA is a piece of beneficial legislation and must ex necessitae rei receive a

liberal interpretation. If Parliament had intended to give ÂwagesÊ a narrow and
restrictive meaning, it would not have employed language of the width found in
Section 2 of the EA. The words Âin respect of contract of serviceÊ are compelling.
We would therefore agree with the respondentsÊ argument that for the purposes
of the EA, wages would include all contractual payments other than those
excluded by Section 2. It follows that wages in the present instance included the
out-turn allowance provided under Article 14(a) of the collective agreement.‰
In the case of Asia Motors (KL) Sdn Bhd v Ram Raj (1985)2 MLJ 202, the question
was whether special relief allowance and additional relief allowance form part of
wages. This is because the respondents argued that they were paid less than
provided by the statutory minimum payment as stated in paragraph 4(i) of the
Wages Regulations (Shop Assistants) Order 1970. The employer argued that the
basic wages as defined by the Order does not solely mean basic wages but include
other types of payment, that is, specific relief allowance and additional specific
relief allowance. Therefore, they were paid more than provided by the Order.
The court decided that both the payments were not part of wages. The court was
of the view that clauses Section 2(1)(a) – (f) were non-exhaustive clauses. On the
other hand, the employer can make other payments that are not listed but they are
not considered wages. The important thing is that both parties, especially the
employer, must show a clear intention regarding the benefits.
With regard to wages, EA 1955 continues to explain the period of wages, its
methods of payment, advance payment of wages and wage deductions.

4.1.2 Period of Wages or Salaries

Section 18(1) of EA 1955 provides that a wage period shall not be more than one
month. However, it can be less than one month.
Wage period means the period in respect of which wages earned by an employee
are payable (Section 2 of EA 1955).
4.1.3 Payment of Salaries

Generally, the employer must pay the salaries according to the period that has
been fixed.
Provision
Section 19(1) of EA 1955 states that every employer must pay the wages to each
of his employees not later than the seventh day after the day of any wage
period, less lawful deductions earned by such employee during the wage
period.
Section 19(2) of EA 1955 states that the employer must pay wages for overtime,
rest day and public holiday not later than the last day of the next wage period.
However, if there is an application from the employer, the time of payment of
wages can be extended provided the Director-General is satisfied with the
reasons provided by the employer. (Section 19(3) EA 1955)
Provision
Section 25(1) specifies that the entire amount of wages shall be paid to the
employee through the bank account of the employee.
However, according to Section 25A (1), an employer may pay an employeeÊs wages
in cash or by cheque upon a written request from the employee.
Section 26 states that an employer cannot impose conditions upon employees on

how to spend their wages.
Section 28 underlines the method of payment of wages, that is, employers are
forbidden from paying wages to employees at liquor shops, entertainment outlets
or grocery outlets.

4.1.4 Advances of Wages

Section 22(1) of EA 1955 states that an employer shall not advance a sum of money
that exceeds the aggregate total salary of one month, except in situations explained
in Figure 4.2 according to Section 22(a) to (de).
According to the general practice in this country, there are schemes allowed that
enable loans and advances to be made (refer to Figure 4.2).
Figure 4.2: Situations where employers may give advances and loans to employees

4.1.5 Deduction of Wages

Section 24(1) of EA 1955 states that an employer is not allowed to make deductions
of employeesÊ wages that are provided in the Act. Situations where such
deductions are allowed as per the Act under Section 24(2) are shown in Figure 4.3.
Figure 4.3: Situations permitting deductions under Section 24(2)(a) to (d) of EA 1955
Provision
Section 24(3) lists the deductions allowed with the written consent of
employees.
Such deductions include:

(a) Deductions towards registered trade unions, cooperative thrift and loan
societies of any sum of money for entrance fees, subscription instalments and
interest on loans or other dues; and
(b) Deductions in respect of any shares of employerÊs business offered for sale
by the employer and purchased by the employee.
Section 24(4) touches on the deductions that shall not be made except with the
request in writing by the employee and with prior permission from the
Director-General in writing.

Such deductions are for:

(a) Payment of any superannuation scheme pension fund, employerÊs welfare
scheme or insurance scheme established for the benefit of employees;
(b) Repayments made to employees under Section 22 where interest is levied;
(c) Payments to third party on behalf of the employee;
(d) Payment of purchase of any business commodity by the employer;
(e) Rental of accommodation and cost of services, food and meals provided by
the employer under the request of the employees or under the terms of
contract of service.
Under Section 24(5), the Director-General shall not permit any deductions for
payments under paragraph 4(e) unless he is satisfied that the provision of the
accommodation services, food or meals is for the benefit of the employee.
However, Section 24(7) empowers the Director-General to allow deductions upon

request by the employer but subject to such terms that he may deem fit to impose.
Apart from Section 24(9), the total deductions cannot exceed 50 per cent of the
wages of the employees in that month, according to Section 24(8).
ACTIVITY 4.1
Is the employer empowered to deduct the wages of employees

arbitrarily? If not, why and what are the terms?
4.1.6 Minimum Wages

Besides EA 1955, another statute that deals with employeesÊ wages is the National
Wages Consultative Council Act 2011 (NWCC 2011). By virtue of S. 58 NWCC
2011, the Wages Council Act 1947 and all wages councils established under it were
repealed. NWCC 2011 also establishes the National Wages Consultative Council.
The main responsibility of the Council is to conduct studies on all matters
concerning minimum wages and to make recommendations to the government to
make minimum wages order according to sectors, types of employment and
regional areas, and to other matters relating to minimum wages and wages. The
Council is also responsible to review the Minimum Wage Order (MWO) at least
once in two years ( Section 25).

The 2011 Act (Section 2) defines minimum wage as „basic wage to be or as

determined under Section 23‰. It means that minimum wage is separate from any
other payment provided by the employer under the contract of service. In Mohd
Sari bin Faizal & Anor v Touch Mobileguard Sdn Bhd (2016) 1 ILR 259, the High
Court held that the Labour Court committed an error by deciding that the
combination of basic wage and fixed allowance constitute minimum wage.
There are 5 MWOs that have been enacted. The current MWO is MWO 2020 which
commenced on 1 February 2020. Regulation 4 of MWO 2020 provides that the
minimum wage for workers whose place of employment is within the City Council
or Municipal Council area as per the schedule is as shown in Table 4.1.
Table 4.1: Minimum Wage for City Council or Municipal Council Workers
Monthly Weekly Hourly
RM 1200.00 6 days RM 5.77

RM 46.15
5 days
RM 55.38
4 days
RM 69.23
For employees whose rate of pay is based on task, tonnage, piece, trip and
commission, it is regarded that they have been paid minimum wage if their
monthly wage is not less than RM1,200.00.
Regulation 6 of MWO 2020 further provides that the minimum wage for workers
whose place of employment is other than the City Council or Municipal Council
area as per the schedule is as shown in Table 4.2.
Table 4.2: Minimum Wage for Workers Employed by Other than City Council or
Municipal Council
Monthly Weekly Hourly
RM 1100.00 6 days RM 5.29

RM 42.31
5 days
RM 50.77
4 days
RM 63.46

For employees whose rate of pay is based on task, tonnage, piece, trip, commission,
it is regarded that they have been paid minimum wage if the monthly wage they
obtained is not less than RM1100.00.
The 2011 Act (S. 43) provides that an employer who fails to comply with the MWO
commits an offence and shall upon conviction be liable to a fine not exceeding
RM10,000 for each employee. Upon conviction, the court can order the employer
to pay to the employee affected the balance of the minimum wage (Section 44).
4.2 ALLOWANCES
Matters regarding allowances have long been deliberated upon by the courts even
though EA 1955 hardly deals with these employeesÊ rights except maternity
allowance. The following is a list of allowances recognised by the courts:
(a) Acting allowance;
(b) Attendance allowance;
(c) Call allowance;
(d) Living allowance;
(e) Food allowance;
(f) Hardship allowance;
(g) Housing allowance;
(h) Outstation allowance;
(i) Overtime allowance;
(j) Shift allowance;
(k) Training allowance;
(l) Transfer allowance; and
(m) Travelling allowance.
The settlement regarding these allowances is based on the provisions of the

contract of service. Therefore, it may be different from one organisation to another.

4.2.1 Maternity Allowance

Eligibility for maternity allowance is stipulated in Section 37(1)(a) of EA 1955.
However, since the relevant provisions also set out other maternity-related
benefits, the discussion will extend to all such benefits.
Every female employee, regardless of whether she falls within the ambit of EA
1955, is now assured to enjoy her maternity-related rights as provided under Part
IX of EA 1955 (Section 37 to 44A). The entitlements are for a period of maternity
leave of not less than 60 consecutive days. Female employees may start their
maternity leave from the 22nd week of pregnancy (see definition of the term
„confinement‰ in Section 2 of EA 1955).
Section 37(4) of EA 1955 further prohibits the termination of a female employee

during the period she is eligible for maternity leave. An employer who terminates
the service of a female employee during this period commits an offence unless the
termination is proven to be the result of the closure of the employerÊs business.
The following conditions are, however, imposed by EA 1955 for a female employee
to enjoy maternity leave:
(a) The leave should not commence earlier than a period of 30 days immediately
preceding the confinement of a female employee or later than the day
immediately following her confinement unless certified by a medical
practitioner appointed by the employer. In such cases, the leave may
commence any time before the 14 days prior to delivery;
(b) In the event that a female employee is not entitled for maternity allowance,
she may resume her work provided that she has been certified by a medical
practitioner that she is fit and able to work and the employer permits her to
resume work.
For a female employee to enjoy maternity allowance, these conditions need to be

fulfilled:
(a) She has not more than five surviving children;
(b) During the nine months of pregnancy, she must attend work in aggregate of
not less than 90 days; and
(c) She has been engaged by the employer in any day within four months prior
to the confinement period.

Section 40(2) states that a female employee who is pregnant must inform the
employer of her position within 60 days before delivery. Otherwise, the payment
of allowance can be withheld. This is important to enable the employer to make
necessary arrangements.
Section 37(1)(b) states that for non-monthly rated female employees, their
entitlement for maternity allowance must not be less than the ordinary rate of pay
per day. However, a minimum of RM6.00 per day needs to be paid by the
employer if the rate per day is lesser than the said minimum amount (Employment
[Minimum Rate of Maternity Allowance] Regulation 1976).
Section 37(1)(c) states that a female employee on a monthly rate of pay is deemed
to have been paid a maternity allowance when she receives her monthly salary as
usual.
4.3 BONUS AND EX-GRATIA PAYMENTS

Bonus and ex-gratia payments are payments made by employers apart from the
wages and are not discussed in EA 1955.
However, this matter has been discussed by the court and the scope is very wide.
This is because there are far too many types of payments that can be made by the
employer, apart from wages to attract employees. Only a few types of bonuses and
compensations will be discussed here. The differences regarding wages, bonus and
ex-gratia payments will be discussed in this subtopic.
4.3.1 Bonus
EA 1955 is silent on the rights of employees to be paid bonus. Normally, it is the
prerogative of the employer to issue bonus. Employers may insert this provision
at their discretion. The courts also recognise contractual bonus. The awards of the
courts in the following will illustrate the differences between discretionary bonus
and contractual bonus.
Many questions have been raised in the courts as to whether compulsory bonus
must be provided or otherwise.
In the case law of States of Malaya Insurance Association v National Union of

Commercial Workers (Award 157/80), it was decided that non-contractual bonus
is an uncertain payment. It can only be given if the employer makes a profit.

Contractual bonus is bonus that is considered compulsory. This means the bonus
is provided for in the contract of service as compulsory payment by the employer
apart from the wages. Time and mode of payment are decided in the agreement.
The quantum is also fixed. It shall be paid whether or not the employer makes a
profit.
In the case of Malaya Plywood and Veneer Factory Sdn Bhd v Timber Employees
Union (Award 232/1987), the contractual bonus must be inserted as a term of
employment and it cannot be turned into one that causes the employees to lose
unless there are cases that are exceptional.
In the case of Tamil Nesan Sdn Bhd v National Union of Newspaper Workers
(Award 347/1987), the court supported what was stated in Malaya Plywood. As
per the case, when a bonus is made a term, it becomes compulsory for the employer
to pay it.
4.3.2 Ex-gratia Payment

Ex-gratia payment does not have a strict definition. In the case of NSTP Bhd v
National Union of Journalists (250/88), apart from receiving bonus of two monthsÊ
wages on 20 December each year, the employees were also given compensation
that varied as per the employerÊs discretion. In this case, the Workers Union was
unhappy with the way the employers used their discretion to ascertain the
payment. The union sought a guideline for the employer to adhere to it. Upon
deciding, the court exhorted that the word „ex-gratia‰ is clear as its meaning
means compensation. Therefore, only one compensation is to be made as an
incentive by the employer. Thus, the application of the union was disallowed.
In the case of Malaysia Resources Corporation Bhd and Malaysian Resources

Factory Workers v National Union of Petroleum and Chemical Industry Workers
(Award 45/86), the court decided that the amount of ex-gratia is the same and is
not based on the salary scale. In addition, the court stated that the ex-gratia is the
absolute discretion of the employer but the payment should be the same for each
employee and not based on salary scale.
SELF-CHECK 4.1
Explain the differences between wages, allowances and ex-gratia
payments.

4.4 PECUNIARY BENEFITS

Pecuniary benefits include dismissal, retrenchment or discontinuance allowances,
retrenchment benefits, retirement benefits, medical benefits and insurance
benefits. Most of the mentioned benefits are not provided for in EA 1955. Likewise,
there are also other benefits that are not provided for in the statute but have been
provided by the courts such as death benefits as well as car and housing loans. For
instance, in Kontena Wilayah Bhd lwn Ng Weng Chow LNS (2004) 1 674, the High
Court in determining the appeal against the decision of the Labour Court held that
the car loan provided by the employer was an employment benefit which became
part of the contract of service.
ACTIVITY 4.2
What is meant by pecuniary terms? Give examples. Share your

answer in the myINSPIRE online forum.
4.4.1 Lay-Off and Termination Benefits

The benefits regarding lay-off and termination can be found in the Employment
(Termination and Lay-off Benefits) Regulations 1980. The following are significant
provisions in the Employment (Termination and Lay-off Benefits) Regulations
1980.
(a) Rule 3 – An employee is entitled to termination or lay-off benefits if his

contract of service is terminated or laid-off, provided that the employment is
not less than 12 months of continuous service;
(b) Rule 4(1) – The entitlement in Rule 3, however, does not cover a situation
when the employee is terminated from his service due to retirement or by an
employer on the basis of misconduct or voluntary termination by the
employee.
(c) Rule 4(2) and (3) – A worker is not entitled to lay-off and termination benefits if:
(i) There is continuation of work by the employee through a new contract
of service that has new terms which are not lesser than the previous
contract of service and the renewal of the contract of service is enforced
from the date of termination;
Or

(ii) The employer has made a new offer with no lesser terms not fewer than
seven days from the date of lay-off and termination; and
(iii) The renewal begins on or before the date of lay-off and termination but
the employee has turned it down unreasonably.
In the landmark case of Compagnie Due Cambodge (Claire Estate) ChaÊah v

Boy Kanamah & Ors. (2006) 1 CLJ 983, the Court of Appeal made an
important ruling that an employer may withdraw resignation notices issued
to his workers and require them to resume work provided that the terms and
conditions are the same or more favourable and such withdrawal is not later
than seven days prior to the date of termination. This ruling distinguished
the general principle that a resignation letter cannot be unilaterally
withdrawn when it is related to payment of termination benefit.
(d) Rule 8 – If there is a change in the employerÊs ownership, the employee is not
entitled to lay-off and termination benefits if:
(i) The employee has rejected the offer by the new employer that has been
offered within seven days of change of the employer and with no lesser
terms contained therein; or
(ii) The employee is not offered such a job, then the previous and new
employers are jointly liable to pay compensation.
What amounts to change of ownership was decided in Abdul Aziz Atan & Ors v
Ladang Renggo Malay Estate Sdn Bhd (1985) CLJ (Rep) 370. In that case, the High
Court stated that the change of shareholders of the company did not constitute
change of ownership within the meaning of the said regulation. His Lordship
Mahadev Shanker J. was of the opinion inter alia that the shareholders and the
company were two different entities. Furthermore, the transfer of shares did not
change the company as the said company was still the same entity and it was still
operating where the workers were still employed.
(e) Rule 5 – Provides that an employee is deemed to be laid-off if:

(i) The employer did not provide work for at least twelve days in any four
consecutive weeks;
(ii) No wages were paid for such days when he was not provided with
work; and

(iii) If these days fall on rest days, public holidays, sick days, maternity
leave or other holidays, then these days are not included as the days
when work was not provided.
(f) Rule 6 – Specifies the quantum of compensation payable in the case of lay-
off or termination:
(i) If the employee had been working less than 2 years – not less than 10
days wages for each year;
(ii) If the employee has been working more than 2 years but less than 5
years – not less than 15 days wages for each year;
(iii) If the employee has been working 5 years or more – not less than 20
days wages for each year; and
(iv) On a pro-rata basis if lesser years based on the nearest number of
months.
In the case of Hotel Continental v National Union of Hotel, Bar and Restaurant
Workers (Award 571/1984), the court allowed the partial or whole closure of
business by the employer. However, the workers must be paid benefits as
contained in Regulations 1980.
In the case of Dunlop Malaysian Industries Bhd v Dunlop Industries Employees

Union (Award 76/1982), the Industrial Court endorsed the right of the employer
to temporarily shut down the business but benefits as per Regulations 1980 were
payable.
4.4.2 Retirement Benefits

The EPF shall only be paid upon retirement and not when there is a long lay-off or
termination or resignation. In the case of Association of Bank Officers v Malaysian
Commercial Bank Association (Award 54/1981), it was stated thus:
Definition
„⁄The contribution or payment of employees to the EPF is actually a
retirement benefit.‰

4.4.3 Resignation Benefits

The courts do not endorse such benefits but if they are provided for in the
collective agreement, then the courts shall not deny it. In the case of Federal Iron
Works Sdn Bhd v Metal Industry Employees Union (Award 123/1991), the court
held that:
„In principle, we do not condone resignation benefits. However, if the company

and the union have such provisions in their collective agreement, then we do not
propose to hinder it.‰
In the case of Automotive Manufacturers Sdn Bhd and Transport Sdn Bhd and
Transport Equipment and Allied Industries Employees Union (Award 60/1986),
the resignation benefit was discussed. In this case, there was such a provision in
the collective agreement especially in a situation where the employee had worked
for more than five years. The court agreed with the union that such a provision
should be continued.
4.4.4 Medical Benefits

The Industrial Court in Golden Sands Beach Resort v National Union of Hotel Bar
and Restaurant Workers (Award 107/1988) confirmed that the employer had to
provide medical benefits. This was not extended to family members. Furthermore,
the expenses incurred should not overburden the employer.
In the case of Stevedore Employers Association Penang v Penang Port Workers

Union (Award 357/1992), the Industrial Court did not approve that the employer
must provide medical treatment at private hospitals. Here, the court set aside the
claim by the employees to upgrade the medical standard of workers to the private
hospital because the expenses were exorbitant for the employer.
In the case of Malayan Commercial Banks Association v Association of Bank

Officers (Award No 254/1992), the court decided that it was not the responsibility
of employers to provide medical benefits for the workerÊs family.

4.4.5 Insurance Benefits

The Industrial Court also does not reject the giving of insurance benefits to the
employees for a total amount that is more than that provided in the EmployeesÊ
Social Security Act 1969 (ESSA 1969) on condition that the employer is able to
provide it and the workers receive the benefits. This is because the protection
provided by the Social Security Organisation (SOCSO) is limited. For example, the
protection from SOCSO is only for any incident out of and in the course of
employment. Any protection other than that is not provided by SOCSO.
The courts recognised that employers may grant protection that is above the scope
provided for in SOCSO (namely, the protection out of and in the course of
employment). The extent of the protection is dependent upon the employer and is
dependent upon the capacity of the employers. For instance, in Poominathan
Kuppusamamy v Besprin Stationers Sdn Bhd (2003) 3 CLJ 118, the High Court held
that the Director of Labour committed an error in law for not recognising that the
group accident assurance formed part of the terms under the contract of service.
However, the general safety of the worker has to be considered at all times.
ACTIVITY 4.3
As an employee, what should you do if your employer does not

contribute towards your EPF? Share your answer with your
coursemates in the myINSPIRE online forum.
SELF-CHECK 4.2
List out the types of pecuniary benefits that would be provided by

the employer and other benefits that are not listed and are not
compulsory.
4.5 NON-PECUNIARY TERMS

The terms that are non-pecuniary in nature as provided by EA 1955 (Part XII) are,
among others, duration of work, overtime work, rest days, public holidays, annual
leave and sick leave. Meanwhile, leave regarding union matters has been provided
for in the Industrial Relations Act (IRA) 1967. Apart from this, the awards from the
Industrial Court have also provided several benefits when considering the current
situation.

4.5.1 Duration of Work

Section 60A(1) of EA 1955 has specified some rules relating to the working hours
of an employee. It does not allow an employee to work:
(a) More than 5 continuous hours without a rest period of at least 30 minutes;
(b) More than 8 hours in one day;
(c) More than 10 hours in the case of a spread-over period of a day; and
(d) More than 48 hours a week.
Spread-over period commences on the actual working hours inclusive of leisure

and break within 10 consecutive hours. Such hours of work are normally applied
in restaurants and the catering business. The following illustration will be useful:
If an employee at a restaurant works from 10am to 2pm and from 6pm to 10pm,
his spread-over period of work is more than 10 hours. As such, the employee is
entitled to an overtime pay of two hours.
Exceptions to the above rules are as follows:
(a) Generally, the maximum work hours of an employee is 8 hours. If an

employee is required to work 8 hours continuously, he is entitled to have at
least an aggregate of 45 minutes as a rest period (S.60A(d)(ii)); and
(b) In the event an agreement is concluded between both parties to work less than
8 hours per day on one or more days in the week, the total hours of work shall
not be more than nine hours per day or 48 hours per week. All these provisions
can be found in Section 60A(d)(iii);
(c) The employer can increase the working hours than what is provided in
Section 60A(1) but on condition that prior written permission is obtained
from the Director-General and after stating the reasons for the increase in the
hours of work;
(d) Section 60C(1) states that the employer can require the worker to work longer
than provided in Section 60A(1) for those involved in shift work. The worker
can be asked to work more than 8 hours on any day or more than 48 hours
in a week but the average hours in any three weeks must not exceed 48 hours
in a week; and

(e) Section 60A (2) allows an employer to ask the worker to work longer than
that in 60A (1) in these situations:
(i) Accidents, real or threatening, in or related to the workplace;
(ii) Work which is essential for the life of the society;
(iii) Work regarding the defence and security of Malaysia;
(iv) Work that has to be performed on machinery or plant;
(v) An unexpected disturbance to work; or
(vi) Work that should be performed by the workers in any industrial
activity that is necessary for the economy of Malaysia, or any necessary
service that is defined in Industrial Relations Act 1967.
Section 60A(7) states that no employer can direct his workers to work more than
12 hours in a day, except if he can show that one of the situations in 60A(2)
(a) – (e) exists.
If a worker is directed to work longer than what has been stated, his work is
considered as overtime work.
Regarding the time of work, the court gives discretion to the employer to modify
it in accordance with the needs of the company.
In the case of Sun Mix Concrete Sdn Bhd v Non-metallic Mineral Products
Manufacturing Employees Union (Award 115/1987), the court confirmed the
employerÊs power in deciding and modifying the time of work. However, this
power is subject to the law so that it is in accordance with the provision of the Act
and situation or type of work.
In the case of Norsecham Bhd v National Union of Petroleum and Chemical

Industry Workers (Award 28/1985), the court held that some collective agreement
appears to give absolute power to employers in modifying work time. However,
the courts shall interfere if the welfare of workers is affected. Thus, it is important
that employers discuss with the workerÊs union first.

4.5.2 Overtime Work

Section 60A(3)(b) defines overtime work as follows:
Definition
„Work hours carried out in excess of the normal work hours per day.‰
Any work exceeding normal hours a day, that is, from the beginning of work until
the worker ends for the day is considered overtime.
Section 60A(3)(a) states that for any work done beyond normal working hours, the
worker should be paid one and a half times the hourly rate regardless whether the
worker receives monthly, weekly, daily, hourly or at piece rate.
Normal work hours refer to the total work hours as agreed upon by the employer
and the worker in the contract of service.
However, Section 60A(8) states that it is not overtime if a worker is not involved
in active work or the job requires waiting longer periods. Such a situation was
discussed in Tara Singh v Chairman, Sailors' Institute Committee, Singapore (1959)
25 MLJ 1. The High Court observed that the worker after finishing his work as pool
attendant is at liberty to use the time to do other things such as helping the ticket
seller to sell tickets. The High Court opined that in such a situation, the worker is
actually not involved in active work and it does not constitute overtime. However,
in the case of Eng Giap Public Motor Bus Co. Ltd v Gan Eng Keng and 36 others
[1974] 1 LNS 32, in order to determine overtime hours, the Supreme Court divided
the actual period that the workers worked overtime and the hours where the
workers were on non-active duty.
Section 60I(1A) and (1B) provides for the formula of ordinary rate of pay (ORP).
This formula is important for determining wages during public holidays and rest
days, overtime wage, paid public holiday, paid annual leave and paid sick leave.
For a worker who is on a monthly rate of pay and weekly rate of pay respectively,
the ordinary rate of pay (means „wages‰ as defined in S. 2 of the EA but does not
include any payment after normal working hours) shall be calculated according to
this formula:
(a) Monthly rate of pay/26; and
(b) Weekly rate of pay/6.

The formulas for payment on daily rate, payment for sick leave for workers who
work at the normal rate of wages and so on are contained in Section 60I(1C) to
(1D).
S. 60I (3) provides that the Director-General can, upon the application of the
employerÊs approval in writing, allow any scheme of incentive payment as an
approved incentive payment. An approved incentive scheme will not be included
for the purpose of calculation of the ordinary rate of pay.
SELF-CHECK 4.3
What is meant by maximum work hours and overtime work,

according to EA 1955?
4.5.3 Rest Days

Section 59(1) of EA 1955 secures the right of an employee to enjoy his rest days as
follows:
Every employee shall be allowed in each week a rest day of one whole day as
may be determined from time to time by the employee and where an employee
is allowed more than one rest day in a week, the last of such rest days shall be
the rest day for the purpose of this part.
Rest days do not include maternity leave, sick leave during the period of
temporary disablement under the WorkmenÊs Compensation Act 1952 or under
the Employees Social Security Act 1969. In the case of an employee who is engaged
in shift work, any continuous period of not less than 30 hours shall constitute a rest
day. Section 59(1A) subsection (1B) empowers the Director-General to grant the
rest day for each week on any day of the month on which the rest day falls.
For employees who do not have fixed rest days, S. 59(2) states that a roster be
prepared to inform the workers when their rest days fall to enable them to make
choices as to whether to work on those days. An employer who contravenes this
section commits an offence under Section 59(4).

This was proved in the case of Sundram v Veemah (1972) MLJ 83 in which the court
stated that Section 59 does not provide choices to the employer except to inform the
workers in advance of the rest days and to prepare the roster to be displayed. This
facilitates the worker in preparing for his leave in advance and also to know when he
is qualified to do overtime work if required.
As per Section 60(1), no worker can be forced to do overtime on rest days unless
he is involved in work that has to be carried out continuously or continually by
shift work.
Summary for the rates of payment that should be received by the employee when
he works on rest days depend on the types of pay (see Table 4.1).
Table 4.1: Summary for Rates of Payment for Rest Days
Work on Rest Days Pay Received
Daily or hourly pay – Section 60(3)(a)

• For work done that does not exceed 1 dayÊs wages
half of normal hours of work
• For work done more than half but does 2 daysÊ wages
not exceed normal hours of work
• For work done exceeding normal
2 x hourly rate of pay x hours worked
hours of work - Section 60(3)(c)
Monthly pay – Section 60(3)(b)

• For work done that does not exceed ½ dayÊs wages
half of normal hours of work
• For work done more than half but does 1 dayÊs wages
not exceed normal hours of work
2 x hourly rate of pay x hours worked
• For work done exceeding normal
hours of work
Piece-rated pay – Section 60(3)(d) 2 x ordinary rate per piece
4.5.4 Annual Leave

Section 60E(1) stipulates annual leave as follows:
(a) 8 days if employed for less than 2 years;
(b) 12 days if employed for 2 years or more but less than 5 years; and
(c) 16 days if employed for 5 years or more.

If an employee has not completed 12 months of continuous service and his service
is terminated in that year, he is entitled to be paid annual leave in direct proportion
to the number of completed months of service with the condition that where the
fraction of a day of annual leave that is calculated is less than half a day or more,
it must be considered as one day. However, his right to enjoy such leave is denied
if he is absent without the permission of the employer and without reasonable
basis for more than 10 per cent of the working days during the 12 months of
continuous service.
While on annual leave, an employee is entitled to sick leave or maternity leave. As

such, the worker is to be given sick leave or maternity leave and the annual leave
is regarded as not used (Section 60E[1B]).
For employees who are terminating their services, they are allowed to take their
paid annual leave in that year where termination occurred. In addition, all the
accrued leave for the months of service in that year can be taken (Section 60E [2A]).
If the contract of service has been terminated by either party before the employee
takes his paid annual leave, the employer must pay the worker the normal wage
rate for each day of the leave, except in the case of the employee being dismissed
after due inquiry for misconduct (Section 60E[3A]).
SELF-CHECK 4.4
What is the effect if a worker is asked to work overtime on public

holidays?
4.5.5 Sick Leave

Section 60F(1) states that sick leave can only be taken after an examination paid by
the employer performed by:
(a) A registered medical practitioner appointed by the employer; or
(b) Any other medical practitioner or medical officers if the above is unavailable
due to distance, type of sickness and time.
An employer may require his worker to give a reasonable reason for obtaining sick
leave from a non-appointed medical practitioner. In Silverstone Bhd v Ramal
Muthusamy (2011) 3 ILR 477, the High Court held that an employer has the right
to ask for a written explanation to determine whether it is justifiable for the worker

to obtain sick leave from a non-appointed medical practitioner. This is important

for the employer to decide whether to accept the sick leave as paid sick leave.
Section 60F(1)(aa) states the following leave entitlement if the worker does not
require hospitalisation:
(a) 14 days if the worker has worked less than 2 years;
(b) 18 days if he has worked more than 2 years but less than 5 years; and
(c) 21 days if the worker has worked more than 5 years.
Section 60F(1)(bb) states that if hospitalised, the worker gets 60 days of leave for
each year. A doctorÊs confirmation is required for hospitalisation. If the employee
is not hospitalised, he is still entitled for 60 days of leave.
Section 60F(2) states that a worker is said to have absented himself without the
employerÊs permission and without good reasons if he takes sick leave that is:
(a) Not confirmed by a registered medical doctor under Subsection (1) or by a
dentist as provided in (1A); or
(b) Confirmed by a doctor or dentist but he fails to inform the employer within
48 hours after such leave.
The employer has to pay the ordinary rate of pay for every day of the sick leave
and if the monthly wages has no deduction of the sick leave then it is said that the
sick leave has been paid for – Section 60F(3). Employees under maternity leave,
incapacity leave under SOCSO Act 1969 and Compensation Act 1952 are not
entitled to paid sick leave.
4.5.6 Public Holidays

According to Section 60D(1), every worker is entitled to paid holidays in a calendar
year as follows:
(a) For 11 days as gazetted, 5 of which shall be:

(i) National Day
(ii) Birthday of Yang Di-Pertuan Agong;
(iii) Birthday of Ruler or Yang Di-Pertua Negeri or Federal Territory Day;
(iv) Workers Day; and
(v) Malaysia Day.
(b) On any day declared under Section 8 of the Holidays Act 1951.
According to Section 60D(1), if any of the public holidays referred to in
paragraphs (a) and (b) falls on a rest day, the following work day would then
become the holiday as a replacement.
Among the gazetted holidays are:

(i) Hari Raya Puasa;
(ii) Hari Raya Haji;
(iii) Chinese New Year;
(iv) Labour Day;
(v) Wesak Day;
(vi) Maulidur Rasul;
(vii) Deepavali; and
(viii) Christmas Day.
Among the state public holidays are birthday of the Sultan, Yang Di-Pertua Negeri,
Awal Ramadhan, Thaipusam, Nuzul Quran and New Year. If the public holiday
falls on a rest day, the worker has the right to a holiday the following day. This is
provided under Section 60D(1)(b).
According to Section 60D(1A), the employer and worker can also have an
agreement that any of the identified paid holidays can be replaced by another day
as paid public holiday.
Section 60D(1B) determines that if the public holiday falls on sick leave, annual
leave or during a period of incapacity, the holiday must be replaced with another
day as a paid holiday. This is as per EmployeesÊ Social Security Act 1969 or
WorkmenÊs Compensation Act 1952.
Section 60D(2) states that if a worker does not attend the day before or the day
after the public holiday without consent of the employer, he is not entitled to get
any payment for the public holiday unless he has good reasons.

Section 60D(3) states the wages to be paid while working on holidays. As an

additional payment for the holiday, the employee also gets:
(a) Two daysÊ wages at the ordinary rate of pay if he has taken to work monthly,
weekly, hourly or any other rate; or
(b) Twice the ordinary rate of pay for the work done if he has taken to work at
the rate according to work.
The right of the employee to this payment is fixed although the duration of work
on that day is less than the normal working hours.
However, if the employee is required to work overtime beyond the normal

working hours, Section 60D(3)(aa) states that the worker can get three times than
the hourly rate. Subject to the conditions of the agreement, travelling allowance
must also be provided by the employer for the journey to and from work.
Section 60D(4), however, provides that if any public holiday falls on a half
workday, the normal wage rate that is applicable must be the wage rate for a full
workday.
SELF-CHECK 4.5
List out the public holidays and discuss annual leave in EA 1955.
4.5.7 Maternity Leave

The right of a female employee with regard to maternity leave has been discussed
earlier in various subtopics mentioned under pecuniary and non-pecuniary
benefits.
ACTIVITY 4.4
What are all the deliveries classified as maternity leave and given the
right of leave as provided in EA 1955?

• Pecuniary terms refer to the terms in a contract of service that concerns the
financial aspect. They include wages or salaries, allowances, bonuses, ex-gratia
payments and other pecuniary benefits.
• There are many types of allowances recognised by the courts. Among them are
attendance, call, living, food and housing allowances.
• Bonus is an incentive towards the services provided by employees. However,

ex-gratia payment does not have a strict definition; it can mean compensation.
• Pecuniary benefits are benefits that are not provided for in EA 1955. They can
include dismissal, retrenchment or discontinuance allowances, retrenchment
benefits, retirement benefits, medical benefits and insurance benefits.
• There are terms that are non-pecuniary in nature as provided by EA 1955 (Part
XII). These include duration of work, overtime work, rest days, public
holidays, annual leave and sick leave.
Duration of work Overtime work

Existing benefits Pecuniary benefits
Ex-gratia payment Rest days
Leave Wages
Ordinary rate of pay
cljlaw.com

Minimum Wage Order 2013
National Wages Council Consultation Act (Act 732)
Ellen Burke.

Topic  Management
Prerogatives
5
LEARNING OUTCOMES
1. Identify the prerogative power of the employer;
2. Decide on the limits in which employers can use their
prerogatives; and
3. Explain the rights of workers.
 INTRODUCTION
In the world of employment, we know that employees have certain responsibilities
towards employers. These responsibilities are stated in the contract of service.
What about employers? Apart from the responsibility of paying wages and other
benefits, what are other responsibilities of employers towards their employees?
Can they raise the rank of an employee as they like? Can they transfer or dismiss
an employee as they like? What are the rights of employees if they are unhappy
with the actions of their employer?
All these questions are in fact related to the prerogative of employers. The meaning
of management prerogative is that the employer is empowered by law to act or to
decide on matters pertaining to their business organisation and employees. The
employee cannot question the decision of the employer if it is done in compliance
with the rules and laws prescribed.

82  TOPIC 5 MANAGEMENT PREROGATIVES
5.1 EXERCISING PREROGATIVE

The terms in a contract of service usually state clearly the rights and
responsibilities of the employer and the employee. It is aimed at protecting and
preserving the interest of the employer and the employee from being exploited by
any party and ensuring harmony in industrial relations. As such, the laws
recognised employersÊ right to manage their business, known as management
prerogatives, to smoothen and create effective management. As a result, there are
regulations, laws and ethics apart from mainstream labour laws that govern
employees. Compliance by employees will ensure that the employer can achieve
its organisational goals easily.
In Elya Designs Sdn Bhd v Mahkamah Perusahaan Malaysia & Anor [2011] 3 CLJ
929, where Mohd Zawawi Salleh J. stated in page 944: „The court should be
mindful of the fact that every business strives to keep afloat during these times
when prevailing economic situations turns such endeavour into a near struggle.
With as much latitude as our laws would allow, the court has always respected a
companyÊs exercise of its prerogative to devise means to improve its operations.
Thus, courts have held that management is free to regulate, according to its own
discretion and judgment, all aspects of employment, including hiring, work,
assignments, working methods, time, place and manner of work, processes to be
followed, supervision of workers, working regulations, transfer of employees,
work supervision, lay off of prerogative, whenever exigencies of the service so
require, to change the working hours of its employees‰.
Definition and Provision of Law
The meaning of management prerogative has not been given a precise definition
by any Act that is relevant to industrial relations.
The Oxford Dictionary defined it as follows:
Definition
Prerogative means the specialty that is given by the law to a person or an
organisation of an action or decision of which it cannot be challenged by the
bodies of law.

TOPIC 5 MANAGEMENT PREROGATIVES  83
In the context of employer-employee relations, prerogative means that the

employer has management rights over its workers. The employer has the right to
make decisions in certain matters. The decision made cannot be challenged
provided it is done fairly and in compliance with the law.
There are a few provisions, either Employment Act (EA) 1955 or Industrial
Relations Act (IRA) 1967, which impliedly address the rights of employers. Prior
to the amendment of Section 13(3) of IRA 1967, matters provided under item (b)
till (f) cannot be raised during collective bargaining. However, with the
amendment, workersÊ unions may now raise matters of the said items which were
previously within the ambit of management prerogatives. Due to that, other
examples with regard to employersÊ prerogatives are as follows:
(a) Section 5(2) of IRA 1967 empowers the employer with regard to suspending,
transferring, terminating or excusing a worker for specific reasons.
(b) Section 14(1) of EA 1955 has a similar provision. It enables an employer to
dismiss, reduce the rank or impose other punishments that are lighter and
fair on the employee for misconduct, subject to due inquiry.
ACTIVITY 5.1
Management prerogatives refer to the rights given to employers to
make decisions. Explain the meaning of management prerogative
and whether it is an absolute thing. Share your answer with your
5.2 PREROGATIVE POWER AND ITS

LIMITATIONS
The court usually does not interfere with management prerogatives except where
there is an element of exploitation or unfair labour practice. This means the
enforcement of a management prerogative has breached the laws.
The stand of the court was expounded in the case of Lim Sim Tiong and Six Others
v Palm Beach Hotel Sdn Bhd (Award 48/1974):
„It is a principle of law that the courts shall not interfere in a bona fide action by
the employer that is sanctioned by the common law and the contract of service or
the inherent powers of the management itself. If there is no misuse of

discrimination, no uncertain action which is excessive...if the employer has acted

in good faith and based upon fair investigation, the courts shall not disturb the
findings of the employer...‰
In short, as long as the employer has acted fairly in arriving at a decision, the court
shall not interfere with the matter.
The question that arises regarding this is whether the power is exclusive or
absolute. Are such powers subject to limitations? What if employers misuse these
powers? What can be done by the employees if they are unhappy with the decision
of the employer?
This question has been discussed in several cases. For example:

In Samsaon a/l Das v Kelab Lumba Kuda Perak LNS (2012) 1 121, the High Court
on the appeal against the decision of the Labour Court held that while the
employer has the prerogative in managing the organisation, it does not mean that
such prerogative is absolute. There need must be genuine and bona fide. In this
case, the High Court further held that decision to instruct the appellant not to
perform racing duty, thus depriving his remuneration from racing allowance was
tainted with mala fide as evidence adduced shows the Operation Manager was not
satisfied with the appellant for using the conference room to perform racing duty.
In Ming Court Hotel v National Union of Hotel, Bar, Restaurant Workers (1987)
2 ILR 25, the Industrial Court referred to the decision in All Malayan Estate Staff
Union v Malayan Agricultural Producers Association (Award 120/78) and
decided as follows:
„The courts here and in other Commonwealth countries have decided that the
employerÊs prerogative is not absolute. If there exists a labour practice which is
unfair or if there is exploitation, the Industrial Court will not be reluctant to
withdraw such prerogative⁄‰
In the case of Pentex Sdn Bhd v Penang and Prai Textiles and Garment Industry
Employees Union (1988)2 ILR 648, the Industrial Court decided that the
prerogative of the employer is based on certain limitations. Any enforcement that
is not done properly can be challenged in court.
This means that while exercising management prerogatives, the employer is

bound to ensure compliance to regulations and procedures that have been made.
For example, if there is a provision that the confirmation of an employee can be set
aside by the management provided the management issues a warning letter prior
to setting aside the confirmation, then the proper mode of action would be as such.

In this case, the prerogative power of the employer has become qualified. The
employer cannot deny the confirmation of the employee if it does not provide a
prior warning letter to the employee concerned.
Management has been given prerogatives to ensure smooth administration and

discipline of workers. For this purpose, the employer shall invoke different laws,
regulations and ethics apart from those provided by the courts. However, these
should not be used recklessly. For better comprehension, we shall look at examples
of matters that fall under management rights.
ACTIVITY 5.2
In your opinion, are the prerogatives of the employer subject to
limitations?
5.2.1 Recruitment of Workers

The employer has the right to employ or not employ a worker based on his needs.
He cannot be forced by anyone to decide on this. However, it will be against the
law if the employer rejects or refuses to hire an employee based on the reason that
he is a member of the workersÊ union (S.5(1)(b) of IRA 1967).
5.2.2 Placement and Training

The Industrial Court feels that any matter that deals with work such as the form of
work, its description, specifications, evaluation and grading, classification of work
and any such matter is the prerogative of the employer.
This was decided in the case of Malaysian Agricultural Producers Association v

All Malayan Estate Staff Union (1982) 1 ILR 127. The court decided that the
classification of work is rightfully that of the employer and the courts will only
interfere if necessary.
In the case of Malayan Commercial Banks Association v Association of Bank

Officers (1992)2 ILR 146, the court emphasised that the classification of work is the
function of management. If the workersÊ union finds that the list of duties is not
the same as the contract of service, then the union can contest this issue.
Alternatively, if there is an increase in the workload, then more wages can be
sought. However, the union cannot direct the employer to follow the workerÊs
function that was set by the union for this is a clear intervention into the
prerogative of the employer.

The employer can decide whether training is required. The worker cannot contest
this matter unless there is a clear breach of laws or unfair labour practice.
In the case of NSTP Bhd v National Union of Journalists (Award 250/1988), the
workersÊ union claimed that the employer should provide the necessary training
for journalists as this was agreed upon earlier. The company claimed that it was
its prerogative. The court agreed with the company and left it to the company to
determine its training methods.
5.2.3 Promotion and Transfer of Workplace

In the case of Hotel Perdana v Kesatuan Sekerja Pekerja-pekerja Hotel, Bar and
Restoran Kebangsaan (Award 226/1984), the Industrial Court decided that the
aspect of promotion of workers was the right of the employer based on certain
criteria and terms that had been decided. It said thus:
„The right to promote an employee or otherwise is an administrative one, and thus

it is related to the power of the employer. However, the request that a present
employee be given preference as against an outside employee to fulfil a higher post
and, in the event of such promotion, be given terms and conditions that
commensurate with the promotion does not affect the prerogative of the
management⁄.‰
In this case, the court explained that the issue of promotion is a prerogative right
of the employer but the worker can question the employerÊs procedural
compliance. Thus, the prerogative of the employer is not absolute but is subject to
its compliance of established procedures. However, the employee has no right to
set criteria or guidelines for promotion and neither can it decide who is to be
promoted. The court provided this rule in the case of Kolej Tuanku Abdul Rahman
v Kesatuan Akademik KTAR (Award 257/1991) when the union suggested that
the employer follow the guidelines set when considering promotions.
Regarding the issue of transfer, the following cases are relevant to understand the
courtÊs stand.
In the case of Assembly Services Sdn Bhd/UMW Engineering Sdn Bhd and UMW
holdings Sdn Bhd v Kesatuan Kakitangan Penyeliaan (1985) 1 ILR 489, the court
decided that the transfer of a worker from one department to another, from one
branch to another or from one company to another within the same group is the
prerogative of the management. The Industrial Court shall not interfere if this is
done in good faith.

In the case of Assembly Services Sdn Bhd, the court referred to GhaiyeÊs
Misconduct in Employment (Ghaiye, 1977), which stated that the power of the
employer in ordering the transfer of workers depended upon the following factors:
(a) That it does not run counter to the terms and conditions of work;
(b) The employer acts bona fide and in the interest of the business;
(c) The employer is not motivated by mala fide intent;
(d) The transfer is not to disturb or exploit the worker; and
(e) The transfer does not bring changes to the form of services to be rendered by
the employee.
The principle in Assembly Services Sdn BhdÊs case was followed by other cases. In
the case of Malayan Racing Association v Ong Huat Leng (1995) 2 ILR 72, the
transfer of the employee caused disruptions as well as economic losses to the
employee. Furthermore, the failure of the employer in obtaining consent prior to
the transfer or giving notice thereof was considered an exploitation of the
employee concerned.
The stand of the court is to avoid injustice to the worker because in some cases the
transfer of workers is actually a demotion of the worker himself.
In the case of Oversea Chinese Banking Corp v National Union of Bank Employees
(Award 252/1984), a worker was transferred from one post to another although
the salary was maintained as before. This meant there is a change of status in work
and the court was of the view that it was not done bona fide but was calculated to
lower the status and esteem of the worker.
The court decided that the action of the employer was not appropriate and thus
decided:
„The transfer of an employee is an integral management function and is the

prerogative of the employer and this is well established in industrial law. It is also
well established that this prerogative is not absolute and is subject to certain
limitations, one of which is that the employer should not resort to transfer mala
fide, by way of victimisation, unfair labour practice or for some other ulterior
motive such as by way of punishment. Whether or not a transfer is bona fide or
mala fide is a question of fact.‰
From these decisions, it is apparent that the employer does not have absolute right
to transfer workers even to another branch without observing the regulations that
have been set down earlier.

ACTIVITY 5.3
Can the employer transfer an employee to a lesser job but with the
same salary?
5.2.4 Principle in Reducing Workers

The law provides the rights to the employer to decide on the number of employees
it wants. This gives the employer the right to reduce or stop the number of
employees required if there is an excess or overlap of work caused by the closure
of business, restructuring, amalgamation, mergers, takeovers, reduction in
production or change in technology. Even though this is a prerogative of the
employer, it is subject to the laws.
In Radio and General Trading Sdn Bhd v Pui Cheng Teck and Ors (1990) 2 ILR 242,
the court decided that the employer can decide on the strength of its labour force
as per the effectiveness of its organisation. The courts shall not interfere in this
regard as long as the decision is based on reasonable grounds, without mala fide
intent, exploitation or represents unfair labour practice. The court considered the
reduction of employees to be fair if the factors in Figure 5.2 are followed.
Figure 5.1: Considerations for the reduction of workers
Therefore, the courts have to consider the case before deciding whether the
termination of workers is fair. The burden is placed on the employer to show that
there is an overlap of work. If the employer succeeds in this, then it has to show
that it has followed the regulations. If both the answers are positive, then the
reduction is considered bona fide. Otherwise, the reduction of workers shall be
considered as mala fide and invalid.

ACTIVITY 5.4
State the differences between bona fide and mala fide.
Apart from the questions mentioned, the court will also consider the procedure of
choosing which employees to terminate. The factors in Figure 5.3 are usually
considered.
Figure 5.2: Procedure of selecting workers for termination
(a) Compliance with Acts and Statutes

There are three provisions in the statutes regarding the procedure of
dismissal, which are as follows:
Compliance with Acts and Statutes
S.12(1) of Employment of Act 1955
• Notice must be given before a dismissal.
• The duration of notice depends upon the length of service

(S. 12(2)).

Rule 4 of Employment (Termination and Lay-off Benefits)

Regulations 1980
• Requires the employer to pay termination benefits in the

case of termination for whatsoever reason except
voluntary resignation, retirement and dismissal due to
misconduct.
S.63 of Employment of Act 1955
• The employer must report to the nearest Labour Office

one month before the retrenchment exercise.
(b) Collective Agreement

If the collective agreement has a provision on termination, it must be
followed. The employer cannot circumvent the provision by just paying a
compensation.
In the case of Dunlop Industries Employees Union v Malayan Industries Bhd

(1987) CLJ Rep 86, the Industrial Court cancelled the action of dismissal by
the employer and ordered the reinstatement of the employee because the
employer had not followed the collective agreement.
(c) Principle of Last In First Out (LIFO)

The Federal Court in Supreme Corp Bhd v Doreen Daniel and Ong Kheng
Liat (1997) 2 ILR 522 decided that LIFO is not mandatory or the only criterion
in the reduction of employees. If the employer has certain reasons, he can set
aside the use of LIFO in reducing workers.
In the case of Daihatsu (Malaysia) Sdn Bhd v Kesatuan Kebangsaan Pekerja-

pekerja Komersil (1999) 1 ILR 705, the Federal Court ordered the
reinstatement of the employee as there was non-compliance with the
collective agreement by the employer.
However, in the case of Nusantara Sakti Sdn Bhd v Surinderjit Singh Atma
Singh (2000) 2 ILR 294, the Industrial Court was of the view that if LIFO was
not followed, then the dismissed employee was entitled to compensation.
The method of determining seniority was decided in the court case of

Aluminium Company of Malaysia v Jaspal Singh (1987) 2 ILR 258, which
stated that:

„The seniority is decided based on the same category of workers. It is the

consideration of the length of service in one particular category and not on
the length of service in other categories⁄.‰
(d) Bona Fide

The action by the employer shall be considered bona fide if it is done based
on good labour practices, performed fairly and without any elements of
exploitation. In Mohanjit Lubana lwn. General Electric Inc. (2016) 2 ILR 628,
the Industrial Court decided that the dismissal of the claimant was
unjustified as evidence adduced showed that the role and functions of the
claimant were not diminished but merely taken over by another employee
and the related department had not been closed down.
In conclusion, the court shall not interfere in the case of stoppage of work if
it has been done in compliance with established procedures. This goes to
show that the employerÊs prerogative is not absolute.
SELF-CHECK 5.1
The courts have said that in stopping workers, there are several
conditions to be fulfilled, namely:
(a) Compliance with the statute
(b) Compliance with the collective agreement
(c) Compliance with LIFO
(d) Bona fide
Discuss each condition in detail.
5.2.5 Retirement and Resignation

Retirement is the prerogative of the employer but can only be enforced based on
the reasons of health, age, death and the like. However, by virtue of the enactment
of the Minimum Retirement Age Act 2012, retirement due to age may no longer be
appropriately described as falling within management prerogative. Even so, the
Act does not prohibit employers in exercising their prerogative in setting a higher
retirement age.

The following discussion provides some significant legal framework relating to

retirement upon attainment of a certain age. Resignation is, however, the right of
the employee and can be enforced at any time.
The difference between retirement and resignation was highlighted in the case of
Fung Keong Rubber Factory Employees Union v F K Manufacturing Sdn Bhd
(Award 179/1981) as follows:
„Retirement occurs because of natural causes such as age, health or death but
resignation is the employeeÊs voluntary action even before retirement is due.‰
In the case of retirement, the payment of gratuity is not paid if such provision is
absent in the collective agreement.
The age of retirement and extension of the retirement age is the prerogative of the
employer. In the case of Syarikat Emastulin Sdn Bhd v S Kathereson and Lai Kow
(1988) 1 ILR 311 it was decided that:
„⁄the general method of deciding on the retirement age is 55 years. If the

employee is able and willing to continue beyond this age, it is up to the discretion
of the employer to allow this. Some employers allow extension of retirement to 60
years of age while some extend to periods of two, three or four years. In the
Malaysian context, the age of retirement is 55 years⁄‰
In the case of Perak United Sdn Bhd v Timber Employees Union (1986) 2 ILR 860
the court decided thus:
„... S.12(2) of the EA 1955 applies to termination of service and does not apply to
retirement from service. As such, we hold that no notice need be given by the
company and no pay in lieu can arise⁄‰
The above case indicates the rights of the employer to decide on the retirement age
of employees and to decide on extension of service after retirement age. However,
upon the enactment of the Minimum Retirement Age Act 2012 (MRA 2012) on 5
August 2012, the minimum retirement age for private sector employees was set at
age 60. The term „retirement‰ is defined in S. 2 of MRA 2012 as termination of a
contract of service of an employee on grounds of age.

This statutory retirement age is applicable to private sector employees who have
entered a contract of service irrespective of wages but does not include nine
categories of employees as follows:
(a) A person who is employed on a permanent basis;
(b) A person who is employed on temporary or contractual basis and is paid
emoluments by the Federal Government, any statutory body or any local
authority;
(c) A person who is employed on probation;
(d) An apprentice,
(e) A non-citizen employee;
(f) A domestic servant;
(g) A person who is employed in any employment with average working hours
not exceeding 70 per cent of the normal working hours of a full-time
employee;
(h) A student who is employed on a fixed-term contract of not more than 24
months; and
(i) A person who has retired before this law comes into effect at the age of 55
and is re-employed (Schedule of the MRA 2012).
The MRA 2012 (S.5(1)) makes it an offence to retire an employee before the
employee attains the age of 60. Failure on the part of the employer to comply with
this provision may cause him to be convicted of an offence punishable with a fine
not exceeding RM10,000 (S.5(2)). Alternatively, MRA 2012 (S.8(1)) provides that an
employee who has been retired prematurely by the employer may choose to lodge
a complaint with the Director-General of Labour within 60 days from the date of
retirement. An inquiry will be conducted and if it is proven that the employee has
been retired prematurely, the employer may be ordered to reinstate with back
wages up to the date of reinstatement or to pay compensation according to the
amount of wages from the date of premature retirement until the minimum
retirement age or the employer may utilise the option of claiming unlawful
dismissal under S. 20 IRA 1967 (S.8[2]).
Irrespective of the minimum retirement age, an employee may retire when he

reaches the optional retirement age agreed upon in the contract or collective
agreement (S.6). Any retirement age specified in a contract of service or collective
agreement made before or after the coming into operation of the MRA 2012 which

is less than 60 years will be deemed void (S.7[1]). The MRA 2012 (S.7[2]) also does
not allow the exclusion or limitation of its provisions through any terms in a
contract of service of the collective agreement.
Regarding resignation, it is the prerogative of the worker and cannot be

interrupted by the employer. The employer cannot inflict any influence or force on
the employee to resign as it shall then be construed as unlawful dismissal and that
can allow the employee to take action against the employer.
In the case of Bata Bhd v Noormadiah Abu Suood (Award 323/1991), the employee
gave evidence that the employer had said, „if you do not resign, the company shall
terminate you⁄‰
The Industrial Court held that such words constitute force on the worker to resign
and can be construed as unfair dismissal.
ACTIVITY 5.5
In your opinion, is it appropriate to retire at the age of 60 years? Share
your opinion with your course mates in the myINSPIRE online
forum.
5.2.6 Termination and Dismissal

Raja Azlan Shah, FCJ in the case of Goon Kwee Phoy v J&P Coats (M) Bhd (1981)
1 LNS 30 said thus:
„We (the court) did not see any difference between termination with notice and
dismissal directly. The effect is the same and so are the consequences⁄‰
According to the law, „termination‰ refers to the end of a contract of service. It can
be performed by either party with or without notice. Common excuses for
termination include the duration of the contract is over or the contract has been
duly performed.
„Dismissal‰ refers to termination by the employer without any notice and reasons
regarding the breach of contract of service. This term was exemplified in Chin
Thoong Sam v Shell Malaysia Trading Sdn Bhd (Award 52/1997) as follows:
„⁄dismissal is seen as a consequence of an act that breaches the terms, either

express or implied, in a contract of service⁄‰

Definition
Dismissal means the loss of work as a result of several elements involving
mistakes or wrongdoings by the worker himself.
Usually, disciplinary action can be imposed upon an employee who has breached
the terms and he can be dismissed straightaway if his wrongdoing is proven to be
serious and cannot be forgiven.
There are two modes of dismissal that can be used by the employer as shown in
Figure 5.4:
Figure 5.34: Two modes of dismissal
For dismissal with notice, EA 1955 has provisions as shown in Table 5.1.
Table 5.1: Dismissal with Notice
Section Explanation
S. 11 • If an employee is hired to work for a period, his contract ends upon

completion of that duration.
• If an employee is employed to do a specific work, his contract expires
once the work is completed.
S. 12(1) • The employer and worker can terminate their contract by giving notice
and (2) to the other party.
• The duration of the notice is based on the length of the service:
– 4 weeksÊ notice if length of service is less than 2 years of work;
– 6 weeksÊ notice if length of service is more than 2 years but less
than 5 years; and
– 8 weeksÊ notice if length of service is more than 5 years.

S. 12(3) In the following conditions, the employer must give notice of dismissal to
the employee in the event:
• The employer wishes to end his business;
• The employer wishes to end the business at the place where the contract
of service was signed for the worker to work;
• The demand for the work performed by the employee has diminished
or no longer exists;
• The demand for the work performed by the employee at the place
where he was contracted to work has diminished or no longer exists;
• The worker refuses to accept a transfer; and
• There is a change in ownership of the business.
In Radtha D/O & 358 Ors. v. Dunlop Estates Berhad (1996) 1 CLJ 755, the Court of
Appeal in a majority decision decided that issuance of notice of termination under
S. 12 (2) EA 1955 was compulsory when the workers were re-engaged by the new
employer who took over the ownership of the former employerÊs business. In such
an instance, S12(3) is applicable.
Section 13 of EA 1955 provides some provisions regarding dismissal without notice

(see Figure 5.5).
Figure 5.4: Dismissal without notice
The meaning of „wilful breach of the contract of service‰ that is referred to in S. 13

of EA 1955 is considered in Section 15. This situation arises out of two situations,
namely:
(a) Section 15(1) – The employer is deemed to have breached the contract of
service if the employer failed to pay wages to the worker; or
(b) Section 15(2) – The worker is deemed to have breached the contract of service
if the worker failed to attend work for two days continuously without a good
reason or permission.

In Kilang Beras Ban Eng Thye Sdn Bhd v Yaacob bin Mohd Noor Mohamed &
Anor. (1997) 1 LNS 201, the High Court held that when the employer failed to pay
wages as per S. 19 EA 1955, it is deemed that the contract of service had been
breached and the contract may be terminated under S. 13(2) EA. The employer
needs to provide satisfactory justification to remedy such a breach.
In Dharmaraja @ Abd Malik a/l Abd Wahab v Asian Ceramics Sdn Bhd (2000)
5 CLJ 207, the High Court held that in order to invoke a breach of contract of service
by the employee under S.15(2) EA 1955, the employee must be absent from work
for more than two consecutive working days.
Further provisions in EA 1955 on dismissal are as follows:
Section 14(1) of EA 1955 allows the employee to be dismissed without notice

with regard to the misconduct, provided there has been a domestic inquiry with
regard to the misconduct prior to that.
Section 14(3) of EA 1955 provides for dismissal without notice if there is an

immediate threat towards the employer or his dependents, or exposure to a
dangerous disease that disables an employee from performing his work.
The implication of S. 14(1) of EA 1955 is that it imposes the condition for an

employer to exercise his management prerogative, in other words, to dismiss an
employee without notice. The Section requires the dismissal to be performed fairly
and with justice, and after a process of domestic inquiry. Otherwise, the decision
of the employer can be challenged by virtue of S. 69(3) EA 1955 where the decision
to dismiss can be set aside by the Labour Court. In Yeo Hiap Seng Trading Sdn
Bhd v Lim Lee Choon (2004) 1 CLJ 634, Justice Low Hop Bing in his judgment held
as follows:
„The requirement for a 'due inquiry' under S. 14(1) of the Act is a statutory
expression of the fundamental common-law principle of natural justice, audi
alteram partem, a breach of which would vitiate the judicial or quasi-judicial
decision made‰.

Alternatively, the Industrial Court may order a reinstatement of the worker. The
provision under Part VI (Section 20) of IRA 1967 provides the following:
(a) Any worker, whether a member of any workersÊ union or otherwise, can
apply in writing to the Director-General of Industrial Relations (DGIR) for
reinstatement;
(b) Representation must be filed within 60 days from the date of dismissal. If the
dismissal is by way of notice, then the representation can be made within the
time of the notice but not after 60 days from the date of expiry of the notice,
according to S. 20(1A); and
(c) The DGIR can attempt to resolve the matter through reconciliation. If it
cannot be settled amicably, he will refer the representation to the Industrial
Court for an award (S.20[3]). This is a new development with the amendment
of IRA 1967 which previously provided that the DGIR needs to refer to the
Minister, who will decide whether to refer the matter to the Industrial Court.
In the case of Aliah bt Yassin v Chartered Bank (1981) 1 ILR 288, the court decided
as follows:
„⁄the employer is empowered to end the service of the worker whether with
notice or by paying wages in lieu of notice. If the dismissal is made as per the terms
but is unfounded and without excuse, it is considered as dismissal without cause
or reason⁄‰
In the case of Federal Hotels Sdn Bhd v Tong Khai Chan and Mak Ghee Thong
(1989) 2 ILR 107, the court stated thus:
„This Court has often stated that for it to uphold dismissals for being with just
cause or excuse, the employer has the obligation first to provide competent and
convincing evidence in Court: the employer bears the burden of proof. In short,
the employer must supply convincing evidence that the workman committed the
offence(s) for which he was dismissed. It is up to the employer to prove the
workman ÂguiltyÊ, and not the workman who must prove himself Ânot guiltyÊ.
Were this not so, the protection given to the workman against dismissal without
just cause or excuse would be worthless. Secondly, the employer must show that
he acted reasonably in forming his view of the facts. Thirdly, the evidence must
show that he had adopted a reasonable procedure of inquiry before a decision to
dismiss, and if he did not, good reasons for not doing so. Lastly, he must convince
the Court that he acted reasonably in deciding that dismissal was warranted in the
circumstances of the case‰.

The court also made its stand in the case of Great Wall Sdn Bhd v Gan Shang Eng
(1988) 2 ILR 257:
„It is well established and well known that before an employer can dismiss any
workman, there must be just cause or excuse. The just cause or excuse must be
based on the facts of each case, either a misconduct, negligence or poor
performance‰.
These provisions demonstrate that the prerogative power of the employer in

effecting dismissal is limited by laws and procedures. The dismissal must be done
fairly and with just cause and reason. Otherwise, it shall be construed as unfair
dismissal.
Dismissal During Probation
Definition
Probation period means the period specified in the contract of service that
must be fulfilled by a worker before he can be confirmed in his position.
During this period, the capability and qualification of an employee shall be tested
and evaluated to ascertain if he is truly qualified for the job. Such an employee is
called a trainee worker or a probationer.
In the case of Khaliah Abbas v Pesaka Capital Corporation Sdn Bhd (1997) 3 CLJ
827, Justice Shaik Daud said that even though the word „probation‰ is undefined
in Section 2 of IRA 1967, the word „apprentice‰ is stated and an apprentice is
actually a worker on probation.
In law, a trainee worker under probation has the same rights as a worker who has
been confirmed in his job. In the case of Khaliah Abbas, the Court of Appeal stated
that a trainee worker has the same rights as a confirmed worker. Therefore, her
dismissal without just cause and reason is not allowed.
What if a trainee worker is dismissed before his period of probation ends?

In the case of Jusco Florist v Tan Mooi Hun (1987) 2 ILR 176, the court decided
thus:
„⁄ even if the law recognises that the employer has the right to dismiss a worker
during probation without reason, the courts have the right to decide if there was
mala fide intent, or whether it was unfair dismissal without just cause and reason,
and the court can order that relief be granted under special circumstances⁄.‰
In the case of Sulnayah Hj Mohd Isa v Sekolah Kanak-kanak Pekak Selangor (1999)
6 CLJ 234, the court decided that the employer has no right to terminate the service
of an employee before the period of probation has expired, except on the grounds
of misconduct or other sufficient reasons in which case even the service of a
permanent employee can be terminated.
The decisions in the cases presented illustrate that the courts recognise the rights
of an employer to dismiss an employee during the probation period, provided that
all the procedures of warning and necessary regulations have been complied with.
ACTIVITY 5.7
Ahmad is a trainee with Syarikat Putra Holding. In the second month

that he worked with the company, he was found to have visited
pornographic websites using his companyÊs computer. Faizal, the
employer, dismissed Ahmad with immediate effect. In your opinion,
did Faizal have absolute prerogative power to dismiss Ahmad with
immediate effect?
5.2.7 Remedies in a Case of Unfair Dismissal

In the case of Koperasi Serbaguna Sanya Bhd, Sabah v Dr James Alfred [2000] 3
CLJ 758, the court decided that there were two types of remedies as shown in
Figure 5.6.

Figure 5.5: Two remedies in the case of unfair dismissal as considered by the courts
In this case, the Court of Appeal stated as follows:
„In industrial law, the usual remedy for unjustified dismissal (unfair dismissal) is
an order of reinstatement. It is only in rare cases that reinstatement is refused. For
example, in this case where the relationship between the parties has broken down
so badly that it would not be conducive to industrial harmony to return the
workman to his place of work. As such, the Industrial Court may award monetary
compensation. Such an award is usually in two parts. Firstly, there is the usual
award for arrears of wages or back wages, as it is sometimes called. It is to
compensate the workman for the period that he has been unemployed because of
the unjustified act of dismissal. Secondly, there is an award of compensation in lieu
of reinstatement.‰
The meaning of „reinstatement‰ was discussed in the case of Han Chiang High
School and Anor v National Union of Teachers in Independent Schools & Anor.
(Award 330/1990) as follows:
„⁄Reinstatement means the employer has to treat the reinstated employee as if he

had not been dismissed and he is entitled to get all his pension, wages, leave and
seniority plus the arrears...‰
Awarding compensation in lieu of reinstatement is very common. Normally, the

Industrial Court will award compensation to a worker if it observes that
reinstatement is not the best remedy as industrial harmony no longer exists.
In several cases, the employer gives the excuse that the position has been filled by
others and it is unfair to dismiss his replacement to reinstate him. The other excuse
is the loss of confidence and trust in the employee. Therefore, compensation is the
alternative remedy.

In deciding the amount of the wages, the Industrial Court in Edaran Otomobil
Nasional Sdn Bhd v Neoh Hock Lye & Ors. (1990) 1 ILR 163 underlined several
guidelines:
(a) The assessment of wages for the period from the date of dismissal until the
date of the decision by the court; and
(b) Compensation for not taking back the worker to work is calculated at the rate
of one monthÊs wages for each year of work.
The power of the court in granting compensation can be found in Sections 20, 30(5)
and 30(6) of IRA 1967. Factors such as fairness, guarantee of the job, protection of
the dismissed and industrial harmony have always been the main concerns
(Holiday Inn v National Union of Hotel, Bar and Restaurant Workers (Award
90/1987).
In the case of Ban Lee Sdn Bhd v Renganathan Narayanan (Award 480/1996), the
Industrial Court was of the view that reinstatement was not proper because of the
factor of age and health of the worker. Therefore, the court decided that the worker
be paid arrears of wages from the date he was dismissed until the date the case
was decided.
Arrears of wages + Compensation = Total

(maximum 24 months)
RM600 × 24 RM600 × 27 RM14,400 + RM16,200
= RM14,400 = RM16,200 = RM30,600*
(*minus income tax and EPF)
The above compensation is now statutorily recognised under the Industrial

Relations Act 1967. Section 30(6A) of IRA 1967 requires reference to the Second
Schedule which specified the factors that must be taken into account by the
Industrial Court when deciding upon the amount of compensation to award. The
factors are as follows:
(a) Should not order back wages of more than 24 months;
(b) Should not order back wages of more than 12 months to a probationer;
(c) Should deduct some amount from back wages if there is evidence of post-
dismissal earnings by the dismissed employee;
(d) Should not order compensation for loss of future earnings; and
(e) Should take into consideration any contributory misconduct by the
employee.

5.2.8 Discipline and Punishment

In an industrial organisation, discipline is very crucial. Only through discipline
can the organisationÊs objective be achieved and the welfare of all involved be
guarded and preserved. It is the employerÊs prerogative to discipline the workers
and the form of punishment is dependent upon the employer concerned.
In Goodyear (M) Bhd v National Union of Employees in Companies

Manufacturing Rubber Products (1986) 1 ILR 435, the court decided:
„... Discipline in industry refers to an absolute need to ensure efficiency. If the

worker is allowed to work according to his pace, productivity shall be affected.
The court decided that the employer has the right to discipline the workers and
this is a precondition for success⁄‰
In the case of Central Kedah Plywood Factory Sdn Bhd v Timber Employees Union
(1988) 1 ILR 400, there were agreed terms in the collective agreement made in 1984.
As per the collective agreement, the following can be done after a proper
investigation for cases of misconduct, inefficiency and lack of discipline:
(a) Verbal warning;
(b) Written warning;
(c) Suspension without pay for a week;
(d) Reduction in rank or position; and
(e) Dismissal without notice for misconduct.
SELF-CHECK 5.1
State the types of managerial prerogatives as stated in Section 13(3)

of IRA 1967.
• In the context of employer-employee relations, prerogative means that an

employer has management rights over its workers. The employer has the right
to make decisions in several matters. The decisions cannot be challenged if
performed fairly and in compliance with the law. These matters concern
promotion, transferral, hiring, restructuring, reemployment and workload.

• When there is an element of exploitation or unfair labour practice, the

prerogative power of the employer will be limited. This means the enforcement
of a management prerogative has breached the law and the court shall or can
interfere in the matter.
• The employee has the right to receive a warning letter before any enforcement
is made. The employer cannot deny confirmation of the employee if it does not
give a prior warning letter to the employee. Other rights include the freedom
to be a member of the workersÊ union and that promotion, transferral and
termination must comply with procedures and relevant laws.
• When there is an element of exploitation or unfair labour practice, the

prerogative power of the employer will be limited. This also means that the
enforcement of a management prerogative has breached the law and the court
shall or can interfere in the matter.
Bona fide Punishment

Dismissal Remedy
Mala fide Resignation
Prerogative power Retirement
Probation period Termination
Promotion Transfer
cljlaw.com
Code of Conduct on Industrial Harmony 1975
Industrial Relations Act (Amendment) Bill 2019

Industrial Relations Act 1967 PractitionerÊs Referencer, 2005, International Law

Book Services
Minimum Retirement Age Act 2012 (Act 753)
Ellen Burke.

Topic  Misconduct of
Workers and
6 Domestic
Inquiry
LEARNING OUTCOMES
1. Identify the types of misconduct;
2. Identify the provisions of law in proving misconduct;
3. Explain the meaning of domestic inquiry and the process before
and during a domestic inquiry;
4. Discuss the rights of workers based on the principle of natural
justice; and
5. Identify the remedies for breach of dismissal procedure.
 INTRODUCTION
In Topic 5, we have studied about the employerÊs prerogatives. One such
prerogative is to discipline employees. To enforce this, there are some rules and
regulations, guidelines or ethics in the workplace apart from those provided by
law. All these are done to ensure that employees comply with organisational rules
and conform to the norms. Compliance with rules, guidelines and ethics will
ensure that employers do not have difficulty managing their organisation.
However, there may be instances when employees do not comply with the rules.
In such situations, what actions can be taken by the employer and what legal
requirements must be satisfied in order to validly enforce his rights?

TOPIC 6 MISCONDUCT OF WORKERS AND DOMESTIC INQUIRY  107
This topic discusses the issue of misconduct in the context of industrial relations,
types of misconduct and punishments towards the proven misconduct. In
addition, the discussions will focus on the legal procedures that must be duly
observed by employers before enforcing their rights.
6.1 DEFINITION OF MISCONDUCT

What type of action can be construed as a misconduct? What can be done if there
is misconduct? What punishments can be given if it is proven that there is
misconduct? Employers often faced these questions when encountering
disciplinary issues at the workplace.
The term „misconduct‰ is not specifically defined in any employment-related acts.

However, Section 14(1) of EA 1955 states the following:
„An employer may, on the grounds of misconduct that is inconsistent with the
fulfilment of the express or implied conditions of his service, after due inquiry:
(a) Dismiss the employee without notice;
(b) Downgrade the employee; or
(c) Impose any other lesser punishment as he deems just and fit.‰
Misconduct also relates to the discipline of an employee. This has been explained
in Sulyanah Mohd Isa v. Sekolah Kanak-kanak Pekak Selangor & Anor. (1999) 6
CLJ 234, where the High Court held that misconduct which can be used as a
ground to dismiss an employee connotes act of non-disciplinary behaviour.
Misconduct is thus an objective question that has to be decided based on the facts
of the case.
In Holiday Inn Kuching v Elizabeth C S Lee (Award 255/1990), the court decided
that:
„Misconduct is defined in the dictionary as the attitude or behaviour that is

improper, to make a mistake intentionally or to breach behaviour that is proper.
In industrial relations, the employee has the responsibility towards employers
either expressly or impliedly. Any behaviour or conduct that runs counter and
does not fulfil a sincere attitude in performing the work assigned in a trustworthy
manner or a breach of the responsibility towards employees, either expressly or
impliedly, is to be taken as a misconduct.‰

108  TOPIC 6 MISCONDUCT OF WORKERS AND DOMESTIC INQUIRY
Therefore, in the context of the employer-employee relationship, misconduct refers

to acts that run counter to organisational rules or go against the terms and
conditions in the contract of service.
ACTIVITY 6.1
Give the definition of misconduct as per EA 1955 and the decided
cases thereon.
6.2 TYPES OF MISCONDUCT

The law recognises that the employer can establish regulations regarding the
behaviour of workers. The regulations can be expressed or implied but they are
often stated in writing.
For example, it is an implied condition that workers adhere to the instructions of

employers and act with sincerity. If conflict of interest is not expressly disclosed
and later contradict with the employerÊs business interest, in this context he has
breached the terms to act towards the employer and is, therefore, construed as
guilty of misconduct.
In the case of Shell (M) Trading Co Sdn Bhd v National Union of Petroleum
Chemical Industries Workers (Award 134/86), the court decided that:
„It is the managementÊs decision to say whether there is misconduct and to impose
dismissal. However, in doing so it should be based on facts and actions should be
taken sincerely and without discrimination, exploitation, with good labour
practice and without any conflict with the rules of natural justice. Upon the
discovery of misconduct, the decision of the court cannot be denied if the employer
had followed all the procedures with regard to misconduct. Otherwise, it can be
brought to the labour tribunal⁄‰
In the case of Sin Chuan Aik Sdn Bhd v Numbu Gopal (Award 281/90), the court
decided that employees who had not attained the standard set because of their
own negligence are guilty of misconduct. Several awards have been made by the
court with regard to the types of misconduct. The following are some of the types
of misconduct by employees:
(a) Coming in late or being absent from work;
(b) Insubordination;

(c) Negligent in performing the task;

(d) Gambling and drunkenness;
(e) Stealing and insincerity; and
(f) Sexual harassment.
Apart from this, the act of taking part in illegal strikes, not complying with the
dress code, smoking in prohibited areas, revealing the companyÊs confidential
information, carrying out immoral activities and refusing to cooperate with co-
workers are also considered as acts of misconduct.
6.2.1 Coming in Late or Being Absent from Work

In the case of AZSW and Associates Sdn Bhd v Azlina Md Said [2003] 3 ILR 553,
the Industrial Court did not accept the claimantÊs explanation that she was late for
work due to traffic congestion and held that habitually coming to work late was a
serious misconduct which could not be compensated by working extra hours.
However, the court held that the misconduct did not warrant dismissal.
Nevertheless, taking into consideration that the claimantÊs misconduct had
contributed to the circumstances leading to her dismissal, the court ordered a
deduction of 30 per cent to be made on the quantum of compensation awarded.
In the case of Saudagar Belian Poh Yik v Lee Thai Chang (Award 162/1984), the
worker who left the office early and did not want to continue work after 6pm was
considered as using the special prerogative that was given by the employer. In this
case, the employee should have obtained the permission of the employer in
advance.
The court considered that leaving the job early without permission is more serious
than coming late and the act is considered as misconduct.
With regard to absence from work by an employee without permission or valid

excuse, the law has provided that such acts may amount to misconduct or can be
regarded as a breach of contract of service. In such cases, the employer can dismiss
an employee even if the absence is caused by health problems.

There are several provisions in the statute regarding this matter:
(a) Section 15(2) of EA 1955

An employee shall be deemed to have broken his contract of service with the
employer if he has been continuously absent from work for more than two
consecutive days without prior leave from his employer, unless he has a
reasonable excuse for such absence and has informed or attempted to inform
his employer of such excuse prior to or at the earliest opportunity during
such absence.
(b) Section 13(2) of EA 1955

Either party to a contract of service may terminate such contract of service
without notice in the event of any wilful breach by the other party of a
condition of contract of service.
In the case of P Ramasamy (Pemborong) Ladang Arang Batu v Kesatuan

Kebangsaan Pekerja-pekerja Ladang (Award 52/1958), the court decided
that:
„⁄The absence from work for two days consecutively shall be considered as
breach of contract of service according to Section 15(2) of EA 1955. The
employer can either end the contract of service under Section 13(2) or take
action under Section 14 after due investigation upon the reason of
misconduct⁄.‰
In the case of San Teh Industries Sdn Bhd v Wong Siew Beeng [1997] 2 ILR
398, the Industrial Court referred to BR GhaiyeÊs Misconduct in Employment
(1977) which states that the conduct of the employee in remaining absent
without leave, although he had been informed that the leave cannot be
granted, can sometimes amount to insubordination and wilful disobedience.
The claimant in this case was decided by the court that he had not been
dismissed unfairly since he had walked out of his job and had been away for
more than two consecutive days without prior leave from the company. He
had not given a reasonable excuse for such absence and had failed to inform,
or attempted to inform, the company of any excuse prior to or at the earliest
opportunity during his absence.

(c) Section 60F (2) of EA 1955

LetÊs say an employee is absent on sick leave:
(i) Which is not certified by a registered medical practitioner or dental
surgeon; or
(ii) Which is certified by a registered medical practitioner or dental
surgeon but fail to inform the employer of such leave within 48 hours
after receiving such leave
He shall be deemed as being absent without the permission of the employer

and without just cause or reason on the said date.
In Jadewealth Sdn Bhd v Addie Halim Ali [2002] 2 ILR 193, the Industrial
Court decided that the dismissal of the claimant was unlawful. The facts
show that the claimant was hospitalised for tuberculosis and he has tendered
evidence in the form of telephone bill to show that he had informed his
employer during the material time.
ACTIVITY 6.2
Can an employee be dismissed because he has not followed

instructions or has disrespected his employer? Discuss and post your
response on the myINSPIRE online forum.
6.2.2 Insubordination and Insolent Behaviour

The court recognised that insubordination is a form of misconduct which will
attract disciplinary action. In Habibah bte Mohd Zaman v Pan Global Insurance &
Anor (2001) 6 MLJ 339 Faiza Thamby Chik J. held:
„Disobedience to a lawful order of the employer is insubordination, and this

would result in disciplinary action‰
In the case of Goodyear Bhd v National Union of Employees in Companies

Manufacturing Rubber Products (Award 63/1986), the employee was found to
have disobeyed the instructions of the supervisor. The question that arose in the
court was whether dismissal could be founded on such disobedience.
The court decided that such an act can be used to dismiss the worker if it breaches
the contract of service. Refusal to obey valid instructions from the employer is
considered an act of misconduct.

The court also made a similar decision on Pan Pacific Resort Pangkor v National
Union of Hotel Bar and Restaurant Workers (Award 156/1989). According to the
court, „the wilful disobedience of the employee regarding the instructions of the
employer which were reasonable and legal can invite dismissal if such
disobedience is too serious or terrible and can affect the contract of service.
Regarding the insolent behaviour, the court in Tiong Seng Paint Products Sdn Bhd
v Chemical Workers Union (Award 190/82) decided that uttering abusive and
obscene words as well as making threats towards the employer is a serious case of
misconduct.
6.2.3 Negligence in Carrying Out Tasks

In the case of Malaysia Smelting Corp Sdn Bhd v Kesatuan Kebangsaan Pekerja-
pekerja Perusahan Peleburan Logam (Award 89/89), a number of workers who
slept during working hours were given warning letters and two supervisors who
were also involved were dismissed.
While making this award, the court agreed with the report of the Employment
Manager that sleeping during working hours is misconduct. It is a serious offence
considering that the worker concerned operated a roster and his main task was to
ensure that the roster was monitored.
6.2.4 Gambling and Drunkenness

In the case of Chandran a/l Dass v Malaysia Milk Sdn Bhd (Award 64/2010), the
Industrial Court decided that the claimantÊs dismissal was justified. The claimant,
an assistant storekeeper, was found gambling in the employerÊs premises during
working hours and the court agreed with the employerÊs opinion that this
amounted to a serious misconduct. The court in this case had referred to the case
of Zainuddin Md Ali v Paling Industries (Award 2030/2006) in which the
Industrial Court had asserted that, „gambling not only can cause serious financial
difficulties to the worker but more importantly, it diverts the attention of the
worker from his work at the loss of the employer.‰
In the case of Sime Darby Security Services Sdn Bhd v Zizan Arshad (Award
46/92), the worker was dismissed because he was considered drunk. The worker
said that the employer should have taken him to see a doctor to confirm that he
was drunk. The worker denied all the allegations that he was drunk. The employer
submitted that it did not have to refer the worker to the doctor as the company felt

that he was drunk. The court decided there was no evidence to show the worker
was drunk. The employer needed to obtain evidence or proof before the employee
could be dismissed.
6.2.6 Stealing and Dishonesty

In the case of Multipurpose Management Sdn Bhd v All Melayu Estates Staff
Union (Award 59/1988), the worker attempted to steal or abet others to steal. He
was dismissed and the court decided the dismissal was fair because it destroyed
the trust of the employer. The court further held that:
„Theft or attempted theft by the worker of the employerÊs property is misconduct

that can result in dismissal. Abetting to steal the property of the employer is also a
case of misconduct.‰
In the case of A Sinnathamby and K Kuppusamy v Sagie Estate (Award 51/74),

the court decided that:
„Any attempt to steal is a misconduct. The failure in the attempt to steal shall not
prevent the imposition of dismissal. Allowing another party to steal is also a case
of misconduct‰.
6.2.7 Sexual Harassment

In the case of Sitt Tatt Bhd v Flora Gnanapragasam and Anor [2006] 1 MLJ 497, the
High Court, in a judicial review of the Industrial CourtÊs decision, agreed with the
findings of the Industrial Court that sexual harassment perpetrated against the
victim (an employee who held a personal executive position) by her immediate
supervisor was a serious misconduct. The Court upheld the decision of the
Industrial Court that the victim (the respondent) had been constructively
dismissed by the employer (the applicant) and maintained the awards granted by
the Industrial Court, that is, compensation in lieu of reinstatement.
Currently, Part XVA of EA 1955 (S.81A to S.81G) deals specifically with the
complaint of sexual harassment at the workplace. Before it came into force, there
was no legislation that addresses the issue of sexual harassment at the workplace.
The only related documents applicable to help in eradicating the sexual
harassment events in the workplace were the Code of Practice on the prevention
and eradication of sexual harassment at the workplace. It was launched by the
Ministry of Human Resources in 1999. The Code is not legally binding and is
implemented by employers on voluntary basis.

S. 2 of EA 1955 defines sexual harassment as „any unwanted conduct of a sexual

nature, whether verbal, non-verbal, visual, gestural or physical, directed at a
person which is offensive, humiliating or is a threat to his well-being during the
course of his employment.‰
Key Features of Part XVA of EA 1955:

1. It imposes a legal obligation on the employer to inquire into any sexual
harassment complaints in the workplace (S. 81B[1]);
2. Complaints may be lodged by an employee against another employee, an
employee against an employer or an employer against an employee (S.
81A);
3. It is applicable to all employees regardless of whether they are within the
definition of employees as stated in S. 2 and the First Schedule;
4. In the event an employer refuses to inquire into the complaint, he must
inform the complainant within 30 days and provide reasons in writing (S.
81B[2]);
5. An employee who is not satisfied with his employerÊs refusal to inquire
into his complaint may refer the matter to the Director-General of Labour
(S. 81B[4] and [5]);
6. If upon conducting an inquiry, the employer is satisfied that sexual
harassment is proven, disciplinary action may be taken against the
employee, that is, dismissing without notice, downgrading or imposing
any other lesser punishments (S. 81B[1]);
7. An employer may impose the punishment of suspension of wages but it
should not exceed two weeks (S. 81B[1][a][iii]); and
8. An employer who fails to inquire into the complaint of sexual harassment
or to inform the complainant of his refusal to inquire is commiting an
offence and, shall upon conviction, be liable to a fine not exceeding
RM10,000.
Based on the above provisions, it can be concluded that the commission of sexual
harassment in the workplace has been statutorily recognised as misconduct and
upon the confirmation of the act shall justify a dismissal or other types of
punishment.

6.3 OTHER ISSUES RELATING TO

MISCONDUCT OF EMPLOYEES
This subtopic will discuss other issues relating to misconduct of employees in
detail.
6.3.1 Doctrine of Condonation

This doctrine is also known as doctrine of election. An employer is said to elect
not to proceed against the employee if he fails to commence such action within a
reasonable period. In Bank Bumiputera (M) Bhd vs George Thomas (Award
No.282 of 1987), it was held that:
„What is reasonable time must vary according to circumstances. If it is

insufficiently explained as in this case and extends beyond the time within which
the employer might reasonably be expected to make up his mind, it shows an
election to retain the employer. In the instant case, the bank should have acted
within reasonable time and certainly waiting for about 6 months to charge the
claimant is not considered to be a reasonable time‰
In Public Services Commission Malaysia v. Vickneswary RM Santhivelu [2008]

1 LNS 464, it was held that:
".. Condonation in the context of employment contract is an act by the employer to

excuse or forgive him for the wrongful act committed by the employee.
Condonation can be in the active form i.e. by the act of telling the person that he
has been forgiven for the wrongful act done or by a passive act of not taking any
action. Halsbury's Law of England (4th Ed) Vol 16 at p. 439 para 648 describes
condonation as follows: An employer who with full knowledge of his employee's
misconduct elects to continue with him in service cannot subsequently dismiss
him for the offence which he has condoned".
Definition
Condonation literally means to pardon or to forgive. An employer is regarded
to condone the misconduct of the employee if he fails to take disciplinary
action within a reasonable period.

In the case of Kesatuan Pekerja-pekerja Pengangkutan v SJ Kenderaan Sdn Bhd

(Award 55/81), a bus conductor committed misconduct on 21 October 1978 but
the employer dismissed him on 16 July 1979.
The court decided that since the employer had allowed him to work for nine
months and continued to enjoy the benefits of the contract of service, therefore, the
employer did not have the right to dismiss the employee since he was considered
to have forgiven the employee.
Therefore, whenever there is an act of misconduct by an employee, he must be

dealt with immediately within reasonable time. By allowing the misconduct, the
employer loses his right to take action against him later.
6.3.2 Past Misconduct

In the case of KL-Klang and Port Swettenham Omnibus Co Bhd v Thomas Jacob
[2004] 3 ILR 412, the Industrial Court referred to the case of Kamala Loshanee
Ambalavanar v Jaffnese Cooperative Society [1998] 1 LNS 339. The High Court
held that similar acts of past misconduct are relevant factors to be taken into
consideration and the cumulative effect may justify dismissal.
Furthermore, the Industrial Court in the case of Projek Lebuhraya Utara Selatan
Bhd v Zainal Abidin Ariffin [2005] 3 ILR 233 stated that acts of past misconduct
must be similar or of the same nature as the present misconduct in order to be
considered.
6.3.3 Single Misconduct

One of the issues that have been raised is whether a single misconduct is sufficient
to dismiss an employee. This question has been dealt with in the case of Harianto
Effendy Zakaria & Ors. lwn Mahkamah Perusahaan Malaysia (2014) 4 ILR 241. In
this case, the employees were found guilty of encroaching and creating
disturbance in the employerÊs premises during picketing. The Industrial Court
decided that the dismissal was with just cause and excuse. The employees
challenged the decision in High Court and later on in the Court of Appeal. The
case finally reached the Federal Court and the apex court made an important
ruling through Hassan Lah FCJ as follows:
„There is no fixed rule of law to suggest that it was unreasonable to dismiss

employees with unblemished records for a single instance of insolence. The
appellantsÊ actions were clearly a wilful disobedience. Their action brought the
second respondent into disrepute among customers and other employees.‰

6.4 PUNISHMENT FOR MISCONDUCT

The law empowers the employer to punish an employee who is guilty of
misconduct. However, it is imperative for the employer to prove that the employee
is guilty of misconduct before imposing punishment.
In the case of Rasa Sayang Hotel v National Union of Hotel Bar and Restaurant
Workers (Award 82/1982), the court agreed with the opinion of the workersÊ union
that the union had not denied the right of the employer to impose punishment.
However, at the same time, the employer should also not punish the employee if
there is no commission of wrongdoing. The court decided that before the hotel
imposes punishment, it must prove that the worker had committed a criminal act.
In the case of Stamford Executive Centre v Dharsini Ganesan (Award 253/1985),

the court stated thus:
„⁄the employer must give strong evidence that the employee has committed an
offence and thus can be punished. It is the employer who has to prove that the
worker is guilty and not for the employee to prove that she is not guilty⁄‰
According to Section 14(1) of EA 1955, the employer can impose any of the
following punishments for offences that went against the conditions of service,
either express or implied, provided due investigations have been made:
(a) Dismiss the worker without notice;
(b) Demote the rank of the worker; or
(c) Impose any other lighter punishment that is felt to be right and if suspension
without wages is considered, it must not exceed two weeks.
According to Section 14(2) of EA 1955, the employer can suspend the worker for
not more than two weeks for the purpose of investigation but must pay the worker
wages that is not less than half the wages for the duration of the suspension. If
there is no evidence with regard to misconduct, the employer should repay the
total wages suspended.
The provision in Section 14 is clear with regard to the power of the employer to
impose punishment on the worker who is guilty of misconduct. However, this
section makes it a pre-requisite that an appropriate investigation (domestic
inquiry) must be conducted by the employer first before punishing the worker.

Punishments that are imposed must be appropriate with the offences committed.
The doctrine of proportionality of punishment requires that the punishment meted
out must commensurate with the severity of misconduct. For minor offences, it is
sufficient that the offender is punished lightly, whereas for more serious offences,
the employer can impose heavier punishments including dismissal.
For minor offences, it is sufficient that the offender is punished lightly. The worker
is generally let off with an oral or written warning. In both cases, the employer can
call the worker personally to give advice and admonishments that the employer
will not tolerate such offences in the future. If the employee continues with the
offences even after being warned, then heavier punishment can be imposed. In
Weng Kheng Eng v. Lim Kok Wing International Lifestyle Design Academy (2014)
2 LNS, the Industrial Court decided that the dismissal was with just cause and
excuse as the Claimant was habitually absent from work. He was given sufficient
warning via several show cause letters but he failed to improve.
Apart from this, an employer may provide in the contract of service other forms of
punishment such as denial of salary increment and disentitlement of bonus.
In imposing punishment, it is a trite law that a worker cannot be punished twice

for the same offence. In Mashkon Hj Samuri v. Orang Kampung Holdings (M) Sdn
Bhd (2016) 2 ILR 237, the worker was dismissed by his employer after being issued
a warning letter due to non-clocking of his punch card. His dismissal was
pronounced as unlawful by the Industrial Court. The employer challenged the
decision by way of judicial review in the High Court and the award was quashed.
Hence the appeal in the Court of Appeal. Abang Iskandar JCA delivering the
courtÊs decision held that:
„As the appellant had been sanctioned by way of a warning letter pertaining to his
breach of non-clocking in of his time card, in law, no further or subsequent action
could be taken against him. The company had based its disciplinary action against
the appellant on the same breach, for which he had been penalised, albeit by way
of a letter of warning. Such an action of the company was not allowed by the law,
wherein the appellant had been penalised twice for the same offence (own
emphasis added)‰
ACTIVITY 6.3
In your opinion, is it fair for the employer to punish a worker who is
guilty of misconduct? How much of this power should be given to the
employer? Share your opinions with your coursemates in the
myINSPIRE online forum.

SELF-CHECK 6.1
State the three types of punishments that an employer can impose on
a worker who is guilty of misconduct.
6.5 DOMESTIC INQUIRY

The general principle is that the law requires an inquiry to be conducted in order
to ascertain the truth of the allegations made against an employee. The term
„domestic inquiry‰ is a technical term referring to an internal inquiry due to
allegation of misconduct which relates to the workplace. Before the hearing is
conducted, an initial investigation may be carried out to obtain all the necessary
evidence. The inquiry was conducted by a panel comprising employees with
certain criteria. Its responsibility is to enquire whether misconduct has been
committed. In Gymtech Feedmill (Malacca) Sdn Bhd v. Rajendram A/l Annamalai
LNS (2008) 1 203, the High Court held that an inquiry is a process to inquire into
the guilt.
In Dreamland Corp Sdn Bhd v Choong Chin Sooi (1988) 1CLJ Rep 39 the court
referred to the decisions of two cases, namely, Workmen of the Motipur Sugar
Factory Pte Ltd v. Motipur Sugar Factory Pte Ltd (AIR) 1965 SC 1803 and British
Labour Pump Ltd v Byrne (EAT) (1979) IRLR 96. In the case of Workmen of
Motipur Sugar Factory, the court in India has decided that:
„If the employer had failed to hold a domestic inquiry, then it is responsible to
provide the reason and justification for it in the court tribunal. The employer has
to provide justification as to why the dismissal had to be done.‰
In the case of British Labour Pump Ltd, the court stated that if the employer did
not follow the right procedure, the court will question two matters, namely:
(a) Did the employer follow the same steps in the investigation and obtain the
same information as if the investigation was carried out?
(b) If yes, has the employer acted appropriately in dismissing the worker?

Procedure of Domestic Inquiry

In Malaysia, the provision regarding the procedure of domestic inquiry was not
provided in IRA 1967. However, S. 14(1) of EA 1955 acknowledges the requirement
of domestic inquiry before imposing punishment against an employee as a result
of misconduct. Normally, such a procedure is also provided under the collective
agreement.
Section 14(1) of EA 1955 states as follows:

„An employer may, on the grounds of misconduct inconsistent with the
fulfilment of the express or implied conditions of his service, after due inquiry:
(a) Dismiss the employee without notice;
(b) Downgrade the employee; or
(c) Impose any other lesser punishment as he deems just and fit.‰
The phrase „due inquiry‰ in this provision is interpreted to mean that an

internal trial or domestic inquiry should be conducted at the workplace before
dismissing the employee.
In practice, if there is a necessity to conduct a preliminary investigation, the

employer may appoint a particular person to investigate the charge on the worker
involved. The appointment would depend on the type of misconduct. For instance,
in the case which involved allegation of fighting in the workplace, a personnel
from human resource or the security department may be appointed. Also, a senior
finance officer who is experienced in auditing can be appointed if the offence
involves misuse of money. Any other senior officers experienced in investigation
or any outside parties that are not directly involved with the organisation may also
be appointed e.g. external auditor.
The objective is to gather information that can be used by the employer to prove
misconduct. If the result of the investigation does not expose sufficient evidence to
show that the worker is guilty, the employer need not take further action. There
are cases in which the employer and investigators suspect the employee of being
guilty of misconduct but without real evidence. In such cases, they cannot act on
suspicion alone.

The evidence obtained during the process of investigation normally comprises

statements by witnesses and/or suspected employee, relevant documents or any
item relevant to the case. The process must be done within a specific time frame
after the offence has been reported. Certain preliminary investigation needs to be
done in a discreet manner due to the nature of the alleged offence e.g. sexual
harassment. This is important to protect the dignity of the victim.
After the completion of the preliminary investigation, a report must be submitted

to the relevant departments such as the human resource department. The report
must contain findings and the conclusion arrived from the preliminary
investigation. The human resource department needs to decide whether to
establish an inquiry panel. In such an event, evidence collected during the
preliminary investigation will be tendered during the domestic inquiry panel for
determination. In the case of Cleetus v Uniphamol (M) Sdn Bhd (Award 66/1975),
the following steps to conduct domestic inquiry were suggested to be followed.
Figure 6.1 describes the guidelines.
Figure 6.1: Guidelines for domestic inquiry procedure
Since there is no specific procedure to conduct a domestic inquiry, the established

practice in law is that the procedure must conform with the principle of natural
justice. Failure to follow this procedure shall render the domestic inquiry irregular.
This is to ensure that the result is fair and just, and to preserve harmony in industrial
relations. This has been highlighted in Yeo Hiap Seng Trading Sdn Bhd v. Lim Lee
Choon (2004) 1 CLJ 634. Low Hop Bing J. in his judgment held as follows:

„The requirement for a 'due inquiry' under S. 14(1) of the Act is a statutory
expression of the fundamental common-law principle of natural justice, audi
alteram partem, a breach of which would vitiate the judicial or quasi-judicial
decision made‰.
6.6 PRINCIPLE OF NATURAL JUSTICE

In the case of Great Eastern Life Insurance Bhd v Kesatuan Sekerja Kebangsaan
Pekerja-pekerja Perdagangan (Award 21/1969), the Industrial Court opined that
the procedure for dismissal must be based on the principle of natural justice. In
other words, the accused must be given sufficient chance to know and answer the
case against him.
The principle of natural justice sets the minimum standard required for fair
dismissal. Basically, it contains two elements:
(a) The right to be heard (audi alteram partem); and
(b) Rules against bias (nemo judex in causa sua).
The objective of natural justice is to ensure fairness in decision making on a worker

accused of committing a misconduct. It is also a guideline to prevent the abuse of
power by the party given the responsibility to carry out the power.
6.6.1 Right to be Heard

Generally, such right provides the accused the opportunity to defend himself
against the accusation made by the employer. In exercising such right, it also
means that the accused must be given an appropriate notice pertaining to the
alleged misconduct and a suitable period for him to answer the allegation.
Provision
In Malaysia, this provision is not alien as Article 135(2) of the Federal
Constitution provides the right of a public servant to be heard before being
dismissed from work.

In Surinder Singh Kanda v Kerajaan Persekutuan Tanah Melayu (1962) MLJ 199, it
was stated that:
„If the right to be heard is to be a real thing which is worth anything, it must carry
with it a right in the accused person to know the case which is made against him.
The accused must be given sufficient opportunity not only to know the case against
him but also to answer it.‰
The features of the right to be heard are as follows:

(a) The employer gives notice regarding the misconduct of the employee;
(b) The employee is given the opportunity for representation and to defend
himself;
(c) The employee has the right to question the witness;
(d) The employee is informed of the decision arrived; and
(e) The employee has the right to appeal.
Notice must also give sufficient time for the worker to prepare his case and
defence. Other than that, during the proceedings, the worker has to be present and
given the opportunity to question any witness if need to.
In the case of Luster Industries Sdn Bhd v Hassan b Ahmad (Award 263/1993), the
employer had a domestic inquiry on the same day that the offence was committed.
The court decided that the right to trial had not been followed and said thus:
„The court viewed the inquiry held as very improperly done and regarded it as a
camouflage to get rid of the claimant. No show cause letter was given to the claimant,
no reasonable time was given to the claimant to prepare his defence and on top of all
these, ⁄ the claimant was not present when witnesses were questioned ⁄ The due
inquiry held by the company which was a condition precedent to dismissal or other
forms of punishment was not considered by the court as properly constituted and
conducted.‰
A worker who is a member of a trade union shall have the right to be represented
by his union. Such right of representation is provided under the collective
agreement. Failure to permit the worker to exercise such right would directly affect
the outcome of the proceeding. In Securicor (M) Sdn Bhd vs Kesatuan Sekerja
Pekerja-Pekerja Securicor (M) Sdn Bhd (1984) 1 ILR 357, the Industrial Court held
that the domestic inquiry was conducted improperly as the claimant was denied
his right to be represented by an official from the union.

The worker must be informed when the panel of domestic inquiry has made its
decision. After that, the worker must be given the opportunity to make an appeal
within a specific time frame as the right to appeal is part of the right to be heard.
In Said Dharmalingam Abdullah vs. Malayan Breweries (Malaya) Sdn Bhd (1997)
1 MLJ 352, the Supreme Court decided that the right to be heard under S. 14(1) EA
1955 includes the right to appeal. Although the right to appeal is part of the right
to be heard, the High Court further explained that even though there was a failure
by the employer to provide such right, it did not prejudice the employerÊs decision
to dismiss the worker. This is due to the severe nature of the misconduct (which in
this case is attempted theft) and the fact that the type of punishment has been
expressly provided under contract of service.
ACTIVITY 6.4
Andy has been charged over a fight with a colleague while working.
He was given notice to attend a domestic inquiry. However, during
the inquiry, he was asked to wait outside until it ended. Give your
opinion regarding this situation. Post it on the myINSPIRE online
forum.
6.6.2 Rules Against Bias

The above rule requires that the inquiry be conducted impartially. The members
of the domestic inquiry must consist of people who are not prejudicial, either
directly or indirectly, against the worker. In law, bias need not actually exist but it
is sufficient that there occurs a likelihood of bias. Therefore, certain prohibitions
should be observed.
Firstly, members of the domestic inquiry are prohibited to discuss the facts of the
case beforehand. If any member of the panel is asked to give his opinion of the
case before the investigation is carried out, this person cannot accept the
appointment as a member of the panel because this is against the principle of
impartiality.
In the case of Malayan Tobacco Co v Chow Yong Peng (Award 87/1986), the court
decided thus:
„⁄ justice was not seen to have done since an element of bias was created in that
the Chairman had been briefed by a witness who had knowledge of the alleged
incident.‰

Likewise, in the case of Trade Ocean Exporters Sdn Bhd Prai v Puan Chee Pek
Kian, Penang (1993) 1 ILR 272B, the court found that the chairman had discussions
with the managing director regarding the three accusations against the worker
before the beginning of the domestic inquiry. The court accepted the principle
which was put forward by Lord Hewart CJ in the case of R v Sussex Justices Ex-
parte McCarthy (1924) 1KB 256 and later was accepted by Lord Denning in the
case of Metropoliton Properties Ltd v Lannon [1968] 3 AER where his lordship
cited as follows:
„The Court looks at the impression which would be given to other people. Even if
he was as impartial as could be, nevertheless if the right-minded person would
think that in the circumstances there was a real likelihood of bias on his part, then
he should not sit. And if he does sit, his decision cannot stand⁄. The Court will
not require whether he did in fact favour one side unfairly. Suffice that reasonable
people might think he did.‰
Secondly, those who have prior knowledge regarding the case should not be
involved in the domestic inquiry. For instance, officers from the human resource
department who have direct knowledge cannot participate as members of the
panel of inquiry. In Convenience Shopping Sdn Bhd (7 Eleven Convenience
Shopping Sdn Bhd vs Yip Kim Ching (Award No.21 of 1994), the Industrial Court
held that the human resource manager who had issued the suspension letter
should not participate in the domestic inquiry.
ACTIVITY 6.5
Nick has been charged with stealing company property. The
company appoints the manager, Peter, to investigate the accusation
against Nick. A domestic inquiry is carried out and it finds that Peter
was one of the members of the investigation panel. Can Peter conduct
the investigation against Nick?
SELF-CHECK 6.2
Describe the principle of natural justice which has to be followed by
the employer before conducting a domestic inquiry.

6.7 PROCEDURAL DEFECTS IN DOMESTIC

INQUIRY
The next question is whether the dismissal of a worker is considered illegal in the
absence of a domestic inquiry as required by S. 14(1) of EA 1955 or if procedural
fairness, better known as the principle of natural justice, is not followed. Also,
whether such failure is considered as mere irregularity which can be rectified by
the industrial tribunal (referred to as curable principle). Several cases are presented
to discuss this issue.
In the landmark case of Dreamland Corp (M) Sdn Bhd v Choong Chin Sooi and
Anor (1988) 1 CLJ Rep 399, while answering the question whether the failure of
the employer in giving the worker the right of trial would consider the dismissal
cancelled, Wan Suleiman SCJ held that:
„The short answer to Mr. LoboÊs argument is that the right to a hearing or as it is
sometimes called, the observance of procedural safeguards, are only applicable in
respect of a hearing before an administrative tribunal and similar quasi-judicial
tribunals performing judicial functions but do not apply to simple master-servant
proceedings, such as the present one‰.
In this case, the court decided that the failure of the employee in having a domestic
inquiry only constitutes an irregularity, which does not render the dismissal
unfair. The decision of the Dreamland case was followed by other cases, namely,
Malayawata Steel Sdn Bhd v Mohd Yusuf and Anor [1994] 2 CLJ 239, Hong Leong
Assurance Sdn Bhd v Wong Yuen Hock (1995) 3 CLJ 344 and Milan Auto Sdn Bhd
v Wong Seng Yen [1995].
In Malayawata, the court decided that if an employee is dismissed without a

domestic inquiry, he cannot challenge the decision if the employer justifies the act
to the Industrial Court.
In the case of Hong Leong Assurance and Milan Auto Sdn Bhd, the court decided
that if a domestic inquiry is not held before the dismissal, the Industrial Court has
to ascertain these two questions, namely:
(a) Whether there is enough evidence to show the misconduct; and
(b) Whether the misconduct is a fair and true reason.

The decisions in these cases stressed that the failure to hold a domestic inquiry is
merely a procedural irregularity that can be rectified at the Industrial Court.
Moreover, in the case of Hong Leong Assurance, the Federal Court explained the
importance of the Industrial Court as an alternative forum to determine
misconduct if the employer failed to conduct it, through the following statement:
„Invariably the hearing before the Industrial Court itself which indeed provides a
better and impartial forum for the employee than most domestic tribunals, should
be taken as a sufficient opportunity for the employee to be heard to satisfy natural
justice and thereby rectify any omission to hold any domestic inquiry...‰
It is also important to be mentioned here that the Federal Court in Milan Auto set
an important legal precedent that while S. 14 (1) of EA 1955 is applicable to an
employee as per the said Act, it does not alter the position of the law under S. 20
IRA 1967 for the Industrial Court to determine the validity for such dismissal. This,
however, does not necessarily mean that domestic inquiries can be dispensed with,
particularly from the perspective of EA 1955. The Federal Court in the Said
Dharmalingam Abdullah v Malayan Breweries (Malaya) Sdn Bhd (1997) 1MLJ 352
by Justice Edgar Joseph Jr concluded that:
„⁄Where the relationship is that of master and servant, we are normally in the
field of the common law of contract and so on, and the principle of administrative
law which of course must include the fundamentals of natural justice would not
apply. On the other hand, where the employment is in the public sector or where
statutory or other protection is conferred, procedural safeguards will have to be
observed.‰
However, the requirement of due inquiry within the meaning of S. 14(1) EA 1955
has several exceptions. Several cases decided by the courts suggest that the curable
principle is applicable depending on circumstances. One such circumstance is that
the requirement to conduct inquiry no longer exists if the worker admits to the
misconduct. In Gymtech Feedmill (Malacca) Sdn Bhd v. Rajendram A/l
Annamalai LNS (2008) 203, the worker was caught stealing two cans of cooking oil
by the factory manager. He admitted to the manager and asked to be given a
chance. He later made an admission to two more witnesses who worked in the
company. An inquiry was conducted and he was dismissed. He lodged a
complaint under S. 69(3) EA 1955. The Labour Court set aside the decision of the
employer, hence, the appeal to the High Court. The High Court held that the
purpose of conducting an inquiry was to inquire into a misconduct. In the event
that the claimant admitted to the misconduct, the requirement to conduct an
inquiry no longer existed.

Another situation is when it is impractical to conduct an inquiry that complies with

the principle of natural justice. Such a situation normally occurs in a small
establishment which does not have a sufficient number of employees to conduct
a proper inquiry. This has been deliberated in Poon Kam Yeong v. Tew Lai Eng
LNS (2009) 1 477. The worker was dismissed by his employer, so he filed a case in
the Labour Court. The Assistant Director of Labour who presided over the case
opined that even though the misconduct had been proven, the dismissal was
wrong as the employer failed to adhere to the principle of natural justice. Upon
appeal to the High Court, the question that needed to be determined was whether
the inquiry was defective and fatal regardless of the merit and whether the
Assistant Director committed an error in law by setting aside the employerÊs
decision despite acknowledging that a misconduct had occurred. The High Court
found that an inquiry had been conducted by the employer in the presence of the
employer and his family members. The High Court went on to explain as follows:
„In very small places of employment consisting of a handful of staff, there can
hardly be enough personnel to wear the various hats of complainant, witness,
prosecutor and judge. Ex necessitate therefore some official may have to wear two
hats or more. If the rule against bias is applied in a technical way, then such an
employer can never dismiss his employee however serious the latterÊs misconduct
as any attempt to do so will be deemed as contrary to natural justice. Such a process
of reasoning which leads to a reductio ad absurdum cannot be right‰.
The High Court further decided that S. 69(3) of EA 1955 gives power to the
Assistant Director to inquire into, to confirm and set aside the decision. In order to
make such a decision, the Assistant Director is required to allow the employer to
furnish evidence to prove the misconduct. The Assistant Director cannot set aside
the employerÊs decision and allow the workerÊs claim just because the domestic
inquiry was defective and disregarded the evidence.
Remedies for Breach of Dismissal Procedure

According to the established practice of industrial laws in Malaysia, a worker who
is wrongfully dismissed by the employer can resort to certain remedies. In general,
the worker can make a claim based on the following three recourses:
(a) Claim under Contract Law

In Malaysia, the principles and rules on the relationship between the
employer and the employee are outlined in EA 1955 and IRA 1967. Both Acts
have provisions that the relationship which exists between employer and
worker is based on the relationship of the normal contract such as that
according to common law. Therefore, the termination of the contract must be
done in accordance with the provisions of the terms and conditions of the
contract.

Hence, before a worker who holds a position based on a contract of

employment is removed from the position, the right of the employer to act
against the employee including the action of dismissal, has to comply with
all the terms and conditions in the contract. For example, if a condition in the
contract states that the employer must give notice before dismissing the
worker, the employer must comply with the condition. If not, the action of
the employer can be disputed and the worker can act against the employer
for breach of contract.
(b) Complaint to the Director-General According to S.69(3)

According to Section 69(3) of EA 1955, if a complaint is brought before the
Director-General of Labour, he can investigate, confirm or set aside the
decision made by the employer under Section 14(1) and make an order which
he regards as suitable. However, the order is limited to three situations,
namely:
(i) If the decision of the employer under Section 14(1)(a) is set aside, the
order of the Director-General is restricted to payment of compensation
in lieu of notice and other payments that the worker is entitled to as if
the worker is not guilty of the misconduct;
(ii) If the employer made the decision under Section 14(1)(c), the Director-
General cannot set aside the decision if it does not bring any loss to the
worker according to the contract of employment; and
(iii) The Director-General cannot change the decision of the employer if the
worker did not make a complaint within 60 days from the date of the
decision under Section 14.
(c) Complaint to the Director-General of Industrial Relations (Section 20 of

IRA 1967)
The provision in Section 20 of IRA 1967 allows an employee who considers
that he has been unfairly dismissed to make a written representation to the
Director-General of Industrial Relations to be reinstated. However, this
representation has to be done within 60 days from the date of dismissal or 60
days after the notice ends in the case of dismissal with notice.
ACTIVITY 6.6
In your opinion, are the remedies for breach of dismissal procedure
sufficient?

SELF-CHECK 6.3
State the three remedies that can be claimed by a worker as a result
of the employerÊs failure to follow rules of natural justice in cases of
worker misconduct.
• In the context of the employer-employee relationship, misconduct refers to acts

that run counter to organisational rules or go against the terms and conditions
in the contract of service.
• Some of the acts of misconduct by employees include coming in late or being

absent from work, poor performance, gambling and drunkenness, stealing and
insincerity, and sexual harassment.
• There are several provisions in the statute regarding misconduct, which are
Section 15(2), Section 13(2) and Section 60F (2) of EA 1955.
• The concept of domestic inquiry is required by law in order to find out the
truth of the allegations made against an employee. A domestic inquiry refers
to an internal hearing held by an employer to ascertain whether an employee
is guilty of misconduct. Before the hearing is conducted, the process of initial
investigation may be carried out to obtain all the necessary evidence. An
independent body that consists of a panel or investigation board should
conduct the domestic inquiry. Its responsibility is to ensure that any dismissal
made is based on true reasons.
• The principle of natural justice sets the minimum standard required for fair
dismissal. It contains two elements, namely, the right to be heard (audi alteram
partem) and rules against bias (nemo judex in causa sua).
• According to the industrial laws in Malaysia, a worker who is wrongfully

dismissed by his employer can resort to certain remedies. In general, the
worker can make a claim based on the following three recourses – civil action
for breach of contract, complaint to the Director-General of Labour according
to S.69(3) of EA 1995 or making a representation to the Director-General of
Industrial Relations under Section 20 of IRA 1967.

Breach of dismissal procedure Natural justice

Condonation Partiality
Domestic inquiry Past misconduct
Double punishment Similar misconduct
Misconduct Single misconduct
cljlaw.com
Curzon, L. B. (2006). Dictionary of law. (6th ed). International Law Book Service.
Industrial Relations Act 1967 PractitionerÊs Referencer, 2005, International Law Book
Services
Malaysian Employers Federation (MEF). (2013). ÂCriminalÊ misconduct in

employment (guide & commentary). (2nd ed).
Syed Ahmad Idid. (1997). The law of domestic inquiries & dismissal. Pelanduk
Publication.

Topic  Trade Union
and Collective
7 Bargaining
LEARNING OUTCOMES
1. Describe trade union and its characteristics;
2. Discuss the procedures in registering a trade union;
3. Identify the responsibilities of a trade union;
4. Explain the meaning of collective bargaining and collective
agreement;
5. Identify the needs and prohibitions of law with regard to
collective bargaining and collective agreement; and
6. Analyse cases related to collective bargaining and collective
agreement.
 INTRODUCTION
This topic discusses the provisions of law regarding trade union and its main
function, which is, to promote collective bargaining and collective agreement with
employees. Among the areas that will be covered are the definition of trade union,
conditions and procedures of registration of a trade union as provided under the
Trade Unions Act 1959 (TUA 1959) and the Industrial Relations Act (IRA) 1967.
Topics such as composition and membership of a trade union, the power and
responsibilities of a trade union under the law, and issues regarding the
representation and recognition of a trade union also form part of the discussion in

TOPIC 7 TRADE UNION AND COLLECTIVE BARGAINING  133
this topic. Besides explanations regarding the provisions of law related to the trade
union, decided cases will also be discussed in order to give detailed explanations
of the provisions under the law.
In addition, this topic further discusses matters relevant to collective bargaining

and collective agreement. You will also be introduced to the scope of a collective
agreement and the effects of the laws on the formation of a collective agreement
that are recognised by the courts.
7.1 DEFINITION OF TRADE UNION

Trade Unions Act (TUA) 1959 was enacted by the Government to supervise and
control groups of workers in a trade, industry or employment. The requirement
for registering a trade union is an important element in controlling and
supervising the activities of trade unions in Malaysia.
Definition
S. 2 of TUA 1959 defines a trade union as an association or combination of
workmen or employers, being workmen whose place of work is in West
Malaysia, Sabah or Sarawak as the case may be, or employers employing
workmen in West Malaysia, Sabah or Sarawak as the case may be.
A trade union must meet all the conditions provided by Section 2, as shown in
Table 7.1.
Table 7.1: Characteristics of Trade Unions
No. Explanation
(a) Within any particular establishment, trade, occupation or industry or within any
similar trades, occupations or industries.
(b) Either temporary or permanent in nature.

134  TOPIC 7 TRADE UNION AND COLLECTIVE BARGAINING
(c) Has one or more of the organisational objectives as follows:

• Regulations that touch on good industrial relations between employers and
employees, improve the working situation and upgrade the economic status
and social status of employees or increase productivity;
• Regulations that touch on the relationship among workers or employers;
• Representation by the employee or employer in trade disputes;
• Actions or activities related to trade disputes and related matters; and/or
• The promotion, sponsorship or subsidising of strikes, trade or industrial
lockouts and the provision of benefits to members during strikes or lockouts.
Based on the definition, the composition of a trade union can comprise:

(a) The employer or employee;
(b) In Peninsular Malaysia, Sabah or Sarawak; or
(c) In the same or similar category of trade, occupation or industry.
A trade union does not necessarily use the word „union‰ in its name. Some unions
put in the term „association‰, particularly those whose members are professionals.
It should be noted that there are generally three types of unions based on the
definition provided by S. 2 of TUA 1959, which are:
(a) In-house trade unions;
(b) National trade unions; or
(c) Federation of trade unions.
An in-house trade union is set up in a particular establishment to take care of the

interests of members in that establishment e.g. Senior Officers Association of
University Hospital, Agrobank Executive Union and UMW Employees Union.
National trade unions are categorised based on the industry, trade or occupation
that the union represents. The membership is limited to the geographical factor,
for example, a national trade union can draw its members only from Peninsular
Malaysia, Sabah or Sarawak. Examples are Electronic Industry Employees Union
Western Region Peninsular Malaysia, West Malaysia Malay Teachers Union,
Sabah Petroleum Workers Union, National Union of Bank Employees and
National Union of Plantation Workers.

The federation of trade unions is a combination of trade unions from similar

industries, trades or occupations. This type of trade union is not limited
geographically. One example is the Congress of Unions of Employees in the Public
and Civil Service (CUEPACS).
Definition
According to S. 2 of IRA 1967, „trade union‰ means any trade union that is
registered under any laws relating to the registration of trade unions.
S. 3 of IRA 1967 provides that the expression „trade union‰ includes an association
that has applied to be registered as a trade union.
Definition
According to S. 2 of TUA 1959, „employer‰ means any person or body of
persons, whether corporate or non-corporate, who employs workmen. It
includes the Government and any other statutory authority.
Definition
„Employee‰ is also defined in the same S. 2 of TUA 1959 as any person who
is engaged for hire or reward, working on a full-time or part-time basis.
ACTIVITY 7.1
In your opinion, how can a trade union encourage good relations

between the employer and its employees? Discuss.
7.2 REGISTRATION OF TRADE UNION

Section 8(1) of TUA 1959 makes it compulsory for a trade union to be registered
within a month after its formation.
However, as per S. 8(2) of TUA 1959, the Director-General of Trade Unions may, if
he thinks fit, grant an extension of the period specified but it should not exceed six
months.

7.2.1 Procedures in Trade Union Registration

(S. 10 of TUA 1959)
Figure 7.1 explains the procedure in trade union registration.
Figure 7.1: Trade union registration procedure
As per S. 7 of TUA 1959, the Director-General of Trade Unions will keep and
manage the list of registered trade unions and fulfil the following conditions:
(a) The particulars of the registered trade union;
(b) Any alteration or change to be affected to the particulars in (a); and
(c) All such other matters as may be required to be registered under TUA 1959.
A certified copy of any entry in the register shall be conclusive proof of the facts
specified therein as on the date of such certified copy.

A trade union is formed on the day the employers or workers agree to become
members, form a union or join specifically with an establishment, trade,
occupation or industry. A union or such association can be temporary or
permanent as long as it fulfils the objectives of the trade union formation as stated
in the previous note (see S. 2 of TUA 1959).
For the purpose of legal action by the authorities on registered trade unions, and
without the existence of any evidence, the determination of the date of trade union
establishment is shown in Figure 7.2, which represents the guidelines provided by
S. 9 of TUA 1959.
Figure 7.2: Determination of trade union establishment date
7.2.2 Refusal to Register, Cancel or Suspend Trade

Union by Director-General
S. 12(1) of TUA 1959 provides that the Director-General of Trade Unions is
required to register a trade union according to the regulations upon receiving an
application for the registration of a trade union.
However, Section 12(2) of TUA 1959 also provides that the Director-General can
refuse to register a trade union if he is satisfied that it is not being established to
fulfil the interests of the workers concerned.

The reasons that allow for the refusal are set out in Table 7.2 (S.12(3) of TUA 1959).
Table 7.2: Reasons for Refusing an Application to Register a Trade Union
Reasons for Refusal to Register a Trade Union
(a) The Director-General is of the opinion that the trade union is likely to be used for
unlawful purposes or for purposes contrary to its objectives and rules.
(b) Any of the objectives of the trade union is unlawful.
(c) The Director-General is not satisfied that the trade union has complied with TUA
1959 and its regulations.
(d) The Director-General is satisfied that the objectives, rules and constitution are in
conflict with any of the provisions of TUA 1959 or any of its regulations.
(e) The name under which the trade union is to be registered is:
(i) Identical to other existing trade unions or nearly resembles other unions
such that it may deceive the public or members of other trade unions.
(ii) The Director-General is of the opinion that the name is not suitable for
registration unless the trade union alters its name to one that is acceptable
and can be passed or accepted by the Director-General.
S. 15 of TUA 1959 empowers the Director-General to cancel or withdraw the

registration for the following reasons:
(a) At the request of the trade union upon its dissolution to be verified in such a
manner as the Director-General may require; or
(b) If the Director-General is satisfied that:

(i) The certificate of registration was obtained through fraud or mistake;
(ii) Any one of the objectives or rules of the trade union is unlawful;
(iii) The constitution of the trade union or its executive is unlawful;
(iv) The trade union is to be used for unlawful purposes;
(v) The trade union has contravened the provisions of TUA 1959 or its
regulations;
(vi) The funds thereof have been expended in an unlawful manner or on an
unlawful objective or on an objective not authorised by the rules of the
trade union; or
(vii) The trade union does not exist anymore.

Apart from this, the Minister also has powers under S. 18 of TUA 1959 to suspend
a trade union if in his opinion, it is being used for purposes prejudicial to, or
incompatible with, the interests or the security of, or public order, in Malaysia.
Such suspension is not to exceed six months through a gazetted order.
ACTIVITY 7.2
State a situation that can enable the Director-General of Trade Unions
to suspend a trade union.
7.2.3 Consequences of Failure or Cancellation of

Registration (S. 19 of TUA 1959)
The consequences are as follows:
(a) The trade union shall be deemed an unlawful association and shall cease to
enjoy any of the rights, immunities or privileges of a registered trade union,
but without prejudice to any liabilities incurred or to be incurred by the trade
union which may be enforced against the union and its assets;
(b) The trade union shall not, nor shall any of its officers, members or agents on
behalf of the union, take part in any trade dispute or promote, organise or
finance any strike or lockout, or provide pay or other benefits for its members
during a strike or lockout;
(c) The trade union shall be dissolved and its funds disposed of in such a manner
as may be prescribed and subject thereto, in accordance with the rules of the
union; and
(d) No person shall, except for the purpose of dissolving the union and
disposing of its funds in accordance with the rules or for the purpose of an
appeal under Section 71A against such refusal, withdrawal or cancellation,
take any part in its management or organisation, or act or purport to act on
behalf of the union or as an officer of the union.

In the case of Airline Employees Union v Malaysia Airline System Bhd (Award
38/1980), the court decided that:
„On 14 April 1979, the Director-General of Trade Unions issued a public notice
under Section 15 of TUA 1959 to cancel the registration certificate of the union and
from the said date, the union is said to no longer exist. The consequence of this
cancellation is that the union that is a party in this case no longer exists as an entity
in law.‰
In the case of Malaysian Race Horse Trainers Association v Kesatuan Pekerja-

pekerja Am Race Course (Award 193/1988), the court decided that the unions
involved were not registered legally. The Director-General of Trade Unions
confirmed this. Thus, the trade union could not represent the applicant in this case.
SELF-CHECK 7.1
Give reasons why the Director-General of Trade Unions might turn
down or cancel the registration of a trade union.
7.3 MEMBERSHIP OF TRADE UNIONS

As per TUA 1959, the following individuals or class of persons cannot participate
or become members of a trade union:
(a) Anyone below 16 years of age (S. 26[1] TUA 1959);
(b) A student of a school, polytechnic, college, university, university college or
any other institute of learning that provides educational programmes, except
if the student is a bona fide worker and is more than 18 years of age (S. 26[1]
TUA 1959);
(c) Any person who is not a worker or is not taken to work in any organisation,
trade, occupation or industry that is related to the trade union concerned
(S. 26 [1A] TUA 1959);
(d) Government officers cannot participate or become members of trade unions
or be invited to become members of such unions (S. 27[1] TUA 1959); and
(e) Anyone working with statutory bodies cannot participate or become
members of trade unions or be invited to become members thereof unless the
union is exclusively for such workers in the statutory body (S. 27[3] [a] TUA
1959).

SELF-CHECK 7.3
Which individuals and classes of persons cannot participate in or

become members of a trade union? Explain.
7.4 POWERS, RIGHTS AND RESPONSIBILITIES

OF TRADE UNIONS
As per S. 20 of TUA 1959, a trade union shall not enjoy the rights, immunities or
privileges of trade unions unless it is registered.
Among the rights, immunities and privileges recognised by TUA 1959 are:
(a) No civil suit or legal proceeding can be taken against a registered trade union
in trade disputes, where its members are parties to the industrial dispute
concerned (S. 21 TUA 1959);
(b) No suit or legal proceeding can be maintained against a trade union with
regard to an action in tort, except touching those concerning the specific
property or rights of a trade union and which the trade union, trustee or
officer has liability (S. 22 TUA 1959);
(c) Each trade union is responsible for all the legal contracts that it or its agents
have entered into except for contracts that are illegal and cannot be lawfully
implemented (S. 23 TUA 1959); and
(d) The trade union can be sued and can sue third parties by using the capacity
of the trade union itself (S. 25 TUA 1959).
The powers given by law to trade unions are to:

(a) Make regulations with regard to employer and employees, employer and
employer or worker and worker;
(b) Represent employer or employees in trade disputes;
(c) Enforce matters related to trade disputes and related matters; and
(d) Sponsor, organise and subsidise strikes or lockouts, or pickets that are legal.

Provision
In addition, S. 49 of TUA 1959 provides that a trade union can:
(a) Purchase or take lease for the purpose of the trade union any land or
building and subject to any written law which may be applicable to sell,
exchange, charge or lease any such land or building which may be so
purchased;
(b) Invest funds in any securities or in any loans to any company in
accordance with any law relating to trustees;
(c) Deposit funds in Bank Simpanan Nasional, any banks in Malaysia or any
finance company which is a subsidiary company of such bank; or
(d) Invest in any registered cooperative society or in any commercial, industrial
or banking enterprise incorporated and operating in Malaysia, with prior
consent and approval from the Director-General.
Apart from the powers mentioned in S. 49 of TUA 1959, the union is also
empowered to:
(a) Collect money or other assets for the purpose of the union;
(b) Recruit workers for the union and pay wages to them;
(c) Join one or more unions that are registered in the same category – trade,
industry or occupation;
(d) Transfer engagement to other trade unions in the same category – trade,
industry or occupation; and
(e) Form one or more trade unions in the same category and consolidate with
other registered trade unions.

Provision
Trade unions also have responsibilities that must be fulfilled as per the First
Schedule of TUA 1959 as stated in the following:
(a) To state the name of the trade union and the place of meeting for business;
(b) To state the purposes for which the funds thereof shall be applicable, the
conditions under which any member thereof may become entitled to any
benefits assured thereby and the fines and forfeiture to be imposed on any
member thereof;
(c) To decide on the manner of making, altering, amending and rescinding
the rules;
(d) To have election for the executives of the union;
(e) To observe matters pertaining to funds and investments of the union;
(f) To have inspection of the books and names of members of the union;
(g) To prepare the conditions with regard to the manner of dissolution of the
union and the disposal of the funds thereof at the time of such disposal;
(h) To decide on the manner with regard to establishment and dissolution of
branches of the unions;
(i) To carry out procedures with regard to election and the use of secret
balloting with secrecy;
(j) To prepare the documentation with regard to dispute resolution with
reference to Part (vi) of TUA 1959; and
(k) To set conditions with regard to enforcement pertaining to members
especially concerning any strikes or lockouts that are in conflict with
provisions of Section 25(a) of TUA 1959.
SELF-CHECK 7.4
Considering that trade unions aim to forge ties between employer

and employees, what are the powers, rights and responsibilities of
trade unions? Share your answer in the myINSPIRE online forum.

7.5 REPRESENTATION AND RECOGNITION

The registration of a trade union makes it legally right to exist. However, in order
to represent a group of employees, the trade union requires recognition from the
employer.
A trade union must meet four conditions before it can obtain recognition from the
employer or authorised parties. These conditions are as follows:
(a) It must be a duly registered union;
(b) It must be qualified to represent its members according to the framework of
establishment, trade, industry and occupation;
(c) It must be suitable and in conformity with trade unions for white-collar or
blue-collar workers; and
(d) It needs to have received sufficient mandate from its members to represent
them.
An amendment of S. 11 of IRA 1967 provides that if the union has been given
recognition, no other union can claim such recognition with regard to the same class
of workers except after one year has lapsed or when the union concerned does not
exist any longer.
Provision
S. 11 of IRA 1967 – No other union can claim recognition with respect to a
recognised union unless one year has lapsed after the recognition has been
accorded or when the trade union which has been accorded recognition is no
longer in existence.
ACTIVITY 7.5
Din is a general worker at Syarikat Indah Seri Sdn Bhd. He has been
dismissed by the manager for misconduct. The Union for Officers
and Executives wishes to represent him in the domestic inquiry.
Decide whether the union has the locus standi in this respect.
Discuss in the myINSPIRE online forum.

SELF-CHECK 7.2
Explain the conditions that must be fulfilled if a union wants
recognition from the employer.
7.6 DEFINITION OF COLLECTIVE BARGAINING

Collective bargaining consists of negotiations between an employer and a group
of employees to determine the terms and conditions of employment. The result of
collective bargaining procedure is a collective agreement.
Definition
S. 2 of IRA 1967 states that collective bargaining means negotiating with a
view to the conclusion of a collective agreement.
The matters which can be bargained are related to the conditions and rules of
work, and the work of employees or related to the relationship between these
parties. These include:
(a) Working conditions such as wages, working times as well as pecuniary and
non-pecuniary benefits;
(b) Matters regarding situations or conditions of the workplace such as the
physical aspects of the workplace, safety of workers and comfort of the
workplace; and
(c) Relationships between employees and employer such as disciplinary
benefits of termination and so on.

Once a trade union has been recognised by the employer or the employerÊs union,
S.13(1) of IRA 1967 gives the recognition shown in Figure 7.3:
Figure 7.3: Recognition as per Section 13(1) of IRA 1967
The amendment of IRA 1967 introduced the provision of sole bargaining rights
with the inclusion of Section 12A. This section provides that if several trade unions
have been given recognition by an employer, the unions will decide which one of
them will represent the workers during collective bargaining. If they fail to decide,
the workers have the right to cast a secret ballot to pick a union. This union will
have the sole bargaining right to represent them in the collective bargaining.
The invitation must be in writing and state the suggestions with regard to the
collective agreement (S. 13[2] IRA 1967).
The amendment of S. 13(3) IRA 1967 permits the trade union to raise questions on
general character during the collective bargaining as follows:
(a) The promotion by an employer of any employee from a lower grade to a
higher grade or category;
(b) The transfer of employees in the profession or job in the employerÊs
organisation, on condition that it will not incur any losses to the employee in
terms of his contract of service;
(c) The recruitment of any person that the employer may appoint if a vacancy
arises in his organisation;

(d) The termination by an employer of the services of a worker by reason of

redundancy or reorganisation of an employerÊs profession, business, trade or
work, or criteria of such termination;
(e) The dismissal and reinstatement of an employee; and
(f) The reassignment of duties or specific tasks to an employee that is consistent
or compatible with the terms of his employment.
In the case of Kongres Kesatuan Pekerja-pekerja Dalam Perkhidmatan Awam v

Kesatuan Pekerja-pekerja Dalam Kesatuan Sekerja (Award 130/1980), the court
decided that the failure of collective bargaining and the signing of the collective
agreement are based on two factors:
(a) The employer submitted that the workersÊ union did not have locus standi as
a large number of the members had stopped becoming members of the union;
and
(b) The reluctance of the employer in signing the collective agreement is because
the majority of the employees were happy with the current wages and
conditions of work offered by the employer.
However, whatever the conditions with regard to membership, the court was of
the view that after getting recognition from the employer, the question of locus
standi did not arise. Therefore, the court was of the view that the union had the
right to enforce collective bargaining. Submission by the employer was without
merit and against public policy.
ACTIVITY 7.6
In your opinion, what kind of situation warrants collective
bargaining? Discuss in the myINSPIRE online forum.
SELF-CHECK 7.3
What matters can normally be entered into collective bargaining?
Explain.

7.7 COLLECTIVE AGREEMENT
Definition
S. 2 of IRA 1967 - Collective Agreement is a written agreement between the
employer or employersÊ union and the workersÊ union with regard to the
conditions and rules of work or the relationship between the two parties.
Provision
S. 14(1) of IRA 1967 – A collective agreement shall be in writing and signed by
the parties to the agreement or by persons authorised on their behalf.
The collective agreement shall have the following terms (S. 14[2] of IRA 1967):
(a) Name of the parties thereto;
(b) The period it shall continue to be in force, which shall not be less than three
years from the date of commencement of the agreement;
(c) Prescribes the procedures for its modification and termination; and
(d) The procedures for the adjustment of any question that may arise as to the
implementation or interpretation of the agreement and reference of any such
question to the court for a decision.
Any term or condition therein which is less favourable than or in contravention of

the provisions of any written law shall be void and of no effect to that extent
(S. 14[3] of IRA 1967).
7.8 SCOPE OF COLLECTIVE AGREEMENT

The scope of collective agreement focuses on two important questions, namely,
what and who shall be entered into the scope of the agreement concerned.
In the case of Equatorial Hotel v National Union of Hotel Bar and Restaurant
Workers (Award 88/1982), the court referred to Section 2 of IRA 1967 which
provided that the main content shall be:
(a) The relationship between the employer and the workersÊ union; and
(b) The terms and conditions of work.

The question as to who should be entered into the scope of agreement was decided
in the case of K Shanmugam (Trainer) v Race Course General Employees Union
(Award 266 of 1983). The court decided that when the name of the trainer is not in
the list (Malaysian Race Horse Trainers Association), the trainer is not tied to the
collective agreement concerned.
7.9 PERIOD OF COLLECTIVE AGREEMENT
Provision
According to S. 14(2) of IRA 1967, the collective agreement must state the
enforcement period which cannot be less than three years from the date of
enforcement of the agreement.
The principle has been adopted in the case of Malaysia Milk Sdn Bhd v National
Union of Drink Manufacturing Industry Workers (Award 204/1983).
Other than the concluded collective agreement due to mutual agreement after the
successful process of collective bargaining, sometimes collective agreements may
come into existence through an award decided by the Industrial Court due to
reference by parties in trade disputes under S. 26(1) or (2) of IRA 1967. This type
of collective agreement arises from unsuccessful collective bargaining, thereby
creating a trade dispute.
Such award by the court shall state the period within which it has to be enforced.
ACTIVITY 7.7
What is the difference between collective agreement and collective
bargaining?

7.10 COGNISANCE AND EFFECTS OF LAW ON

COLLECTIVE AGREEMENT
Provision
S. 16(1) of IRA 1967 – A signed copy of the collective agreement shall be jointly
deposited by the parties with the Registrar within one month from the date on
which the agreement has been entered into and the Registrar shall thereupon
bring it to the notice of the Court for its cognisance.
S. 16(2) of IRA 1967 further provides that on this basis, the Court can then at its
discretion:
(a) Refuse to take cognisance of the agreement if it does not comply with Section
14; or
(b) Before taking cognisance of the collective agreement, requires any part that
does not comply with the provision of Section 14 to be amended as directed
by the court.
If either party fails to comply with the directions, the court can amend the
collective agreement after having given both parties reasonable opportunity to
comply. In addition, the amended collective agreement shall henceforth be taken
as the relevant collective agreement.
In the case of Malayan Commercial Banks Association v National Union of Bank

Employees (Award 117/1982), the court gave guidelines with regard to the
contents of the collective agreement for the courtÊs approval. The format is as
follows:
Part I: Statutory Matters

Contains the provisions as per Section 14 of IRA 1967.
Part II: Relationship between the Employer and the WorkersÊ Union
Contains the terms and conditions with regard to the relationship between
employer-employees in a collective agreement.
Part III: Terms and Conditions of Work

Contains the responsibilities of the employer and the conditions of work of the
workers. Provisions refer to the Employment Act 1955 and those related to
workersÊ compensation and other workersÊ benefits.

A collective agreement that has been given cognisance by the court is deemed an
award and such agreement binds the following parties (S.17(1) of IRA 1967):
(a) The parties in the agreement including those in any cases when one party is
an employerÊs union, all the members of the union related to the
replacements, holders of assignment or recipients of such assignments; and
(b) All workers employed or later taken to work in the establishment which the
agreement relates to.
It then becomes implied conditions, from the date concerned and for the period as
specified in the collective agreement. The rates of wages and employment must
abide by the contract as per the agreement, except if it is amended later or by a
court decision (S. 17[2] of IRA 1967).
ACTIVITY 7.8
Discuss the effects of a collective agreement on the parties concerned.
• S. 2 of the Trade Unions Act (TUA) 1959 defines a trade union as an association
or a combination of workmen or employers, being workmen whose place of
work is in West Malaysia, Sabah or Sarawak as the case may be, or employers
employing workmen in West Malaysia, Sabah or Sarawak as the case may be.
• Trade unions have three characteristics:

– They are within any particular establishment, trade, occupation or industry
or within any similar trades, occupations or industries;
‒ They are either temporary or permanent; and
‒ They have one or more of the organisational objectives.

• The procedure of registering a trade union is as follows:

– An application must be made to the Director-General in the prescribed
form. It must be signed by at least seven members of the union, any of
whom must be an officer of the trade union; and
– The application must be accompanied by the prescribed fees, a printed
copy of the rules of the trade union and a statement of certain particulars
(name, occupation and address of members; name of trade union and head
office address; titles, names, ages, addresses and occupations of the officers
of the trade union and other related information).
• Trade unions have certain responsibilities which must be fulfilled as per the
First Schedule of TUA 1959. Some of these are as follows:
– To state the name of the trade union and the place of meeting for business;
– To state the purposes for which the funds thereof shall be applicable, the
conditions under which any member thereof may become entitled to any
benefits assured thereby and the fines and forfeiture to be imposed on any
member thereof;
– To decide on the manner of making, altering, amending and rescinding
rules;
– To have an election of the executive members of the union; and
– To observe matters pertaining to funds and investments of the union.
• S. 2 of IRA 1967 states that collective bargaining means negotiating with a view
to the conclusion of a collective agreement. As for collective agreement, S. 2 of
IRA 1967 states that it is a written agreement between the employer or
employersÊ union and the workersÊ union with regard to the conditions and
rules of work or with regard to the relationship between the two parties.
• A collective agreement focuses on two important questions ‒ what and who

shall be entered into the scope of the agreement concerned.
• According to S.16(1) of IRA 1967, a signed copy of the collective agreement

must be jointly deposited by the parties with the Registrar within a month from
the date on which the agreement has been entered into and the Registrar shall
thereupon bring it to the notice of the court for its cognisance.
• S. 16 (2) of IRA 1967 further provides that on the above basis, the court can then
at its discretion:

– Refuse to take cognisance of the agreement if it does not comply with

Section 14; or
– Require that any part that does not comply with the provision of Section 14
be amended as directed by the court, before taking cognisance of the
agreement.
Cognisance of law Recognition

Collective agreement Representation
Collective bargaining Sole bargaining rights
Federation of trade unions Trade union
In-house trade union Trade union powers
National trade union
cljlaw.com

Book Service
Maimunah Aminuddin, (2007). Malaysian industrial relations & employment law

(6th ed). McGraw Hill.
Trade Union Act 1959 (Act 262)

Topic  Trade Disputes
and Dispute
8 Resolution
LEARNING OUTCOMES
1. Identify the types of disputes that commonly arise between
employers and employees;
2. Differentiate between legally allowed trade dispute actions and
those that are not allowed;
3. Identify two ways of resolving trade disputes;
4. Describe the definition, representation and steps in conciliation;
and
5. Explain the composition and responsibilities of inquiry board and
investigation committee.
 INTRODUCTION
This topic discusses matters that are important with regard to trade or industrial
disputes. Such disputes arise between employers and employees in relation to
various aspects within the employment relationship such as unfair labour
practices, trade union recognition, interpretation of collective agreements or
individual grievances.
A trade dispute may lead to the launch of industrial action by either party in
dispute, namely, the employer or employee. This action may include strikes and
picketing by the workers and lockout by the employer. Matters with regard to
industrial actions that are prohibited by law are also considered here. In addition,

TOPIC 8 TRADE DISPUTES AND DISPUTE RESOLUTION  155
the topic covers the ways that are available under industrial law to resolve trade
disputes, for example, the setting up of a Committee of Investigation or Board of
Inquiry by the Minister of Human Resources. The discussion in this topic will be
centred upon the structure and responsibility of these two bodies. The process of
conciliation and the composition of members, procedures and roles of the Director-
General in this respect or its representatives to act as arbitrator will also be
discussed.
8.1 DEFINITION OF TRADE DISPUTE
Definition
According to S. 2 of IRA 1967, trade dispute is a dispute between an employer
and his workmen who is related to the employment or non-employment, the
terms of employment or the conditions of work of such workmen.
The case of Teluk Anson Agricultural Enterprise Sdn Bhd (Arcadia Estate) v
National Union of Plantation Workers (Award 139/1984) explained the word
„non-employment‰ which involves matters that arise in relation to the dismissal
of employees who felt that it was unfair and brought the matter to court.
During that proceeding of law, what was mentioned was „non-employment‰

because at that time, from the viewpoint of the employer, the employee concerned
is not his employee. However, from the viewpoint of the law, the employee still
has the right to make claims.
The word „party‰ in reference to trade disputes is explained in Figure 8.1.
Figure 8.1: Parties in a trade dispute

156  TOPIC 8 TRADE DISPUTES AND DISPUTE RESOLUTION
Many disputes can arise between employers and employees. Examples include
disputes that take place when the employer and employees fail to achieve
consensus with regard to matters in the collective agreement, disputes arising over
the issue of interpretation of the terms in the collective agreement or non-
compliance with the terms set out in the collective agreement or Industrial Court
award. Besides that, disputes may arise when an individual worker has a
grievance (complaint) and is represented by his union.
The disputes will normally resolve in an amicable manner i.e. through direct
negotiations between the parties involved. If this method does not work, a
registered trade union of employees is allowed to take industrial action or trade
dispute action as provided by TUA 1959 and IRA 1967.
Trade dispute actions that are legally recognised can be classified into three types:
(a) Strikes by workers;
(b) Lockout by employers; and
(c) Picketing by employees.
8.2 DEFINITION OF STRIKES, LOCKOUTS AND

PICKETS (S. 2 OF TUA 1959)
Definition
A strike is the action of:
(a) A group of workers stopping work collectively; or
(b) Workers refusing together to continue working; or
(c) Workers refusing to accept work either together or under a common

understanding; or
(d) Whatever acts or omissions by a group of employees who act together

and with a common understanding,
The actions in (a), (b), (c) and (d) may cause any limiting, blockage, reduction,
termination or postponement of any action or implementation of all or part of
a task relating to employment.

Definition
A lockout is:
(a) The closing down of a workplace; or
(b) The suspension of work; or
(c) The refusal of the employer to allow the employees working under him
to continue the trade dispute which is occurring with the purpose of
forcing them to accept the conditions and regulations of employment.
The definition of picket is not expressly provided by TUA 1959 or IRA 1967.
However, the right to lawfully picket is stated clearly in S. 40 of IRA 1967. The
definition of picket is impliedly understood based on discussions on the subject
matter by many writers in industrial law.
Definition
Picket is the act of workers gathering at or near the workplace. It is conducted
peacefully to enable them to get or relay information, persuade or encourage
any worker to work or refrain from working.
In other words, strike and picket are actions undertaken by workers while a
lockout is an action by the employer. These acts are legal if both parties follow the
conditions and procedures set. These industrial actions are allowed mainly in
order to force a resolution on an ongoing trade dispute.
In Malaysia Galvanised Iron Pipes Sdn Bhd v. Metal Industry EmployeesÊ Union
and Ors 2 MLJ 173, the Federal Court held that the act of erecting a tent in front of
the employer cannot be regarded as a strike. Picketing is not the same as strike.
However, in Harianto Effendy Zakaria & Ors v. Mahkamah Perusahaan Malaysia

& Anor (2014) 4 ILR 241, the Federal Court held that even though the workers
participated in a picket, their act of barging into the employerÊs premises and
creating disruption during the employerÊs operations were unlawful and
constituted a misconduct on the part of the workers.

ACTIVITY 8.1
1. In your opinion, what are the effects of pickets or strikes on the

economy as well as the perception of the public and employer
of those involved?
2. Explain clearly the differences between a strike, a lockout and a

picket.
8.3 PROVISIONS OF LAW REGARDING

STRIKES, LOCKOUTS AND PICKETS
In Malaysia, the law allows strikes, pickets and lockouts as long as these do not
contravene the provisions of law and regulations. In the event that there is an
illegal strike or lockout, workers have the right to refuse to be involved in it.
Provision
S. 49 of IRA 1967 provides that no person refusing to take part or to continue to
take part in any strike or lockout which is illegal should be subject to expulsion
from any trade union, subject to any fine or penalty, to be deprived of any rights
or benefits, be liable to be placed in any respect either directly or indirectly
under any ill treatments or at any disadvantage compared to other members of
the union.
In the case of Hotel Malaya Sendirian Bhd v National Union of Hotel, Bar and
Restaurant Workers (Award 157/1982), the court decided that it is normal that a
worker cannot be dismissed from employment just because the worker concerned
was absent from work as he was involved in a strike during a trade dispute.
In the case of HM Shah Enterprises Sdn Bhd v The National Union of Hotel Bar and
Restaurant Workers (Award 148/1988), the court made the following statement:
„In this country, picketing, strikes and lockouts are allowed but within the confines
of Part IX of IRA 1967. No union will take picketing or strike action straight away,
without negotiating having first entered into. What the union has done in this case
in the form of negotiations and picketing appears well within the law and cannot
be deemed as duress. If the law and the courts frown upon such lawful action, that
would be the day when democracy begins to crumble.‰

8.3.1 Legal Consequences of Trade Dispute Actions

that Breach the Law
Provision
S. 45 of IRA 1967 provides that a strike or lockout breaches the law if:
(a) It breaches Sections 43 and 44 or any other provision of the written law; or
(b) It has objectives that are different from achieving a solution with regard to a
trade dispute.
S. 43 of IRA 1967 restricts strikes and lockouts in essential services by imposing special
procedures to be complied with.
S. 44 of IRA 1967 prohibits strikes and lockouts in certain circumstances, that is,
pending the proceedings of a Board of Inquiry or after a trade dispute has been
referred to the Court and the like.
However, if the lockout is the result of an illegal strike or the strike is the result of
an illegal lockout, then it shall not be considered as illegal (S. 45[2] of IRA 1967).
An amendment of IRA 1967 removed imprisonment as a form of punishment.

Instead, workers who participate, continue to participate or act towards achieving
a strike that is illegal upon conviction will be fined not more than RM5,000
compared to the previous provision of RM1,000. Further, an additional fine of
RM50 a day shall be imposed for each day that the illegal action continues (S. 46[1]
of IRA 1967).
Likewise, the employer who participates, continues to participate or acts towards

achieving a lockout that breaches the law upon fined not more than RM5,000 or
both. An additional fine of RM50 a day shall also be imposed for each day that the
illegal action continues (S. 46[2] of IRA 1967).

Provision
S. 44 of IRA 1967 provides that no worker can launch a strike and no employer
can start a lockout in the following situations:
(a) During the pendency of the proceedings of a Board of Inquiry appointed
by the Minister which involves the workers and the employer, and seven
days after the conclusion of such proceedings;
(b) After a trade dispute or matter involving such workers and such employer
has been referred to the court and the parties concerned have been notified
of such reference;
(c) After the Yang di-Pertuan Agong or the state authority, in cases involving
disputes relating to any government service or the service of any statutory
authorities, has withheld consent with reference to the dispute to the court
under S. 26(2) and the parties concerned have been notified thereof; in
respect to any of the matters covered by a collective agreement taken
cognisance of by the court in accordance with S. 16 or by an award; or
(d) In respect to any matters covered under Section 13(3).
Provision
Section 38 of IRA 1967 states that students are not allowed to participate in trade
disputes. If this is breached, they can be expelled from school.
S. 40(1) of IRA 1967 provides that pickets are said to breach the law if they aim at:
(a) Threatening other persons;
(b) Obstructing access to the place or access out of it; or
(c) Disturbing the peace.
Amendment of IRA 1967 also removed imprisonment as punishment and

increased the fine. Thus, anyone who carries out illegal picketing upon conviction
will be fined not more than RM5,000 instead of not more than RM1,000 previously
(S. 40(3) IRA 1967).
The amendment of IRA 1967 also gives the Minister the power to stop a strike or
lockout if it endangers the life, personal safety or health of the whole or part of the
population (S. 44A IRA 1967)

It is an offence to incite others to participate in illegal strikes or lockouts. Those

involved can be jailed for not more than one year or fine or both. The amendment
of IRA 1967 has increased the fine to not exceeding RM5,000 (S. 47 of IRA 1967).
Provision
Section 48 of IRA 1967 provides that anyone who, with purpose and intent,
spends or uses money to achieve or directly support any strike or lockout that
is illegal commits an offence.
If found guilty, he can be jailed for not more than six months or fined. The
amendment of IRA 1967 increased the fine to not more than RM5,000.
Another act that is forbidden by law is the forcing or intimidation of anyone who
refuses to take part in any strike or lockout.
Provision
According to Section 39 of IRA 1967, threats and intimidation can be divided
into the following acts:
(a) Uses violence on or intimidates such other person or any member of his
household, or injures his property;
(b) Frequently follows such other person about from place to place;
(c) Hides tools, clothes or other properties owned or used by such other
person or deprives him in the use thereof;
(d) Watches or besets the house or other places where such other person
resides, works or carries on his business; or
(e) Follows such other person with two or more persons in a disorderly
manner or through a street or road.

Parties who had carried out such acts can be imprisoned for not more than one
year or fined not more than RM1,000 or both.
S. 59 of IRA 1967 states that it is an offence to dismiss a worker, injure or

threaten him in his employment, alter or threaten to alter his position to his
prejudice by reason of the circumstances that the worker:
(a) Is or proposes to become an officer or member of a trade union or of an
association that has applied to be registered as a trade union;
(b) Is entitled to the benefits of a collective agreement or an award;
(c) Has appeared or proposes to appear as witness or has given or proposes
to give evidence in any proceeding under this Act;
(d) Being a member of a trade union seeking to improve working conditions,
is dissatisfied with such working conditions;
(e) Is a member of a trade union which has been served an invitation under
Section 13 or is a party to negotiations under this Act or to trade disputes
which have been reported to the Minister in accordance with Part V or
Part VII;
(f) Has absented from work without leave for the purpose of carrying out his
duties or exercising his rights as an officer of a trade union where he
applied for leave in accordance with Section 6 before he absented himself;
or
(g) Being a member of a panel appointed under S. 21, has absented him from
work for the purpose of performing his functions and duties as a member
of the court and has notified the employer before he absented himself.
If proven guilty, the employer concerned can be imprisoned for not more than one
year and fined not more than RM2,000 or both. The employer can also be instructed
by the court to pay compensation to the employee or reinstate the employee
concerned if he had been dismissed for involving in such matters.
ACTIVITY 8.2
Explain the acts of strikes and lockouts that are forbidden under the
law and the punishments involved.

8.3.2 Procedures for Strikes and Lockouts for Essential

Services
There are certain restrictions imposed by the law for strikes and lockouts to be
launched by respective parties in essential services.
Essential services are listed in the amended First Schedule of S. 2 of IRA 1967.
These refer to:
1. Electricity services
2. Fire services
3. Prison services
4. Public health services
5. Public waste management services
6. Telegraph, telephone and telecommunication services
7. Water services
8. Any services provided by any of the following departments of government:
• Chemistry;
• Civil aviation;
• Customs and excise;
• Immigration;
• Marine;
• Meteorology; and
• Printing.
9. Services that assist the maintenance and functioning of the armed forces and
the Royal Malaysian Police Force
10. Businesses and trade associated with defence and the security of the nation
11. Any section of any service, on the working of which the safety of the
employees therein or of the establishment relating thereto depends

12. Air traffic controller

13. The Minister may declare by notification in the Gazette a service to be an
essential service if any disruption of the service would endanger the life,
personal safety or health of the whole or part of a population.
The workers of essential services shall not go on strike (S. 43 1) IRA 1967):
(a) Without giving the notice of strike to the employer within 42 days before the
strike;
(b) Within 21 days of giving such notice; or
(c) Before the expiry of the date of the strike specified in any such notices as
aforesaid.
The employers of essential services shall not lockout any of their workers before
satisfying similar procedures (S. 43(2) of IRA 1967).
ACTIVITY 8.3
Discuss the types of essential services and the conditions for holding
strikes and lockouts for essential services.
8.4 TRADE DISPUTE RESOLUTIONS

It is common for a trade dispute to be resolved through direct negotiation between
the parties in dispute. In the event that it cannot be resolved, the parties may resort
to the means of resolution provided by the statute, that is, IRA 1967.
The methods of trade dispute resolutions are as follows:

(a) Conciliation (S. 18 of IRA 1967); and
(b) Inquiry and investigation (S. 34 of IRA 1967).

8.5 CONCILIATION
Definition
Conciliation means bringing two parties, namely:
(a) The employer or the union of the employer who is a party to the dispute;
and
(b) The workersÊ union, that is, another party to the dispute, to conciliate
and to achieve a consensus with regard to the issues being disputed.
In the process of conciliation, there will be an impartial third party, known as

conciliator, who is appointed to help the parties in dispute arrive at a solution. The
appointed conciliator has to facilitate the parties towards achieving an agreement.
He is expected to use his skills and expertise as a facilitator, not a decision-maker.
The Director-General of Industrial Relations and the Minister have the power to
act as conciliators.
8.5.1 Representations in Conciliation

(S. 19B of IRA 1967)
The representations in a conciliation are as follows:
(a) The conciliator;
(b) The employer, officer or worker of the employersÊ union or staff member of
any employersÊ establishments that are registered in Malaysia (but not the
employer in disputeÊs union); and
(c) The employeesÊ union or any staff from any of the employeesÊ bodies that are
registered in Malaysia.
Solicitors, advisers, consultants or others are not allowed in the conciliation

proceedings.
ACTIVITY 8.4
In your opinion, why are solicitors, advisers and consultants not
allowed in the conciliation proceedings? Share your answer in the

8.5.2 Process of Conciliation

The steps in the process of conciliation are shown in Figure 8.2. Section 19A of IRA
1967 also empowers the Minister, if he thinks it is necessary to take steps to
conciliate any trade disputes.
In the process of conciliation, the role of a conciliator is merely as a facilitator and

not as a judge as mentioned earlier. Please refer to the case of Wix Corporation
South East Asia Sdn Bhd v Minister for Labour and Manpower & Ors (1980) 1 MLJ
224.
Provision
S. 54 of IRA 1967 provides that where a trade dispute relates to matters
concerning negotiation or conciliation proceeding that has taken place under
this Act, no evidence shall be given in the proceeding before the court to such
negotiation or conciliation other than a written statement in relation thereto
agreed to and signed by the parties to the dispute.

Figure 8.2: Steps in the process of conciliation
ACTIVITY 8.5
Discuss the role of the conciliator in the conciliation process in
achieving dispute resolution.

8.6 INQUIRY AND INVESTIGATION

The process of inquiry and investigation is carried out when a trade dispute arises
or is expected. The Minister can appoint a Committee of Investigation or a Board
of Inquiry. Reference can be made to the Committee of Investigation or the Board
of Inquiry regarding various matters that are found to be related or relevant to the
dispute (S. 34 of IRA 1967).
8.6.1 Composition of Members and Responsibilities of

Committee of Investigation and Board of
Inquiry
The Committee of Investigation may consist of one or more persons appointed by
the Minister. After being appointed, the Committee shall investigate the causes
and circumstances of any trade dispute or matter referred to it and report thereon
to the Minister (S. 35 of the IRA 1967).
In relation to the Board of Inquiry, S. 36 of IRA 1967 provides that the Board of
Inquiry may consist of a chairman and such other persons as the Minister thinks
fit or may consist of one person.
A Board may act notwithstanding any vacancy in its members.
The Minister may establish rules to regulate the procedures of any Board,
including the rules to summons and payment of expenses for witnesses, quorum
and calling for documents.
A person may be represented before the Board, with permission of the Chairman
by:
(a) Any officer or employee of a trade union of the employer or worker; or
(b) Any officer of an organisation of employers or of workers registered in
Malaysia; or
(c) An advocate.
The Board may require any person to furnish in writing, or otherwise, such
particulars as it may require, to attend before it and to give evidence on oath or
affirmation.

8.6.2 Responsibility of the Board of Inquiry to

Prepare Reports (S. 37 of IRA 1967)
The responsibilities of the Board of Inquiry regarding the preparation of reports
are as follows:
(a) The Board shall conduct investigations in public or private into any matter
referred to it and report to the minister;
(b) If the Board thinks fit, it shall make an interim report;
(c) Such report shall be laid out as soon as may be before the Parliament; and
(d) The Minister may publish or cause to be published from time to time, in such
manner as he thinks any information obtained or conclusions arrived at by
the Board as a result or in the course of its inquiry.
Provided that it cannot be included in any report or publication made or

authorised by the Board or the Minister any information obtained in the course of
investigation and inquiry of the Board with regard to any trade union, business or
organisation which is not available otherwise through evidence given at the
inquiry, except with the consent of the trade union, business or organisation
concerned.
ACTIVITY 8.6
1. Why are investigations and inquiries necessary in trade disputes?
2. State the difference in the composition of members with regard to

the Committee of Investigation and Board of Inquiry.
8.7 ARBITRATION
In the context of trade dispute resolution and as per IRA 1967, the Industrial Court
is the arbitrator. This is covered in Part IV of IRA 1967 (S. 21 to S. 33B). The details
have been discussed in Topic 2. You may refer to the topic once again.

• The types of disputes that commonly arise between the employer and
employees are strikes by workers, lockouts by employer and picketing by
workers or employees.
• The strikes, lockouts and pickets are legal if the parties follow the conditions
and procedures set out. These industrial actions are allowed mainly in order to
force a resolution on any trade dispute.
• Two ways to resolve trading disputes are conciliation (S. 18 of IRA 1967) and
inquiry and investigation (S. 34 of IRA 1967).
• Conciliation means bringing two parties (that is, the employer or the union of
employers who is a party to the dispute and the workersÊ union which is the
other party to the dispute) to conciliate and achieve a consensus with regard to
the issues disputed.
• Representations in conciliation are the conciliator and the employer, officer or

worker of the employersÊ union or staff member of any employersÊ
establishments that are registered in Malaysia (that is not the employerÊs
union) as well as the employeesÊ union or any staff from any of the employeesÊ
bodies that are registered in Malaysia.
• There are six steps in the process of conciliation.
• The Committee of Investigation may consist of one or more persons appointed

by the Minister. After being appointed, the Committee shall investigate the
causes and circumstances of any trade dispute or matter referred to it and
report thereon to the Minister (S. 35 of IRA 1967).
• S. 36 of IRA 1967 provides that the Board of Inquiry may consist of a chairman
and such other persons as the Minister thinks fit or may consist of one person.
A Board may act notwithstanding any vacancy in its membership.
• The responsibilities of the Board of Inquiry regarding the preparation of

reports are as follows:
− The Board shall conduct investigations in public or private into any matter
referred to it and report to the Minister;
− If the Board thinks fit, it shall make an interim report;

− Such report shall be laid out as soon as may be before the Parliament; and
− The Minister may publish or cause to be published from time to time, in

such manner as he thinks any information obtained or conclusions arrived
at by the Board as a result or in the course of its inquiry.
Arbitration Mediation
Conciliation Picket
Dispute resolution Strike
Lockout Trade dispute
cljlaw.com

Book Service
Maimunah Aminuddin, (2007). Malaysian industrial relations & employment law

Trade Union Act 1959 (Act 262)

Topic  Social Security
Protection for
9 Employees
LEARNING OUTCOMES
1. Describe Employees Provident Fund (EPF) and its functions;
2. Explain the types of accounts and withdrawal schemes offered by
EPF;
3. Identify the functions of the Social Security Organisation
(SOCSO); and
4. Identify the types of protection schemes offered by SOCSO.
 INTRODUCTION
This topic provides a general overview of the social security systems for employees
in Malaysia. Social security traditionally means a social insurance programme that
provides social protection or protection against socially recognised conditions
including poverty, old age, disability and others (Rohaizat et al., 2012). The focus
is on the three main types of security protection in Malaysia – employeesÊ
provident fund, employeesÊ social security insurance for workers and the new
employment insurance system as a protection from loss of employment. This topic
shall provide an overview of three relevant Acts, particularly the Employees
Provident Fund Act 1991, EmployeesÊ Social Security Act 1969 and the
Employment Insurance System Act 2017. Previously, this topic would also cover
Workmen Compensation Act 1952 (WCA 1952). The provision under WCA 1952
enable the minister to establish an insurance scheme under S. 26(2). Foreign
Workers Compensation Scheme (FWCS) was establish to provide protection to
foreign workers. However, FWCS was revoked by virtue of Workmen

TOPIC 9 SOCIAL SECURITY PROTECTION FOR EMPLOYEES  173
Compensation (Foreign WorkerÊs Compensation Scheme) (Insurance)

(Revocation) Order 2018. Further, with the Employees Social Security (Exemption
of Foreign Workers) (Revocation) Notification 2018, the social security coverage
has been extended to foreign workers from 1st January 2019.The topic also covers
the responsibilities of employers and employees to contribute to the Employees
Provident Fund (EPF) and the Social Security Organisation (SOCSO). It also
addresses the various benefits and schemes under the two types of protection.
9.1 EMPLOYEES PROVIDENT FUND (EPF)
Definition
The Employees Provident Fund Act 1991 (EPF Act) represents an Act created
to make provisions with regard to the EPF and other provisions related to it.
The provisions in the Act are to make the lives of workers comfortable after
retirement by providing them with retirement benefits.
The EPF Act provides that the EPF Board is the only body to manage and
administer the Fund. The EPF Board was established in October 1951 under the
EPF Ordinance 1951. This Ordinance was later amended and now, we have the
EPF Act 1991. The EPF was established to provide guarantee of retirement at old
age and the contributors or members can get back all their savings upon retirement
or according to conditions specified in the Act.
The EPF is a corporate body and the EPF Board was established with the intention
of managing the Fund and act as the trustee of the Fund (S. 25 of EPF Act). As a
corporate body and trustee, the EPF has the following functions:
(a) To receive and retrieve contributions;
(b) To make investments of the funds; and
(c) To return the money saved to members of the EPF or representatives entitled
to receive the money either upon application or otherwise.

174  TOPIC 9 SOCIAL SECURITY PROTECTION FOR EMPLOYEES
9.1.1 Membership in EPF Board

The Board has a number of members appointed by the Minister. S. 4(1) provides
the categories of members that represent the EPF Board (refer to Figure 9.1).
The Chairman is the representative of the Ministry of Finance. The Deputy

Chairman is appointed from category S. 4(d)(i) while the General Manager acts as
the ex-officio. The other 18 members represent the government, employers,
workers and professional groups.
Figure 9.1: Members of EPF Board
The Board is responsible for conceiving policies and ensuring that they are
enforced. There is also an investment panel that is responsible for making policies
with regard to EPF investments. Members of the panel are appointed by the
Finance Minister and comprise the Chairman, representative of the Governor of
Bank Negara, representatives of those involved in trade or other matters related to
investments.

ACTIVITY 9.1
1. Based on your understanding, give an explanation as to why
employers and workers are represented in the EPF Board.
2. If a member of the EPF Board dies, who will make the

appointment to replace him?
Share your answers with your coursemates in the myINSPIRE online

forum.
9.1.2 Powers of the Board to Make EPF Investments

The Fund can be used for various purposes, including for the benefit of
contributors, workers and for the use of the corporate body itself, that is, to make
investments in order to generate maximum profits out of the monies contributed
by employers and employees.
S. 26(1) empowers the Board to make investments in the following:
(a) Deposits in:

(i) Bank Negara;
(ii) Other banks licensed under the Banking and Financial Institutions Act
(BAFIA) 1989 and institutions approved by the Minister; and
(iii) Other institutions licensed under BAFIA and approved by the Minister.
(b) Investments in:

(i) Public-listed companies in Bursa Malaysia through the purchase of
shares; and
(ii) Debentures.
(c) Bonds, mortgages, commercial notes and the like.
(d) According to the Trustee Act 1949 (that is, to make investments in immovable
assets).
(e) Give loans to the central or state governments.
(f) Give loans to members of the EPF Board for the purchase or construction of
houses.

Provision
As per S. 26(2), the board can, with the written permission of the Minister, use
the Fund for:
(a) Making deposits in any banks or financial institutions set up by any
written laws;
(b) Investing in cooperative activities;
(c) Taking part in privatisation programmes;
(d) Giving loans to companies corporatised under the Companies Act or
other written laws;
(e) Investing in overseas investments; or
(f) Investing in any types of investments.
Even though the Act allows the contributions to be invested, they cannot be
invested overseas except in approved companies.
In short, the EPF can make investments in government securities, equity markets,
short-term money markets and real estates.
On 31 December of each year, dividends must be declared and the rate of dividend
cannot be less than 2.5 per cent per year. The dividends are then reinvested into
the workersÊ accounts.
ACTIVITY 9.2
Investment is one of the uses of the Fund. Think of ways that the EPF
Board can make such investments. Share your answer with your

9.2 RESPONSIBILITY TOWARDS EPF

CONTRIBUTIONS
Each employer and worker must make contributions to the EPF.
Provision
S. 40(1) provides that each company under the Companies Act 1965 must
inform the Board with regard to its establishment in not more than 30 days from
the date of its establishment.
Therefore, each company that is established must inform the Board and this is
mandatory. It is for the purpose of making contributions to the EPF as soon as
possible.
Provision
S. 41(1) states that it is the responsibility of employers to register with the EPF
Board.
This section provides that each employer must register with the Board before the
end of the first week in the first month of making payment of wages to its
employees. The failure of the employer to do so will be construed as a mistake that
can invite imprisonment for not more than three months or a fine not exceeding
RM10,000 or both.
When the employer has ceased to be an employer, he has to once again inform the
Board within 30 days. This is required by the Act.
As per S. 43(1) of EPF Act 1951, each employer and worker must make monthly
contributions from the total monthly salary to the Fund, the amount of which is
stated in Schedule 3.
Any employer who fails to make the contributions for their employees is
considered to have committed an offence according to the Act and can be subject
to imprisonment not exceeding three years or fine of RM10,000 or both. This is
provided for in S. 43(2).
In the case of PP v Pontian Bas Berhad (1988) 1 LNS 40, the respondent was charged
with the offence of not paying contributions under Section 16(1) of EPF Act 1951
for four employees. The manager who was present in court pleaded guilty and
was fined RM4,320 which the manager paid accordingly.
The court also directed that arrears of RM28,325 be paid to the workers as per
S. 16A (4). The court imposed a punishment of 10 monthsÊ imprisonment for the
manager upon failure to make the payments. However, upon appeal to the High
Court, the court decided that the magistrate cannot impose imprisonment for the
failure of paying the arrears of the contribution. The High Court further held that
such punishment was only applicable for the failure to pay the fine which has been
paid by the employer. The decision of the High Court was affirmed by the
Supreme Court.
The Act only requires the employers to make contributions on behalf of their
employees. The determination of the status of an employee is that the employee
must have a contract of employment with the employer. This means that the
employer does not have to make contributions for independent contractors.
In the case of EPF Board v MS Ally and Co Ltd (1975) 2 MLJ 89, the respondent
company was a private company and the business was operated by a group of
workers known as assistant workers who received wages based on the profits of
the company. The capital was provided by the company whereas matters with
regard to labour force and skills were provided by the assistant workers. They
sought EPF contributions by the company on their behalf.
Two issues were determined by the court, that is, whether the assistant workers
were employees according to the EPF Act 1951. If they were employees according to
the meaning of the Act, must they contribute to the EPF? The court decided that in
the absence of a contract of service, the assistant workers were not employees
according to the meaning of the Act. Therefore, the company did not have to make
contributions to the EPF on their behalf.
Although employers and employees are required to make EPF contributions,

foreign workers (apart from those from Singapore) and housemaids are not
required to do so.
However, they can do so of their own accord. As for public sector workers, upon
confirmation, they can make a choice as to whether to make EPF contributions or
to opt for a pension scheme. Once they opted for the second option, the EPF
contribution becomes unnecessary.
The rate of contributions by the employer and the employee is not the same. It also
differs from year to year based on the total salary of the employee. As per the Third
Schedule, it is 11 per cent of the salary for workers and not less than 12 per cent for
the employers. From January 2012, the rate of contribution by the employer is

13 per cent for an employee who receives monthly wages of RM5,000 and below.
Each year, the contributors' accounts are credited and statements issued twice a
year, that is, in the months of June and December.
ACTIVITY 9.3
In your opinion, why must contributions of employers and workers

to the EPF be made compulsory? Share your opinion with your
9.3 TYPES OF MEMBERS’ SAVINGS ACCOUNTS

AND THEIR USES
Effective 1 January 2007, the contributorÊs account is divided into two, Account 1
and Account 2. All contributions are divided into the two accounts according to
fixed percentages – 70 per cent into Account 1 and 30 per cent into Account 2.
These accounts were created for different purposes and different types of
withdrawals are applicable from each account.
9.3.1 Account 1
The savings in Account 1 are for the purpose of retirement and cannot be fully
withdrawn by the account holder before he reaches the age of 55, passes away,
loses his capacity or intends to leave Malaysia permanently.
9.3.2 Account 2
The savings in Account 2 are meant to help the account holder to make early
preparations for a comfortable retirement. Withdrawals are allowed with the
following conditions or purposes:
(a) Attaining the age of 50 years;
(b) Owning a house – the downpayment for your first house;
(c) Settling the balance of your housing loan – first house;

(d) Financing the construction of a new house;

A member can apply to withdraw from the said account to build a house.
The application can be made to build a house on owned land or to build a
house together with purchase of land.
(e) Paying monthly housing loan instalments for a minimum period of six
months;
The scheme above assists members in paying housing instalments. Members
can make an application to withdraw from the said account for the said
purpose.
(f) Purchasing PR1MA house;

Members can apply to withdraw from the account when their application to
buy such a house has been approved.
(g) Increasing loan eligibility limit;

The purpose of the above is to enable members to increase their limit to
obtain a housing loan from a financial institution. This would also enable
members to purchase a house that they prefer subject to financial ability.
(h) Performing hajj;

Muslim members can apply to withdraw to increase their savings with the
Hajj Pilgrimage Fund Board. This would enable the members to apply for
Hajj.
(i) Members with more than RM1 million in savings have the flexibility to
withdraw and manage the excess savings;
The EPF permits members to withdraw excess savings from the account. It is
applicable to Malaysian and non-Malaysian members who are below 55
years old and have savings of more than 1 million ringgit.
(j) Financing education for members and their children; and
(k) Medical expenses for members and their children.
The EPF will not consider applications for withdrawals from any account for
purposes other than those stated in the current law as cited in the EPF Act 1991,
EPF Rules and Regulations 1991 and EPF Circular and Procedure.

9.4 SCHEMES OFFERED BY EPF

Among the schemes offered are:
(a) Withdrawal at the Age of 55

There are a number of sub-schemes under this category:
(i) Lump sum withdrawal;
(ii) Instalment withdrawals;
(iii) Payment of annual dividends as well as complete withdrawal and
staggered payments of the balance.
For a retiree, the worker can choose to make one complete withdrawal.
However, the worker can also choose to withdraw the sum by instalments or
as one lump sum withdrawal. The retiree can choose to make withdrawals
in instalments if the balance is at least RM3,000. The period of payment shall
not be less than 12 months with payments of RM250 per month. For the
retiree who chooses this scheme, he is entitled to dividends on the balance in
his EPF account.
Apart from that, the retiree is also allowed to withdraw part of his EPF by
instalments and the balance in one lump sum and of course, there are terms
attached.
(b) Payment for Housing Loan

Forty-five per cent of a memberÊs contributions or 20 per cent of the purchase
value of every house can be withdrawn from EPF Account 2.
(c) Payment for Medical Reasons

This is allowed from Account 2 and is to be used for treatment of diseases
faced by the contributor or his family members. The condition that has to be
fulfilled is that the disease must be one that is critical as listed out by the
Board.
ACTIVITY 9.4
If a person is confirmed as suffering from cancer and is expected to

only live for one more year, is he entitled for the medical benefit?
Discuss your answer with your coursemates in the myINSPIRE
online forum.

(d) Payment for Physical and Mental Disabilities

To enable a contributor to continue living after becoming unable to continue
working, he is allowed to withdraw all the money in the EPF. A member or
memberÊs guardian will be given support payment of RM5,000 as token of
empathy from the EPF to help those who lose their source of income due to
termination of employment because of incapacitation.
(e) Payment for Death

This scheme is provided in the event of death of the contributor. The amount
can be in the range of RM1,000 to not more than RM30,000. Payment is made
to the family members or beneficiary.
(f) Investment Schemes for Contributors

This scheme allows a certain amount of savings from Account 1 to be used
for investment. The condition is that the credit balance in Account 1 must be
at least RM5,000 more than the basic account required in Account 1 and the
contributor has not attained 55 years of age. The minimum amount of savings
that can be invested is RM1,000 and the maximum cannot be more than 20
per cent of the amount exceeding the required basic savings.
(g) Withdrawal for Education

Withdrawal is allowed for the purpose of education of the EPF member or
his childrenÊs education. The amount that can be withdrawn is the total fees
payable or all the balance in Account 2 and the total fees payable, depending
on whichever is lower.
The above schemes offered by the EPF are all provided for in the Act.
According to S. 54(1), all the monies withdrawn from the EPF will be paid to
the contributor in the following cases:
(i) Death of member (money paid to the beneficiary or person named);
(ii) The member has attained the age of 55 years;
(iii) The member is physically and mentally incapacitated; or
(iv) The member wants to leave Malaysia with the intention of not
returning, or lives in Singapore.

Apart from that, according to S. 54(3), there are two other situations that enable
the withdrawal from the Fund. However, in the following cases the withdrawal is
allowed in part only:
(a) Upon attaining 50 years, the amount of one third of the credit is allowed to
be withdrawn;
(b) Up to 45 per cent of the credit in the EPF or not exceeding 20 per cent of value
of the house that is to be purchased;
(c) For the purchase or construction of more houses, if there is enough balance
from previous withdrawals; and
(d) For medical reasons.
In the case of death or loss of capacity apart from the scheme, there are two other
benefits provided by the EPF. These are death benefits and payment for physical
and mental disabilities. These are based purely on sympathetic grounds.
On the whole, the EPF scheme is divided into two:

(a) Withdrawal before retirement; and
(b) Withdrawal after retirement.
Before retirement, a member is allowed to withdraw for the purposes of buying a

house, health and upon attaining 50 years of age.
After retirement, the contributor can withdraw his money if he wants to leave Malaysia
permanently, upon attaining 55 years of age, upon death or loss of capacity occurs.
To obtain more information on the EPF, visit http://www.kwsp.gov.my/
ACTIVITY 9.5
Pn Maimun and En Ali have attained 55 years of age. They wish to

withdraw their savings from the EPF. Pn Maimun wishes to
withdraw RM12,600 in instalments over seven years. En Ali wishes
to withdraw RM80,000 in one lump sum out of his savings of
RM200,000. The balance is to be withdrawn in instalments over five
years.
How are the calculations done for their choices? Share your answer
with your coursemates in the myINSPIRE online forum.

9.5 EMPLOYEES’ SOCIAL SECURITY ACT 1969

AND SOCIAL SECURITY ORGANISATION
Social Security Organisation (SOCSO) is a body set up to look into the welfare of
workers when they face disasters like accidents while at work or outside of work,
or when they are struck with occupational diseases. Occupational diseases are
caused by the working environment. The worker and his family are entitled for
protection under this scheme in which the body is made responsible. SOCSO was
set up under the EmployeesÊ Social Security Act 1969 (SOCSO Act). The objective
of the SOCSO Act is to give compensation to workers who meet with accidents or
disasters at work. The SOCSO Act has provisions with regard to the safety of
workers in Malaysia and underlines the powers of the body that is responsible
with regard to the execution of the workersÊ social protection.
Through the provisions of S. 59B, the SOCSO Act requires a body be set up, known
as the Social Security Organisation Board. This body must be represented by:
(a) A Chairman appointed by the Minister;
(a) Director-General of SOCSO;
(b) An officer from the Ministry of Finance;
(c) An officer from the Ministry responsible for human resources;
(d) An officer from the Ministry responsible for health;
(e) Not more than four representatives of employers appointed by the Minister
after consultation with the organisations that represent the employers;
(f) Not more than four representatives from the field of insurance appointed by
the Minister after consultation with any organisation representing insurance
agents; and
(g) Three persons experienced in matters regarding workersÊ social security.
The function of the Board is to carry out the instructions of the Minister in the
ministry that is involved with the enforcement of laws related to the safety of the
workers.

Provision
S. 59I clearly provides that at any time, the Minister can ask the Board to submit
proposals for new plans with regard to social welfare or to make changes or
modifications with regard to the plans already submitted in order to fulfil the
GovernmentÊs principal social programme.
9.6 RESPONSIBILITY TOWARDS INSURANCE

AND CONTRIBUTION
The SOCSO Act covers all industries even if there is only one worker. S. 4 requires
that any industry, subject to this Act, must register the name of employees with
SOCSO. The Act states that each employer must make contributions for its workers
under the types of schemes provided by SOCSO. According to S. 6, the
contributions made under this Act can be made by the employer on behalf of the
employees or by the employees themselves.
The contributions can be divided into two types as shown in Figure 9.2.
Figure 9.2: Two types of SOCSO contributions
(a) First Category

The first category refers to contributions made by the employees themselves
and also by the employer on behalf of the employees. This is the Employment
Injury Insurance Scheme and the Invalidity Pension Scheme.
(b) Second Category

The second category refers to the contributions made by the employer for the
Employment Injury Insurance Scheme. This is meant for those who do not
qualify for the Invalidity Pension Scheme. The contribution must begin with
the first monthÊs wages.

The total amount of contribution depends upon the scheme chosen. For the
Employment Injury Insurance Scheme, the employer has to contribute
1.25 per cent of the wages and for the Invalidity Pension Scheme, the employer
and worker contribute 0.5 per cent from the wages respectively. This makes a total
contribution of 1 per cent.
Provision
S. 94 specifies the penalty or punishment for not paying the contributions. This
section states that whosoever:
(i) Fails to make any contribution is required to do so; or
(ii) Deducts or attempts to do so from the whole or part of the contributions
of the employer from the workerÊs wages; or
(iii) Reduces the wages of the workers or benefits that are allowed to them
that are against S. 52; or
(iv) Breaches any of the provision in this act,
shall be imprisoned for a maximum of two years or fined not more than
RM10,000 or both.
In the case of PP v KATS Cleaning Services (S) Sdn Bhd (1955) 1 CLJ 561, the
defendant pleaded guilty to six charges of failure to make contributions according
to Section 7 of the SOCSO Act and was fined RM300 or two weeksÊ jail if he failed
to pay the fine. The prosecution provided a certified statement that showed there
were arrears of contributions which needed to be paid as per Section 94A(1), read
together with Section 94C. The total arrears of RM21,744.50 was not limited to the
six charges alone.
However, the magistrate did not order the payment to be made, based on the
reason that the prosecutor could only get back the total contributions for the
offence of the charges that only had the guilty verdict (on the six charges only).
The prosecutor made an appeal, which was later allowed.
The High Court decided that the provisions of S. 94(1) meant that the court could
order the employer according to S. 94A(1) to pay „whatever contributions before
the date he was found guilty‰, which meant whatever that was owed to SOCSO.
The important words required by the Act are „mandatory‰ and „order‰. Therefore,
the defendant was asked to pay the arrears.

This case clearly shows that if the court finds that an employer has failed to make
contributions for its employees, the court has the right to order the settlement of
the arrears for any outstanding contribution, even though such arrears differ from
the amount in the charges brought before the court.
With regard to membership in SOCSO, according to the amendments in 2004,

membership is compulsory for all workers in the private sector for those earning
RM3,000 and below from the first month of wages. If the wages later exceed
RM3,000 per month, they are still members based on the principle, „once eligible
always contribute‰. For those earning more than RM3,000 per month, they can
choose to get protection under the Act by making contributions to SOCSO.
The protection with regard to the scheme provided by SOCSO is compulsory for
workers below 55 years. Even though it is stated as such, those above this age will
be given protection if they continue to work after that age. For such cases, only the
employer makes the contribution.
There are several categories of workers who are exempted from protection by
SOCSO. They are:
(a) Government department workers;
(b) Domestic maids taken to work in houses; and
(c) Self-employed individuals.
Currently, those who are self-employed are covered under the Self-Employment
Social Security Act 2017. During the initial stage, the Act covers those working as
taxi driver, e-hailing driver and independent bus driver under the transportation
sector. From January 2020, the coverage extended to other sectors, namely:
(a) Goods and food transport;
(b) Agriculture;
(c) Livestock;
(d) Forestry;
(e) Fisheries;
(f) Food;
(g) Manufacturing;
(h) Construction;
(i) Hawkers;

(j) Accommodation premises;

(k) Online business;
(l) Information technology;
(m) Data processing;
(n) Agents;
(o) Professional services;
(p) Support services;
(q) Arts;
(r) Household services; and
(s) Beauty and healthcare.
ACTIVITY 9.6
1. State the parties who are exempted from making contributions
to SOCSO.
2. Ali works with Company A. The starting salary was RM800 per
month and his present salary is RM3,000 per month. Is he
required to make contributions to SOCSO? Why?
9.7 SOCSO PROTECTION SCHEME

As explained earlier, there are two schemes, Employment Injury Insurance Scheme
and Invalidity Pension scheme.

9.7.1 Employment Injury Insurance Scheme
Definition
Employment injury refers to injury that occurs and affects the bodies of
workers. The injury is caused by accidents or occupational diseases while
performing work.
Generally, the reasons that enable a worker to get protection for accidents are
while:
(a) Travelling to and from work;
(b) Travelling from the workplace to the rest place for food during rest breaks;
and
(c) Travelling when required to do something related to the employment but
outside the premises of the office.
In addition, accidents while at work can also provide protection to workers e.g.
when a worker falls and breaks his fingers while handling a machine.
Definition
Occupational diseases refer to diseases acquired by workers as a result of the
environment at the workplace. Among them are cough and asthma caused by
dust and blindness caused by the reflection of light.
S. 23 provides tests or presumptions to decide whether a worker is to be given

protection under the Employment Injury Insurance Scheme with regard to the
accident concerned.
S. 23 states that an accident which occurs upon an insured worker during working
hours is to be considered as arising out of employment unless there is evidence to
the contrary. Section 24 exemplifies this further as seen in the following:
• While travelling along the path from the home to the workplace;
• While travelling that is directly related to the job being paid for or work; or
• While travelling from the workplace to the dining area during permitted rest
hours.
In Ketua Pengarah Pertubuhan Keselamatan Sosial v. Rajaparameswari A/P

Marimuthu (2004) 4 CLJ 528, the employee during the weekend stays with her
daughter. Each Monday, the factory bus will fetch her at the bus station. She met
with an accident while travelling to the bus station from her daughterÊs house. She
claimed Socso benefit but was rejected. She appealed to the Appellate Board which
accepted her appeal. Upon appeal, the High Court affirmed the decision of the
appellate board. The court was of the opinion that S. 24 referred to either travelling
from the workerÊs permanent or temporary home to the workplace. As such, she
is entitled to Socso benefit.
Occupational diseases are stated in S. 28(1), which mentions that if a worker works
in conditions specified in the Fifth Schedule and any disease or accident result
from it or if the worker contracts a disease that is work-related within 60 days upon
stopping work, then it has to be taken as emanating from the work or during the
work time.
The Fifth Schedule underlines occupational diseases. These include poisoning

from lead or its mixture, phosphorous, arsenic, mercury, carbon bisulphate,
benzene, fluorine, alcohol, carbon monoxide and so forth. In addition, diseases
which are considered to be occupational diseases (e.g. ulcers on the cornea of the
eyes, lung complaints, cancer) are also caused by work conditions that involve
workers while performing their job.
The Employment Injury Insurance Scheme is very important and employers must
contribute on behalf of the workers, even if the workers already have other
insurance schemes under different policies. The workers have the right to be
protected under this scheme, even if they are already getting benefits from other
insurance taken privately.
In the case of Che Noh b Yacob v Seng Hin Rubber (M) Sdn Bhd (1980) 1 LNS 8, a
worker who was involved in an accident while handling a machine brought a case
against the employer and sought compensation under common law for injuries
sustained. The employer alleged that as per Section 31 of SOCSO Act, the worker
was prevented from making such claims against him. The court agreed with the
employer because S. 31 and S. 42 prevent workers from making other claims for
compensation from the employer.
S. 31 states that the contributor or his dependants are not entitled to ask for
compensation or damages from the employer under the WorkmenÊs
Compensation Ordinance 1952 or any compensation under other laws that are in
force for the accident while at work.

The case and section therefore show that once a worker has benefited from the
Employment Injury Insurance Scheme, he is not entitled to further claims and
damages from the employer. Even so, they can still obtain benefits from other
policies taken privately.
ACTIVITY 9.7
Hamidah works in a cloth factory. Of late, she has been coughing and
the doctor has said that it is caused by the work environment. In your
opinion, does Hamidah qualify for the Employment Injury Insurance
Scheme? Share your answer in the myINSPIRE online forum.
Eight types of benefits are provided under the Employment Injury Insurance
Scheme as illustrated in Figure 9.3.
Figure 9.3: Benefits provided under Employment Injury Insurance Scheme

Each benefit is discussed in detail in the following:
(a) Medical Benefit
Definition
Medical benefit is provided in the event of accidents at work or
occupational diseases. Anyone insured who needs the care and
treatment by a doctor has to be provided with the same Section 37(1).
It is a given regardless whether the worker is admitted to a hospital or given

outpatient treatment.
The worker is entitled to free medical treatment at SOCSO clinics or at

government hospitals. If the worker is treated at a SOCSO clinic, then the
worker must continue the treatment there until he recovers.
For serious cases, treatment has to be at a government clinic or hospital. To

get this benefit, the worker must support his application with the Accident
Reporting Form or the Occupational Disease Reporting Form provided by
SOSCO.
(b) Temporary Disablement Benefit
Definition
The entitlement for this benefit is when the injured worker suffers for
four days including the day of the accident.
The benefit is paid throughout the period that the worker is on medical leave
provided that it is certified by a doctor. Section 22 provides that the worker
can get payments in instalments throughout the period of his disablement.

(c) Permanent Disablement Benefit
Definition
This is for workers who have permanent disablement. Permanent
disablement is of two types, total and partial. An example of the former
is blindness while an example of the latter is the loss of three fingers.
The Medical BoardÊs confirmation is required and the amount payable shall
depend upon the extent of the disablement. If the disablement is 100 per cent,
then the payment is 90 per cent of the average wages with a minimum of
RM10.
(d) Constant Attendance Allowance
Definition
This is given to a worker who has been confirmed by the Medical Board
as permanently disabled, no longer able to work and needs permanent
care and nursing.
The allowance is 40 per cent of the rate for permanent disablement with a
maximum of RM500 a month. The Medical Board will decide on this.
Section 30 states that a worker who is insured and entitled to Invalidity

Pension and Permanent Disablement Benefit is also entitled to receive
constant attendance allowance.
(e) Dependant Benefit
Provision
This allowance is stated in S. 26 and provides that if the insured worker
dies because of work injuries, then his dependants can claim dependant
benefit.

This benefit is payable even if the deceased has received payments in

instalments for temporary disablement. The rate payable is 90 per cent of the
average wage with a RM10 minimum. The dependants are entitled to receive
this benefit which includes:
(i) The widow or widower for life. The amount is equally divided if there
is more than one wife involved; and
(ii) Each child who has not attained the age of 21 years or married,
whichever is earlier. If the child is studying at tertiary level, the
payment shall be made until the first degree or upon marrying,
whichever is earlier. For children who are physically or mentally
handicapped, the payment shall be throughout their disability. All
children are entitled to the benefit without consideration as to whether
they are the workerÊs own child, stepchild or adopted child.
(f) Funeral Benefit

Apart from the mentioned benefits, SOCSO also provides funeral benefits.
The beneficiaries shall receive this benefit if the worker dies from work
injuries or was receiving disablement benefits at the time of death. The
amount is RM1,500. If there are no beneficiaries, the amount is paid to those
who arranged for the funeral.
S. 29 explains in depth the situations that demonstrate when this benefit

is payable. If the worker is disabled and receiving the invalidity benefit,
or has not yet attained 55 years of age but has worked enough
throughout the qualifying period, the funeral benefit is payable and to
be paid thus to the:
• Widow (subject to number of widows and is divisible equally);
• Widower;
• Eldest male child or adopted male child;
• Eldest female child or adopted female child; or
• Father or mother. If both are still alive, then the benefit is shared
equally.

If a worker has not attained 55 years but has contributed for not less than 24
months in a period of 40 consecutive months continuously before his death
or if his contribution is at least two-thirds of the months between his first
payment and his death and on condition during such period there have been
24 months of contribution, then the worker is entitled to this benefit under
Section 29(3).
(g) Rehabilitation Benefit

Rehabilitation benefit is provided for those with permanent disablement. A
worker who has a permanent disability resulting from work injury is
qualified to be considered for physical rehabilitation assistance such as
physiotherapy, occupational therapy and artificial limbs. Apart from these,
wheelchairs, walking sticks and so on can be given to the worker. In addition,
repair and replacement costs are also borne by SOCSO.
(h) Education Benefit

This benefit is provided in the form of loans and scholarships to the dependent
children of the insured who is receiving aid on a monthly basis or in
instalments such as:
(i) Benefit for permanent disablement;
(ii) Invalidity pension;
(iii) Dependants benefit; and
(iv) SurvivorÊs pension.
Initially, the facility is provided as a loan. It can be converted into a

scholarship if the child achieves excellent results.
9.7.2 Invalidity Pension Scheme

This scheme is for workers who have been rendered invalid due to any reason and
the protection is for 24 hours.
Definition
Invalidity means that the worker has lost his strength or capacity to make a
living and to work normally, either totally or partially.

An example would be a worker suffering from a kidney or hearing problem and

is unable to work. From the point of view of the law, S. 16 states that a worker is
said to be invalid if he has a permanent disability or is unable to work, or engage
in any form of gainful work for profit and such condition cannot be cured, is
permanent and lasting.
The Invalidity Pension Scheme has seven benefits as follows:
(a) Invalidity Pension

S. 17 underlines the situations under which a worker can get such a pension.
As stated in S. 16, a worker is made an invalid if the worker had worked
throughout the period of qualification. Then the worker is qualified to
receive the invalidity pension, except if the worker has reached 55 years of
age. The rate of the pension is 50 to 65 per cent of the average wages.
However, to the qualified worker, not less than RM250 a month shall be paid.
Generally, for a worker to qualify for the invalidity pension, the following
must be fulfilled:
(i) Less than 55 years of age at the time of being made an invalid;
(ii) Certified an invalid by the Medical Board or Appellate Medical Appeal
Board; and
(iii) Has fulfilled the contributionÊs qualifying conditions.
The contribution qualifying conditions are as follows:

(i) Full qualification condition; and
(ii) Reduced qualification condition.

Full qualification condition is stated in S. 17(2). The worker is considered

to have worked throughout the period of qualification if:
(a) Monthly contributions in his case have been made for at least 24
months within a period of 40 consecutive months preceding the
month in which the notice of invalidity is received by SOCSO; and
(b) Monthly contributions in his case have been made for at least two-
thirds of the number of full months included in the period between
the date he was first covered under the Invalidity Pension Scheme
and the date of his notice of invalidity is received by SOCSO, subject
to the condition that the total number of such monthly
contributions made during the stated period is at least 24.
S. 17(3) mentions the reduced qualifying condition, which is the monthly

contribution conditions in respect of him having made not less than one-third
of the „time period‰ between the date he was first covered by the Invalidity
Pension Scheme and the date his notice of invalidity is received by SOCSO,
subject to the condition that the number of monthly contributions made
during the stated period is at least 24 months.
ACTIVITY 9.9
Based on your understanding, what types of diseases can qualify a
person to receive the invalidity pension?
(b) Invalidity Grant
Definition
The invalidity grant is made in one lump sum and paid once only. It is
provided to workers who are protected under the Act upon the
fulfilment of either the full or reduced qualifying condition.
However, the worker must have made contributions for at least 24 months.
The amount payable is the total contribution of the employer and the worker
plus interest. This is only payable upon attaining 55 years of age or upon
death prior to this.

(c) Constant Attendance Allowance

The recipient of the invalidity pension is also entitled to this allowance if he
is severely incapacitated and constantly requires the personal attendance of
another person. The eligibility to receive this allowance is decided by a
Medical Board or an Appellate Medical Board and will be paid directly to the
recipient of the benefit. The benefit is 40 per cent of the rate of invalidity
pension, subject to a maximum of RM500 per month.
(d) SurvivorsÊ Pension

This pension is paid to the dependants of an employee who dies, irrespective
of the cause of death, in any of the following situations:
(i) While an employee is receiving an invalidity pension irrespective of his
age; or
(ii) When an employee (not a recipient of the invalidity pension) who has
not reached 55 years of age but has met either the full contribution
qualifying condition or the reduced contribution qualifying condition.
As per S. 20A, the benefit is given to the widow or widower throughout his
or her life and to the children until they are married or attain 21 years of age,
whichever is earlier. It is also given to the widower whose wife has left him
and vice-versa. The amount received is the same as that received by the dead
worker, that is, 50 to 65 per cent of the average monthly wages if the full
qualification condition is fulfilled. Otherwise, the payment is 50 per cent of
the average monthly wages.
(e) Funeral Benefit

Funeral benefit will be paid to the nearest heir or anyone who made
arrangements for the funeral. The payment will be made for the deceased
based on the following conditions:
(i) While receiving the invalidity pension; or
(ii) Before reaching the age of 55 but meets the full or reduced qualifying
contribution conditions.
(f) Rehabilitation Benefit

This is the same as the one in the Employment Injury Insurance Scheme from
the aspect of qualification and rehabilitation given.

(g) Educational Benefit

This is given to workersÊ children who receive dependant benefits, survivorsÊ
pension, permanent disablement benefit and invalidity grant. Those in this
category are qualified to apply for educational benefit. The benefit is in the
form of a loan.
However, it can later be converted into a scholarship if the educational

performance and results are excellent. The conditions of qualifications are:
(i) The student must be 21 years and above and not married when the
application is made;
(ii) Provide proof of studying at degree or diploma level in a public or
private institution;
(iii) Has not received a scholarship or loan from other sources; and
(iv) Has financial problems.
The benefits include payments for fees and cost of living.
ACTIVITY 9.10
How much total contribution is made compulsory upon the employer with
regard to Employment Injury Insurance Scheme and Invalidity Scheme?
9.8 APPEAL ON SUM OF COMPENSATION

To avoid any form of cheating with regard to the claims for compensation from
any application to receive a benefit, the Medical Board was set up.
Its function is to confirm matters with regard to the invalidity faced by the
workers. Apart from the Medical Board, two other parties are appointed to listen
to appeals, the Appellate Medical Board and Social Security Appellate Board.
In Ketua Pengarah Keselamatan Sosial v Rahim Darus (2001) 2 CLJ 587, a

worker was admitted to the hospital after he was referred by the specialist. He
applied for invalidity pension with the report from the specialist.
The Director-General of SOCSO referred the matter to the Medical Board to certify
the invalidity. However, the Medical Board rejected it. The applicant appealed to
the Appellate Medical Board, which also turned it down. Subsequently, the matter
was referred to the Social Security Appellate Board. The Board decided that the
applicant qualified for the invalidity pension. The issue to be determined is
whether the Social Security Appellate Board had made a legal error by making a
decision that was against the decision of the Medical Board concerning the
invalidity of the applicant under S. 16(1).
The matter was referred to the High Court on appeal. The court set aside the decision
of the Social Security Appellate Board. The court held that the matter of invalidity or
disablement is the jurisdiction of the Medical Board and the Appellate Medical Board.
The Social Security Appellate Board does not have any jurisdiction in this matter. This
is because the Medical Board and Appellate Medical Board under S. 34 may review
their own decision.
To obtain more information on SOCSO, visit http://www.perkeso.gov.my/
9.9 EMPLOYMENT INSURANCE SYSTEM

Prior to the introduction of the Employment Insurance System (EIS), there was no
comprehensive protection for retrenched workers. The only legislation which
provides some form of protection is the Employment Act 1955 by virtue of
termination, lay-off and retirement benefit (Part XIIA). Under this part, the
Minister has the power to create regulations regarding the former (S. 60J EA).
Therefore, Employment (Termination and Lay-Off Benefit) Regulation 1980 was
enacted. However, it only applies to workers under the ambit of the Employment
Act. For workers outside the scope of the Employment Act, it is up to the discretion
of the employer. Some employers provided severance packages in the form of
Voluntary Separation Scheme (VSS) and Mutual Separation Scheme (MSS).
According to the Labour Department Peninsular Malaysia Annual Report 2017,

the number of retrenched workers is 35,097. The challenge of being retrenched
comes when there is no income to help the affected workers and their dependants
(if any) get back on their feet. As such, the Government introduced EIS as a new
protection for workers.
EIS is a financial scheme that aims at helping employees who have lost their job. It
is managed by SOCSO and meant to enable retrenched workers to gain monetary
funds that would help them get back on their feet for up to six months. The EIS
was first implemented in January 2018.

The purposes of EIS are as follows:

(a) To provide immediate financial support (seven days after confirmation of job
loss) to contributors who have lost their job;
(b) To help contributors who have lost their jobs get new jobs through job
relocation programmes including mobility assistance; and
(c) To increase the job absence of job losses by vocational training and other
training programmes.
9.9.1 Coverage and Contribution Rate of Employment

Insurance System
As mentioned earlier, an employee is a person employed by an employer under a
contract of service or apprenticeship, either in writing, oral, express or implied. All
employees aged 18 to 60 years old must contribute. However, employees aged 57
years and above with no prior contributions are exempted.
Contribution coverage is subject to the insured salary ceiling of RM4,000.
The contribution rate for EIS is 0.2 per cent on the part of the employer and 0.2 per
cent on the part of the employee based on the employee's monthly salary.
Contribution rates are subject to the Second Schedule of Section 18 of the Employee
Insurance System Act 2017. All private sector employers have to pay monthly
contributions for each employee (except from civil servants, domestic servants and
self-employed individuals).
9.9.2 Employee Eligibility for Claims

Qualification for EIS claims include all insured employees (intended as insured)
who have lost their jobs except the following:
(a) Voluntary resignation by the insured person;
(b) Expiry of contract of service of the insured person;
(c) Termination of contract of service on mutual agreement with the employer
and the insured person without terms and conditions;
(d) Completion of work of the contract of service;
(e) Retirement of the insured person; or

(f) Termination of the contract of service of an insured person due to

misconduct.
The main eligibility chart that needs to be met by beneficiaries are that they are
able to work, ready to work and actively seek employment.
9.9.3 EIS Benefits

There are 6 benefits provided under EIS. These are as follows:
(a) Job Placement and Career Counselling

Provides employment support services to insured persons for the right job.
(b) Employment Allowance

Provides employment-seeking allowance for the duration of one to six
months, subject to qualifying conditions of contribution and willingness to
resume work.
(c) Early Reemployment Allowance

Provides allowance as an incentive to encourage insured persons to return to
work immediately.
(d) Reduced Income Allowance

Provides reduced income allowance to insured persons who are employed
by more than one employer and have lost employment.
(e) Training Allowance

Provides daily training allowance if the insured persons undergo training.
(f) Fee or Training Fee

Funding of the insured personsÊ training fee. The fee is paid directly to the
registered training provider.

• The Employees Provident Fund (EPF) Act 1991 was created to make provisions
with regard to the EPF and other provisions related to it. Several functions of
the EPF include to:
− Receive and retrieve contributions;
− Make investments of the funds; and
− Return the money saved to members of EPF or representatives entitled to

receive them either upon application or otherwise.
• Effective 1 January 2007, the EPF contributorsÊ account was divided into
Account 1 and Account 2. All contributions are divided into the two accounts
according to fixed percentages - 70 per cent into Account 1 and 30 per cent into
Account 2.
• Among the withdrawal schemes under the EPF are withdrawal at the age of
55, payment for housing loan, payment for medical reasons, payment for
physical and mental disabilities, payment for death and so forth.
• The function of the Social Security Organisation (SOCSO) is to carry out the
instructions of the Minister in the ministry that is involved with the
enforcement of laws related to the safety of the workers.
• There are two schemes offered by SOCSO – Employment Injury Insurance

Scheme and the Invalidity Pension Scheme.
• Employment Insurance System (EIS) is a new protection for workers who have
lost their job. It is managed by SOCSO.
• The contribution rate for EIS is 0.2 per cent on the part of the employer and 0.2
per cent on the part of the employee based on the employee's monthly salary.
• EIS benefits include job placement and career counselling, employment

allowance, early retirement allowance, reduced income allowance, training
allowance and fee or training fee.

Employees Provident Fund Invalidity Pension Scheme

Employment Injury Insurance Scheme Occupational diseases
Employment Insurance System Permanent disablement benefit
Foreign Workers Compensation Scheme Social Security Organisation
Invalidity grant WorkmenÊs Compensation Act 1952
cljlaw.com
Employee Provident Fund Act 1990 (Act 452)
Employees Social Security Organisation Act 1969 (Act 4)
Employment Insurance System Act 2017 (Act 800)
Labour Department Annual Report 2017
Maimunah Aminuddin. (2007). Malaysian industrial relations & employment law.

Self- Employment Social Security Act 2017 (Act 789)

Topic  Occupational
Safety and
10 Health
LEARNING OUTCOMES
1. Identify the applicability of the Factories and Machinery Act
1967 and the Occupational Safety and Health Act 1994;
2. Explain the responsibilities of employers with regard to the
safety and health of workers;
3. Describe the responsibilities of factory owners, suppliers and
other parties with regard to the safety and health of workers; and
4. Examine the roles and responsibilities of workers with regard to
health issues.
 INTRODUCTION
This topic discusses laws concerning occupational safety and health, specifically
the Factories and Machinery Act 1967 and the Occupational Safety and Health Act
1994. Among the issues discussed are the responsibilities of employers and self-
employed individuals about occupational safety and health as well as the
responsibilities of designers, factory owners, suppliers and workers at the
workplace.

206  TOPIC 10 OCCUPATIONAL SAFETY AND HEALTH
10.1 FACTORIES AND MACHINERY ACT 1967

Besides looking after the welfare of workers by providing compensation, the laws
in Malaysia also have specific provisions concerning workersÊ safety and health.
Following industrial accidents that involved many workers, specific acts were
enacted to reduce the occurrence of these accidents.
The acts that were legislated for this purpose are the Factories and Machinery Act
1967 (FMA 1967) and Occupational Safety and Health Act 1994 (OSHA 1994).
These Acts work hand in hand with the EmployeesÊ Social Security Act 1969. When
an accident or occupational disease occurs, the channel for benefits is through the
enforcing body, SOCSO.
FMA 1967 applies only to factories. It was enacted to regulate factories in terms of
safety, health and welfare of employees through registration and inspection of
machinery. Four industrial sectors are controlled by FMA 1967, namely,
manufacturing, mining, quarrying and construction.
According to S. 2 of FMA 1967, factory is defined as any premises or part thereof,

in which there are persons who work manually in any process or in connection
with the making, altering, repairing, ornamenting, sorting, finishing, cleaning,
washing, breaking, demolishing, constructing, reconstructing, fitting, refitting,
adjusting or adapting of any article or part thereof with business purpose and
profitability. However, if the number of employees is five or less, the premises are
not defined as according to the Act.
FMA 1967 takes a traditional approach in terms of identifying disasters and using
minimal standards of equipment and through its operations to control disaster
from occurring. It depends solely on the physical and environmental features by
ignoring the work system. The Government is fully responsible for providing
security checks on the machinery used. Hence, manufacturers sometimes get the
wrong understanding that they can ignore the duty of checking the safety of
machinery used.
Upon realising the weaknesses in the Act, and in accordance with the progress and
development of the various industries in Malaysia, a more comprehensive act was
enacted with provisions for occupational safety and health.
The said act is the Occupational Safety and Health Act 1994. This Act is said to be
a better act as it has provisions for occupational safety and health, not only for the
industries themselves but also for the workers as well.

TOPIC 10 OCCUPATIONAL SAFETY AND HEALTH  207
10.2 OCCUPATIONAL SAFETY AND HEALTH

ACT 1994
The enforcement of this Act does not abolish the use of other relevant Acts such as
FMA 1967. The Occupational Safety and Health Act 1994 (OSHA 1994) was
enacted to correct misunderstanding of FMA 1967 and complement occupational
safety and health requirements at all workplaces. Several new principles and
regulations are included in OSHA 1994, in particular, penalties for breach of
provisions. When there is a conflict between FMA 1967 and OSHA 1994, the later
Act will prevail.
S. 5(1) of OSHA 1994 empowers the Minister of Human Resources to appoint the
Director-General of Occupational Safety and Health from among public officers to
ensure that all powers, functions and obligations under the Act can be exercised.
The Director-General is empowered under S. 6 of the Act to appoint an

independent inspecting body from any of the industries to advise and assist him
in carrying out the objectives and purposes of this Act. The Council for
Occupational Safety and Health was established for this purpose. S. 14 of OSHA
1994 empowers the National Council for Occupational Safety and Health to set up
committees to assist it in implementing its functions, in particular, to impose
sanctions on industrial precautions, taking into account the different industries.
OSHA 1994 applies throughout Malaysia for the following industries:

(a) Manufacturing;
(b) Mining and quarrying;
(c) Construction;
(d) Agriculture, forestry and fisheries;
(e) Electrical, gas, water and cleaning services;
(f) Transportation, storage and communication;
(g) Wholesale and retail trade;
(h) Hotels and restaurants;
(i) Financial, insurance, real estate and business services; and
(j) Public service and statutory bodies.

Provision
S. 4 of OSHA 1994 states that the objectives of the Act are:
(a) To ensure the health, safety and welfare of workers with regard to the
risks that arise from the activities of working people;
(b) To protect the public in places other than where they work with regard to
the safety or health that arises from their own activities;
(c) To encourage an environment that is conducive for the physiological and
psychological needs of the workers; and
(d) To maintain or improve the standards of safety and health.
ACTIVITY 10.1
In your opinion, what are the matters that can endanger the safety and
health of workers in the construction industry? How can OSHA 1994
protect them? Share your opinion with your coursemates in the
10.3 RESPONSIBILITIES OF EMPLOYERS AND

SELF-EMPLOYED PERSONS
Part IV of the Act has provisions regarding the responsibilities of employers and
self-employed persons towards their workers and others apart from their workers.
10.3.1 Responsibilities Towards Workers
Definition
Generally, an employer is anyone who employs others to work for him under
a contract of service.
In the context of the Act, there are two types of employers, immediate employers
and principal employers. Immediate employers employ workers to work for them
or through them and pledge to work at the workplace of the main employer.

Principal employers are the owners of an industry or those who make a contract
of service with the workers. They include managers, agents or those responsible
for the payment of wages or salaries to workers, government or local authorities
and statutory bodies.
Definition
A self-employed person refers to a person who works for gains or rewards other
than under a contract of employment, regardless of whether he employs others.
S. 15 states that it is the responsibility of employers and self-employed persons to

ensure the safety, health and welfare of all workers, as far as it is practical to do so.
The responsibilities stated in this section are as follows:

(a) To have and to maintain the plant and system at work, as far as practical, to
be safe and without risk to health;
(b) To make calculations in order to ensure, as far as practical, safety and
freedom from risk to health regarding the use or handling, storage and
transportation of plant and materials;
(c) To have information and instructions regarding training and supervision as
required, and as far as practical, for the safety and health of the workers;
(d) To ensure the maintenance of the workplace so that it is safe and without risk
to health, and have exits and entrances during periods of risk;
(e) To have and to maintain an environment of work, as far as practical, without
risk to health as well as facilities for the welfare of those working.
The Act requires the employers to be responsible as far as it is practical to do so.
Definition
The meaning of „as far as practical‰ is whenever possible, to take into account the
rate of injury that can occur, level of risk, probability of injury and other related
matters.

The workers in this Act are those who have entered into a contract of service as
well as independent contractors whose services are employed. Included in the
responsibility to ensure occupational safety and health are the workers of
independent contractors under the control of the employer and those who are self-
employed.
The section contemplates the responsibility of the employer or the self-employed

person towards safety and health not only for their own workers but also for any
other workers. In addition, this section illustrates the requirements for safety and
health for environmental aspects of the workplace.
In Mohamed Fami Hassan v Swissco Pte Ltd & Government of the Republic of Iraq
(1985) 1 LNS 169, the plaintiff claimed for injuries sustained and losses that were
borne by him as a result of the accident while at work. When the plaintiff was
carrying three oil barrels from „Sea Supply‰ to a larger platform, one of the barrels
fell on him. This resulted in injuries to himself. The issue was – Did the defendant
provide a system of work that was safe?
The court decided that there was no safe system of work because the worker used
a can hook to carry the oil barrels. It is the employerÊs responsibility to take the
necessary reasonable steps to ensure the safety of its workers. The defendant
should have considered the probability of a mistake occurring while carrying the
barrel and also the danger should the barrel fall. Thus, the defendant should be
faulted.
In Teong Wee Meow v Goh Poh Chan & Ors (1981) 1 LNS 86, a worker died after
inhaling poisonous gas which emanated from a well owned by the appellant. The
latter was said to have no safe system of work and failed to give warnings and
information with regard to the condition of the well, thus endangering the safety
and health of the workers. The latter had prior knowledge of the wellÊs condition, as
previously a worker had fainted because of gas inhalation.
With the clear evidence that the appellant had knowledge of the poisonous gas in
the well, the court decided that the appellant was responsible for the death of the
worker.
In the case of Datuk Bandar Dewan Bandaraya Kuala Lumpur v Ong Kok Peng
and Anor (1993) 3 CLJ 205, the plaintiff was injured after falling into the lift shaft
of the flat owned by Dewan Bandaraya Kuala Lumpur. There was no warning or
barriers attached to the door of the lift to indicate that the lift was out of order. The
machinery inspector had issued a letter with regard to the fault but the defendant
did nothing to repair the fault as quickly as possible.

The court decided that the defendant was liable for the accident. The situation
experienced by the plaintiff was a situation that endangered lift users. Thus, the
defendant was not free from liability by only entrusting it to a third party.
The independent contractor was at fault for not giving warning on the danger. The
defendant was at fault for not ensuring that there was sufficient warning on the
danger of the lift.
The case shows how the two parties, employer and independent contractor, were
responsible for the injuries sustained by the plaintiff. This shows that even though
the task was under the control of the independent contractor, the employer was
still not free from the responsibility of ensuring safety and health at the workplace.
Provision
S. 17 widens the responsibilities of parties who may be involved directly or
indirectly in the work carried out.
The Act requires the employer or the self-employed person to ensure, as far as
practical, that others are not exposed to risks that could endanger their safety
and health as a result of the work involved.
SELF-CHECK 10.1
1. What is the difference between an immediate employer and

a principal employer according to OSHA 1994?
2. What is the responsibility of an employer with regard to the

safety and health of his workers?
10.3.2 Responsibility to Formulate Health and Safety

Policy
Other than the mentioned responsibilities, the employer and the self-employed
persons are duty-bound to formulate policies on safety and health, that is, to study
any written notices pertaining to the safety and health aspects of workers while at
work or to formulate a policy concerning the organisation itself.

Anyone of the mentioned parties who breaches the provisions of Sections 15, 16
and 17 of the Act is said to have committed an offence and can fetch a fine not
exceeding RM50,000 or imprisonment of not more than two years, or both.
10.3.3 Responsibility to Inform about Accidents,

Dangerous Incidents, Poisoning of Workers
and Work-related Illnesses
Apart from the responsibility of taking appropriate actions to ensure the safety and
health of workers and others, the employer should inform the nearest Safety and
Health Department regarding any accidents, dangerous incidents, poisoning or
work-related illnesses that have or may have occurred at the workplace.
Besides that, a registered medical practitioner must be called to examine the parties
involved in any work-related illness as stated in FMA 1967. If it is found that a
worker or anyone else is involved in an accident or incident stated or has
contracted an illness, the medical practitioner has to make a report to the Director-
General of Occupational Safety and Health. The Director-General has the power to
order further investigations based on the report.
10.4 GENERAL RESPONSIBILITIES OF

DESIGNERS, MANUFACTURERS AND
SUPPLIERS
Provision
S. 20 states that designers, manufacturers, importers or suppliers of a plant to
be used for work must take the following steps:
(a) The design of the plant must, as far as practical, be safe and free from risk
to health when it is being used;
(b) To conduct tests or examinations, as far as required, to assess the safety
of the plant; and
(c) To take necessary steps from the aspect of information with regard to the
use of the plant.
To ensure occupational safety and health, the Act also has provisions regarding
the responsibilities of designers, manufacturers and suppliers.

As for S. 20, the parties involved are responsible for conducting research as far as
required to ensure or ascertain that the inherent risk with regard to safety and
health can be reduced or eliminated while using the plant.
Other than the provisions regarding the construction and use of the plant, the use
of materials at work must also be taken into consideration by the manufacturer or
other parties involved.
S. 21 makes it compulsory for those involved in making, producing or

supplying materials:
(a) To ensure that the materials are safe and do not bring risks to health;
(b) To take any actions or steps that are necessary to ensure that the materials
are not a risk to health; or
(c) To take steps to ensure that there is sufficient dissemination of
information with regard to the use of the materials.
The penalties for breaching S. 20 and S. 21, if found guilty, shall be a fine of not
more than RM20,000 or imprisonment not exceeding two years, or both.
Besides that, the provisions of S. 21 and S. 35 state that the Director-General can
order the employer and prevent them from using the plant or materials that affect
the safety and health of the workers.
ACTIVITY 10.2
1. If you are an employer of a factory, what steps should you take
to ensure that the safety and health of the workers are always
guaranteed?
2. Apart from the employer, who else is responsible for ensuring

safety and health at work?
Share your answers with your coursemates in the myINSPIRE

online forum.

10.5 GENERAL RESPONSIBILITIES OF

WORKERS
Apart from employers and individuals, the Act also underlines the responsibilities
of the workers with regard to occupational safety and health.
Provision
S. 24 provides that it is the responsibility of a worker who is working:
(a) To give reasonable attention with regard to the safety and health of
himself and others during work;
(b) To cooperate with the employer or other parties in fulfilling the
responsibility regarding the enforcement of safety and health of
employment;
(c) To use and wear safety equipment provided by the employer for the
purpose of preventing risks to safety and health; and
(d) To abide by the instructions from the employer or others as allowed or
required by the Act.
Any worker who is found to have contravened S. 24 is said to have committed an

offence and if found guilty, can be fined not more than RM1,000 or jailed for not
more than three months, or both.
In the case of Abdul Rahim b Mohamad v Kejuruteraan Besi dan Pembinaan

Zaman Kini (1999) 5 CLJ 85, the plaintiff was involved in an accident while
repairing the ceiling of a school. At the time of the accident, he was the worker of
the defendant and the plaintiff was not registered as a contributor to SOCSO.
Hence, he made his claim against the defendant for the damages.
The court decided that it was no longer a question of whether he had been registered
with SOCSO, provided that the industry in which he was working was an industry
that had adopted the SOCSO Act 1969 and the worker was a party that was
protected. Thus, he was prohibited by the Act to make any claims based on other
laws.
The court then decided that the defendant had failed to fulfil both the common law
and the statutory obligations in terms of ensuring the safety and welfare of the
plaintiff. However, there was an element of contributory negligence on the part of
the plaintiff and hence, both parties were equally liable.

SELF-CHECK 10.2
When is a worker also liable for occupational health and safety?
Explain.
• The objective of the Factories and Machinery Act 1967 (FMA 1967) was to have
a method whereby the Government could ensure occupational safety and
health. In accordance with the purpose and importance at that time, the Act
was adopted for all factories and machinery.
• Occupational Safety and Health Act 1994 (OSHA 1994) is applicable in many
industries throughout Malaysia. Some of these industries include
manufacturing, mining and quarrying, construction, agriculture, forestry and
fisheries, electrical, gas, water and cleaning services, transportation, storage
and communication.
• S. 15 of the OSHA Act states that it is the responsibility of employers and self-
employed persons to ensure the safety, health and welfare of all workers, as
far as practical. The responsibilities stated in this Section are:
− To have and to maintain the plant and system of work, as far as practical,
to be safe and without risk to health;
− To make calculations in order to ensure, as far as practical, safety and

freedom from risk to health regarding the use or handling, storage and
transportation of plant and materials;
− To have information and instructions regarding training and supervision

as required, and as far as practical, regarding the safety and health of the
workers;
− To ensure the maintenance of the workplace so that it is safe and without

risk to health, and have exits and entrances during periods of risk; and
− To have and to maintain an environment of work that is without risk to

health, as far as practical, as well as facilities for the welfare of those
working.

• S. 20 states that designers, manufacturers, importers or suppliers of a plant

used for work must take the following steps:
− The design of the plant must as far as practical be safe and free from risk to
health when it is being used;
− To conduct tests or examinations as far as required to assess the safety of

the plant; and
− To take necessary steps from the aspect of information with regard to the
use of the plant.
• S.24 provides that it is the responsibility of a worker who is working:
− To give reasonable attention with regard to the safety and health of himself
and others during work;
− To cooperate with the employer or other parties in fulfilling their

responsibility regarding the enforcement of safety and health of
employment;
− To use and wear safety equipment provided by the employer for the
purpose of preventing risks to safety and health;
− To abide by the instructions from the employer or others as allowed or

required by the Act.
Employer Occupational Safety and Health Act 1994

Factories and Machinery Act 1967 Self-employed

cljlaw.com
Factories and Machinery Act 1967 (Act 139)
Maimunah Aminuddin. (2007). Malaysian Industrial Relations & Employment

Law ( 6th ed). McGraw Hill.
Occupational Safety and Health Act 1994 (Act 514)

MODULE FEEDBACK
MAKLUM BALAS MODUL
If you have any comment or feedback, you are welcome to:
1. E-mail your comment or feedback to modulefeedback@oum.edu.my
OR
2. Fill in the Print Module online evaluation form available on myINSPIRE.
Thank you.
Centre for Instructional Design and Technology

(Pusat Reka Bentuk Pengajaran dan Teknologi )
Tel No.: 03-78012140
Fax No.: 03-78875911 / 03-78875966


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BBUI3103

Employment and Industrial Law

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

Module Writers: Assoc Prof Dr Asmah Laili Yeon

Nazruzila Razniza Mohd Nadzri

Moderators: Cyrill Ponnu

Enhancer: Rhymie Mohd Ramli

Developed by: Centre for Instructional Design and Technology

First Edition, March 2008

Copyright © Open University Malaysia (OUM), August 2020, BBUI3103

Copyright © Open University Malaysia (OUM)

Topic 1 Labour Relations and Employment Law 1

Topic 2 Justice System Related to Employment and Industrial Relations 25

Copyright © Open University Malaysia (OUM)

Topic 3 Terms and Conditions of Employment 39

Topic 4 Pecuniary and Non-pecuniary Terms 53

Copyright © Open University Malaysia (OUM)

4.5.5 Sick Leave 75

Topic 5 Management Prerogatives 81

Topic 6 Misconduct of Workers and Domestic Inquiry 106

Copyright © Open University Malaysia (OUM)

Topic 7 Trade Union and Collective Bargaining 132

Topic 8 Trade Disputes and Dispute Resolution 154

Copyright © Open University Malaysia (OUM)

8.6 Inquiry and Investigation 168

Topic 9 Social Security Protection for Employees (EPF) 172

Topic 10 Occupational Safety and Health 205

Copyright © Open University Malaysia (OUM)

10.3.3 Responsibility to Inform About Accidents, 212

Copyright © Open University Malaysia (OUM)

COURSE GUIDE DESCRIPTION

Copyright © Open University Malaysia (OUM)

Table 1: Estimation of Time Accumulation of Study Hours

Briefly go through the course contents and participate in initial discussions 3

Study the module 60

Attend 3 to 5 tutorial sessions 10

Assignment(s), Test(s) and Examination(s) 20

TOTAL STUDY HOURS ACCUMULATED 120

COURSE LEARNING OUTCOMES

Copyright © Open University Malaysia (OUM)

Topic 4 discusses the responsibilities of employers towards their employees,

Topic 5 highlights the prerogatives of employers towards their employees. The

Copyright © Open University Malaysia (OUM)

TEXT ARRANGEMENT GUIDE

Self-Check: This component of the module is inserted at strategic locations

Copyright © Open University Malaysia (OUM)

Activity: Like Self-Check, the Activity component is also placed at various

Copyright © Open University Malaysia (OUM)

Maimunah Aminuddin. (2011). Malaysian industrial relations and employment

Copyright © Open University Malaysia (OUM)

TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

1.1 EMPLOYMENT LAW AND

Visit the official website of the Ministry of Human Resources at

Copyright © Open University Malaysia (OUM)

1.2 EMPLOYMENT RELATIONS

Copyright © Open University Malaysia (OUM)

Figure 1.1: Options for employers in making an offer of employment

1.2.1 Contract of Employment/Service

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Copyright © Open University Malaysia (OUM)