The Malaysian Lawyer

Changes to the Industrial Relations Act from January 2021: Highlights and practical impact on employee exits

Some important changes to Malaysia’s Industrial Relations Act came into force on 1 January 2021, pursuant to the Industrial Relations (Amendment) Act 2020 (“the Amendment Act”). The changes heavily affect unfair dismissal claims — from the pre-trial conciliation process through to appealing an Industrial Court decision — and may significantly impact employee terminations.

Here are some key highlights:

  1. Parties can appoint representatives at conciliation meetings: Pursuant to the Amendment Act, employers and employees can “be represented by any other person except an advocate and solicitor” at Industrial Relations Department conciliation meetings. This is particularly helpful for employees, who previously could only represent themselves (or be represented by a union representative).
  2. All cases will now be automatically referred to the Industrial Court: Prior to the latest changes, there was a “filtering” process when it came to referring cases to the Industrial Court. If a matter could not be settled at the conciliation stage at the Industrial Relations Department, the Director General on Industrial Relations would “notify the [Minister of Human Resources]”, who would then exercise a ministerial discretion in deciding whether the matter would proceed to the Industrial Court. Following the changes, if a matter cannot be settled, then “the Director General shall refer the representations to the [Industrial] Court for an award”. This means that the previous ministerial filter no longer exists.
  3. Proceedings will continue despite a claimant’s death; award can be made to next-of-kin: The previous position was that an unfair dismissal claim would be struck out in the event of a claimant’s death — after all, it is technically a claim for reinstatement, which is a remedy that would not be possible following his/her death. Pursuant to the Amendment Act, the Industrial Court can “continue to conduct its proceedings notwithstanding the death of the workman”. In line with this, the Amendment Act also allows gives the Industrial Court “the power to award backwages or compensation in lieu of reinstatement or both to the next-of-kin of the deceased workman”.
  4. Change in the process of appealing to the High Court against an Industrial Court award: The pre-amendment recourse for a party dissatisfied with an Industrial Court decision was to seek to challenge the decision at the High Court by way of judicial review. The Amendment Act allows a dissatisfied party to “appeal to the High Court within 14 days from the date of receipt of the [Industrial Court] award”. This is a significant change to the appeals process — it should now be quicker and more straightforward to appeal an Industrial Court decision.

Practical impact of the changes on employee exits

In practice, it should be noted that some of the changes under the Amendment Act have already been put into effect for some time, as a result of policy decisions under the previous, short-lived, government. Referrals to the Industrial Court have already almost been automatic since 2019 — if the matter could not be settled at the conciliation/mediation stage, then it was just a matter of course that the matter would then proceed to an Industrial Court trial. This was in line with the then publicly-stated policy of the Human Resources Ministry.

Having said that, the fact that this has now been codified has solidified its impact. While the removal of the previous “filtering process” is in line with the government’s (both previous and current) position of protecting employee rights, it further skews the balance of the Malaysian industrial relations framework away from international business/investment norms. From my conversations with international counsel and HR professionals over the years, it is apparent that Malaysia has always been seen as being “too employee-friendly”. With these latest changes, it means that an employee can bring a claim against his/her employer, and this matter would be guaranteed a referral to the Industrial Court — whereas previously, at least the most frivolous/unsubstantiated claims would be filtered out. This arguably tilts the scales too heavily in favour of potentially vexatious litigants, particularly as employees can lodge unfair dismissal claims even after signing a mutual separation agreement and receiving a severance payment .

The practical effect of the new unfair dismissal claims process means that employers have to even more carefully consider the risks and potential financial exposure/costs when exiting employees, either unilaterally or by mutual agreement. It may mean that the process of exiting an employee in Malaysia — even in situations where there is “just cause” — will be an even more expensive affair. Faced with a potential unfair dismissal claim, and a then inevitable Industrial Court trial (and all the uncertainty, cost, and time that involves), employers may find themselves under even more pressure to offer enhanced exit compensation packages even in circumstances where a unilateral termination may be justified.