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Unfairly Dismissed? An Employee May be Paid Up to 24 months of salary.

Updated: Sep 18, 2023

If the Industrial Court finds that an employee has been unfairly dismissed, what are the available remedies that the Court may award?

The Court may award either award:-
  • reinstatement of the employee; or

  • compensation in lieu of reinstatement.

What is Reinstatement?

A court may order the workman to be reinstated in his/her former employment. The effect of reinstatement would mean to restore the worker to his/her last position with the employer together with her salary, and other benefits (such as allowances, bonuses, which such an employee has been entitled to had he not been dismissed.

Can an employee still claim for any other compensation in addition to reinstatement?

Yes. The employer shall pay the employee full back wages from the date of termination to the date of reinstatement, subject to a maximum of 24 months in the case of a confirmed employee or 12 months for a probationer.

However, if during the period of time when the employee has been dismissed, he/she was employed elsewhere, then he/she shall not be entitled to back wages during the month that he/she was employed elsewhere and shall only be paid when the employee was not employed. This is because the employee cannot be allowed to take double advantage and make excessive gain relying on the wrongful act of the employers.

Is Reinstatement equals to Re-employment? Reinstatement is not a case of re-employment which means that an employee is called back after being terminated or resigned or retired and put on a separate or different contract of employment. If an employee is re-employed the employee loses his security of tenure, seniority, and benefits he is entitled in the previous employment, such as accumulation of paid leave and termination benefit.

What if reinstatement is not suitable?

If the court is of the opinion that reinstatement is not suitable if the relationship between the employer and the employee has broken down so badly that it would not be conducive to industrial harmony to return the employee to his/her place of work. Then the Court may order an award of compensation in lieu of reinstatement. However, this compensation shall not be awarded to any employee who is not capable to be reinstated.

There is a difference between an employee who is capable of being reinstated but is not suitable due to the broken down of the relationship, and an employee who is incapable of being reinstated, i.e. attained the age of retirement.

What is compensation in lieu of reinstatement?

If reinstatement is not suitable, then the Industrial Court shall order the employee to be paid such amount of wages as compensation in lieu of reinstatement by the employer, as may be determined by the Court. This is also commonly known as 'monetary compensation'.

However, it is important to note that compensation in lieu of reinstatement may only be awarded if the employee is entitled to be reinstated in the first place. If such an employee is incapable to be reinstated as he/she has attained the statutory age of retirement, he/she is not entitled to claim for compensation in lieu of reinstatement. This stand has been made clear by the Federal Court in the year 2015.

How is compensation in lieu of reinstatement being determined?

The calculation for damages in cases of unfair or unlawful dismissal in Malaysia for compensation in lieu of reinstatement typically involves determining compensation based on the length of completed service. This compensation is generally equivalent to one month's last drawn salary for each year of completed service. It's worth noting that according to Practice Note No. 1 of 1987, no compensation is provided for any incomplete year of service.

Hence if an employee has completed 10 years of service, then he shall be entitled to 10 months' salary.

If an employee has been employed for 10 years and 11 months, then he shall be entitled to only 10 months of salary because he has yet to complete the 11th year of service. However, it can be contended that the Practice Note lacks legal force and is primarily an internal administrative circular intended as a guideline for the courts. In practice, the Court retains the discretion to award compensation, considering the case's specific circumstances, facts, and merits. This determination is made under principles of equity and good conscience, as outlined in Section 30 (5) of the Industrial Relations Act (IRA).

What if an employee has yet to complete 12 months of continuous service?

There shall be no compensation in lieu of reinstatement for any employees who have not completed 12 months of service.

Can an employee be awarded back wages if he is not reinstated?

Yes, whether an employee is reinstated or be awarded compensation in lieu of reinstatement, he/she may be awarded back wages. However, where there is post-dismissal earning, a percentage of such earning, to be decided by the court, shall be deducted from the back wages given. No deduction shall be made if an employee has not been able to secure any employment since his date of dismissal.

Does an employee have a duty to mitigate against the loss?

No. An employee has a duty to mitigate against the loss but it is up to the employer to prove that the employee had failed to do so.

In the event that the court finds that the employee who failed to mitigate against the loss, then the Industrial Court may deduct a reasonable amount from back wages. However, no deduction shall be made to compensation in lieu of reinstatement.

What if the employee himself contributes to the dismissal? Any relief (including compensation in lieu of reinstatement given shall take into account contributory misconduct of the workman.)

If any employee has not fully utilized the annual leave that he is entitled under the employment contract when he was terminated, can the employee claim for payment in lieu of the leave? Yes. Apart from ordering the employer to pay the payment in lieu of leave not taken, the court may also order contractual bonuses and other contractual benefits.

Can an employee claim for damages against the employer for loss of earning as a result of the unlawful dismissal?

No. If such a claim is allowed, then the employee would be gaining additional benefit when he/she was awarded back wages.



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