What happens when an employer dismisses an employee on the grounds of redundancy, but is later unable to prove that there was a genuine redundancy in that position? What if the employer is also found to have engaged in bad faith when dismissing the employee in question?

These issues were considered by the Industrial Court in the case of Sivabalan A/L Poobalasingam v Kuwait Finance House (Malaysia) Berhad earlier this year, and the decision in that case is a timely reminder of the court's power to award punitive damages where it finds that there was bad faith in the dismissal process, as well as no genuine redundancy.

Background

The employee in question (Claimant) commenced employment with the company (Company) in the role of Director, International Business, in 2008, and had been seconded to the Company's wholly owned subsidiary (Subsidiary) to take up the role of Head of Business Development in 2010. In 2011 and early 2012, the Subsidiary underwent a change in management and a new CEO was appointed; shortly thereafter, the Claimant was informed that, based on the new CEO's strategy, there was no role for the Claimant at the Subsidiary. The Subsidiary began to conduct interviews for the Claimant's position while the Claimant was still employed by the Company.

In April 2012, the Claimant was issued with a letter of termination stating that his position as the Subsidiary's Head of Business Development had been made redundant. Thereafter, a new hire was appointed to take up the same position with the Subsidiary.

No genuine redundancy

The court found that although the Company claimed that the Claimant's position was redundant, the position and duties formerly held and carried out by the Claimant in fact still existed and had been merely transferred to the new hire.

To explain this, the Company argued that due to the change in the Subsidiary's business plans to concentrate on traditional fund management work and sukuk funds, the Claimant was made redundant as his skills and expertise lay in other types of funds, and also claimed that the new hire had been appointed as he had the required skill set in sukuk funds. However, this argument was not borne out on the facts, as the court found that:

  • there was no evidence that the Subsidiary had made concrete plans to change its business plans, or that the Claimant was less suited to spearhead the alleged new business plans than the new hire;
  • in any event, the sukuk fund had been launched 9 months after the decision was made to dismiss the Claimant, meaning that the Claimant had in fact not been given any opportunity to develop sukuk funds or perform under the Subsidiary's alleged new business plan.

The court also found that the Company failed to adduce evidence as to whether alternative roles were available at the Company, bearing in mind that the Claimant had at all times been an employee of the Company and a secondee at the Subsidiary. In totality, the court took the view that there was no genuine redundancy, and that the Claimant's dismissal had been a convenient means for the Subsidiary to appoint a new hire of their choosing to replace the Claimant.

Other reasons?

The court also held that, in considering whether the dismissal had been without just cause or excuse, it would look only at the reason advanced by the Company for the dismissal, and would not consider other reasons to assist the Company. Accordingly, although the Company's arguments suggested that there were performance issues in that the Claimant lacked the skills and client base expected of the role, the court declined to examine these performance issues as they had not been advanced by the Company as the reason for the dismissal.

Bad faith

The court emphasized that while employers do have the right to reorganise their business in any manner they deem fit, this right was tempered by a requirement for the employer to do so in good faith, without capricious reasons and without undermining fair labour practices. As the court found that the Company had not acted in good faith, it exercised its discretion to award punitive damages in favour of the Claimant in lieu of reinstatement. This amounted to two months' salary per year of service, in addition to back payment of wages and Employee Provident Fund contributions.

What this means for employers

This case should serve as a reminder to employers to ensure that the reason for terminating an employment arrangement can withstand scrutiny by the Industrial Court and that the process is undertaken in good faith. If the reason for termination is that the employee's role is redundant, sufficient evidence should be kept; redundancy should not be advanced as a reason for a termination if the real reason lies elsewhere. Similarly, if the employer intends to rely on performance issues to terminate employment, it will need to ensure that it has sufficient evidence of the employee's underperformance, and that underperformance has been stated as the reason for the termination. Failure to articulate a genuine, substantiated reason for termination can quickly become an expensive affair - employees beware!