The Government of Malaysia has introduced a movement control order (“MCO”) which took effect on 18^th March 2020. Following the country’s improvement in flattening the curve of new COVID-19 cases, the country has now moved towards a conditional movement control order (“CMCO”) which was announced to end on 9^th June 2020 (“this period”). These preventive measures are taken due to the rising community spread of COVID-19 in Malaysia in March.

The MCO was made pursuant to the Prevention and Control of Infectious Diseases Act 1988 and the Police Act 1967. The new regulations under the CMCO in force is the Prevention and Control of Infectious Diseases (Measures Within Infected Local Areas) (No. 5) 2020.

Under the CMCO, the following are some of the restrictions/ regulations being enforced:

·       No interstate travel unless for work or stranded persons;

·       A maximum of 4 passengers allowed in a car from the same household;

·       A maximum of 2 passengers in taxis or e-hailing vehicles;

·       Prohibited activities include entertainment, leisure, recreational activities, religious, cultural, art festivities’ activities, and others;

·       Prohibited services are barbershops and beauty salons, using fitting rooms in clothing stores, filming movies, dramas, cruise ship activities, tourism services and accommodation services falling under the Tourism Industry Act.

Ever since the implementation of the MCO, the restrictions and regulations have rendered the nation to be in an unfamiliar state of partial lockdowns and social distancing. In the midst of this unprecedented change, businesses scramble to avoid falling into the deepening cycle of losses and changes in operation structures. The employers of companies and/or businesses are ultimately faced with the resort of cutting costs especially in the employment sector.

This FAQ will discuss common issues faced by employers and/or employees during this period.

Frequently Asked Questions concerning the Legal Impact of Covid-19 on employment in Malaysia

Are employers required to pay salary if the business falls under non-essential and employees are not required to come to work?

Yes, directives and guidelines have been issued by the Ministry of Human Resources stipulating that full salary of employees has to be paid during this period. Employees should be paid in full according to their employment contract.

Can an employer impose a salary cut?

Generally, the law does not allow employers to impose a salary deduction without obtaining the employee’s consent. A salary deduction must also be made with bona fide intention.

The Industrial Court has previously held that an employee’s salary deduction which was done unilaterally and without valid justification, constitutes a variation of an essential term of the employment contract (see RNC Corporation Bhd & Anor v Kesvaran TP Murugasu [2004] ILJU 23). It should be cautioned that in such circumstances, a deduction of an employee’s pay may be used as a ground to plead constructive dismissal.

However, if the company is facing losses and trying to fight off closure of its business or retrenchment, the employer can communicate to the employees to take a salary cut which can be reinstated and increased later when the business picks up (see Lim Ban Leong v Gold Bridge Engineering & Construction Bhd [2017] 2 LNS 0370).

In light of this, do bear in mind the following key takeaways:

·       Any salary deduction must be brought to the attention of the employees;

·       Valid justifications as to the salary deductions must be conveyed to the employees; and

·       The deductions can only be imposed with the consent of the employees.

Can an employer compel employees to take unpaid leave & paid annual leave?

The law does not allow employers to compel its employees to take unpaid leave or paid annual leave during this period unless it has been expressly agreed by the employee.

Can an employer resort to retrenchment?

“It is the right of every employer to reorganise his business in any manner for the purpose of economy or convenience provided he acts bona fide… The employer has the right to determine the volume of his labour force consistent with his business and organisation and if by the implementation of a reorganisation scheme adopted for reasons of economy and better management of business the services of some of the employee become excess of the requirement of the business, the employer is entitled to discharge such excess.”

We find the above quote from the Court of Appeal case of William Jack & Co (M) Sdn Bhd v Balasingam [1997] 3 CLJ 235 apt in discussing retrenchment during this unprecedented period. As illustrated in the above case, the law allows an employer to undertake measures such as retrenchment as an effort to reduce costs of business in order to survive during this period.

In exercising the right to retrench, the employer must adopt the correct redundancy assessment method and fair retrenchment procedures. An employer’s choice to retrench is subject to the rule that he must act bona fide (see William Jacks & Co (M) Sdn Bhd v. S. Balasingam [1997] 3 CLJ 235).

Furthermore, the common method used in the exercise of redundancy is Last in First Out (“LIFO”). There are case laws in Malaysia which suggest that the breach of the LIFO principle amounts to dismissals without just cause and excuse (see Dynacraft Industries Sdn Bhd v Kamaruddin Bin Kana Mohd Sharif & Ors [2012] 6 MLJ 453). Therefore, it is prudent for the company to follow LIFO. If the employer adopts other methods than LIFO, it must prove that the selection criteria that are relied upon in selecting employees was fair and reasonable. The principle of LIFO can be validly be departed from for sound and valid reasons (see Sarawak Shell Bhd v Ismail Sahat & Ors [2002] 2 ILR 371).

The exercise should also be done in compliance of the Code of Conduct for Industrial Harmony 1975. Employers are also required to report to the nearest Ministry of Human Resources at least one month prior to the retrenchment exercise by filling the Form PK1/98.

Can an employer rely on force majeure clauses?

A force majeure refers to contractual terms that parties to a contract has agreed upon to deal with situations that may arise, over which the parties have little or no control over, and may impede or obstruct the performance of the contract (see Magenta Resources (S) Pte Ltd v China Resources (S) Pte Ltd [1996] 3 SLR 62 at 78).

If a force majeure clause is invoked, parties may be excused from performing their contractual obligations. In this event, an employer may want to invoke force majeure during this period to terminate the employees without any monetary compensation.

In order for an employer to rely on force majeure, the employment contract must contain a specific clause which provides for force majeure and that the clause covers events such as disease outbreak, epidemic, or arguably acts of government (to include the MCO). In absence of such clause, the employer will not be able to rely on it.

Can an employer rely on the doctrine of frustration?

In the absence of a force majeure clause in the employment contract, the affected party may have the option to rely on the doctrine of frustration. In comparison with force majeure where it is an agreement as to how outstanding obligations should be resolved upon the onset of a foreseeable event, the doctrine of frustration concerns the treatment of contractual obligations from the onset of an unforeseeable event (see Glahe International Expo AG v ACS Computer Pte Ltd [1999] 2 SLR 620).

The doctrine of frustration is embodied in Section 57 of the Contracts Act 1950 where a change in circumstances has rendered the contract impossible to perform.

The elements in determining whether a contract has been frustrated was set out by the case of Guan Aik Moh (KL) Sdn Bhd & Anor v Selangor Properties Bhd [2007] 4 MLJ 695:

1. The event relied on must be one for which no provision has been in the contract. If a provision has been made, then the contract must govern;

2. The event relied upon must be one for the party is not responsible for. Self-induced frustration is ineffective; and

3. The event must be such that renders it radically different from that which was undertaken by the contract. The court must find it practically unjust to enforce the original promise under the contract.

Arguably the first and second elements can be satisfied in light of the implementation of the MCO due to the COVID-19 outbreak. However, it may be difficult to prove that the event has rendered the performance to be radically different or impossible under the contract. It is unlikely that an employer will be able to rely on the doctrine of frustration during this period if the employees are able to work from home. This will not render the contract entirely impossible to perform.

Can an employer vary the terms of an employment contract?

Generally, an employer cannot unilaterally insist on varying the terms of an employment contract unless the contract expressly provides for a variation clause which allows the employer to change the terms unilaterally. This is consistent with the tenet that no party can unilaterally vary a term of the contract.

Any attempt to introduce new contractual terms or to vary the same would amount to a variation of contract and such unilaterally imposed terms cannot be enforced as a matter of law (see Yap Kok Foong & Anor v Colgate Palmolive (M) Sdn Bhd & Anor [2000] 4 MLJ 314).

As such, it is important to notify and obtain consent of the employees prior to changing the terms of the employment contract.  

Conclusion

The effects of this worldwide pandemic prove to extend beyond health problems and its direct impacts are felt by the society nationwide. In any event, any cost-cutting exercise involving a company’s employees should be carried out with caution and in compliance with the Ministry of Human Resources guidelines. Moving forward, employers may want to consider plans for a work-from-home basis to ensure continuity of the business.

Contributors:

KRISTIE CHEW

THARMINI PARAMASIVAN

Note:  This FAQ does not constitute legal opinion or legal advice on any of the issues addressed above. Please however feel free to contact us should you have any queries or require any clarification.