Case Update: Federal Court decides whether punishable misconduct in employment law is distinguishable from criminal conduct
March 1, 2018
In this Case Update series, this werethe summaries of recent Malaysian court decisions to explore the current approach taken by the courts when deciding on employment-related issues.
Misconduct is one of the reasons which would qualify as “just cause” for an employer to dismiss an employee.
However, it’s not straightforward to pin down an exact definition of what constitutes “misconduct”. Even in instances where actions can be broadly categorised as misconduct, there is often confusion as to whether —
a misconduct is serious enough to justify dismissal instead of a lighter sanction; and
the standards to be applied to misconduct in the context of employment law are the same as those in respect of criminal wrongdoing.
This potential for confusion was illustrated in a recent case dealing with an employee dismissal for misconduct which went from the Industrial Court (“IC”) through to the High Court (“HC”), Court of Appeal (“COA”), and was ultimately decided by the Federal Court (“FC”). The issues were fully considered in the recent grounds of judgment of the FC dated 8 January 2018 in Akira Sales & Services (M) Sdn Bhd v Nadiah Zee binti Abdullah and Another Appeal (Federal Court Civil Appeal Nos. 01-15-05/2016 and 01-16-05/2016).
Brief background to the appeals
The appeals arose from two IC awards which held that the dismissal of the respondents Nadiah Zee binti Abdullah and Yong Peng Kean (Employees) by TT Electrical Electronics Corporation (M) Sdn Bhd (Employer) was without just cause or excuse.
The Employees, who were also directors and minority shareholders of the employer entity, were responsible for the day-to-day management of the company.
The Employer issued show cause letters to the Employees in relation to —
the opening of a bank account without authorisation;
gross dereliction of duties in failing to keep true and proper records of the company; and
dereliction in duties in failing to promptly deposit payment of cheques made to the company.
Following that, the Employer terminated the employment of the Employees.
While the IC matter was on-going, the Employer was wound up. The Appellant was joined as a party, as the Employer and the Appellant were in the same group of companies controlled by a Singapore entity, and so the Appellant represented the parent company in Malaysia.
The IC held that the alleged misconduct, which according to the IC amounted to criminal breach of trust (“CBT”) was not proved.
On judicial review, the HC quashed the IC’s award. On appeal, the COA reversed the order of the HC. The Appellant obtained leave to appeal to the FC on three questions of law. This article will only consider the third question, which is the one relevant to employment law, stated by the FC as follows: Whether misconduct in employment law to warrant punishment is to be distinguished from criminal conduct by an employee and whether the Court of Appeal was correct in law in concluding that in the absence of an allegation of “any form of criminal conduct” the complaint “taken objectively, will not qualify as a misconduct”? — or, put more simply, whether misconduct has to be criminal misconduct to justify dismissal.
Submissions by the Appellant and Employees/Respondents
The Appellant submitted that the COA’s findings that there was no misconduct as the show cause letter did not allege any form of criminal conduct was an error that should be reversed, because:
misconduct in employment law is to be distinguished from criminal wrongdoing, as misconduct in the employment context is wider than criminal conduct; and
the misconduct in this case was sufficient to warrant dismissal.
The Appellant cited Telekom Malaysia Kawasan Utara v. Krishnan Kutty a/l Sanguni Nair  3 MLJ 129, where the COA held that the IC should not consider the purported criminality of the misconduct. Therefore the Appellant submitted that the finding of the COA in this case that there must be an assessment of the criminality of the charges was contrary to the Telekom Malaysia case and should be reversed.
The Appellant cited further cases where it was previously held that the unauthorised creation of company bank accounts and the unauthorised use of company funds are acts of misconduct that warrant dismissal.
The Respondents submitted that the COA did not in fact conclude that the absence of an allegation of criminal conduct would not qualify as misconduct, and that the observation was only in the context of the show cause letter and was not the ratio of its decision.
Findings of the Court
The FC pointed out that at paragraph 41 of the IC’s award, the IC correctly identified that the main alleged misconduct was that the Respondents had opened and operated a bank account without the authority of the board of directors. The FC observed that the IC should then have proceeded to determine — (i) whether the operation of the account was without authority; and (ii) if without authority, then whether it was misconduct that warranted dismissal.
However, the FC noted that the IC instead took the approach of a court sitting in judgment of a criminal charge requiring the prosecution to prove CBT. The FC scrutinised the position adopted by the IC — including the IC asking whether the alleged misconduct amount to CBT as defined in the Penal Code, and stating that “the burden of proof was upon the company to prove that claimants’ act of opening the current account tantamounted to CBT and accordingly that they were dismissed for just cause or excuse since the allegation of CBT is misconduct of a very grave and serious nature” — and observed: “There could be no mistake about it; the IC held that the Appellant must prove CBT to justify dismissal.”
The FC also noted that the COA also took the position that only criminal conduct could justify dismissal, as when considering the show cause letter, the COA observed in its judgement: “It is essential to note that the show cause letter per se does not allege any form of criminal conduct such as misappropriation, etc. more so when both the appellants were directors of TTEC, to fall within the definition of misconduct.”
The FC rejected the Respondents’ contention that the COA did not conclude that the absence of an allegation of criminal conduct will not qualify as misconduct. The FC concluded: “The Court of Appeal effectively held that misconduct in employment must amount to criminal conduct to justify dismissal. But with respect, the Court of Appeal could not be more wrong.”
The FC cited two cases to illustrate the point that misconduct in the context of employment need not amount to a crime to justify dismissal:
Laurie v. Fairburn IDS Brief 109: “The claimant was dismissed because the employers believed that she was stealing from them. The employment tribunal was not convinced that this was so, and held the dismissal to be unfair. This was reversed on appeal, where it was held that the question is not whether or not the employee was guilty, or would have been found guilty if tried, but whether it was reasonable for the employers to dismiss her, taking into account all the circumstances at the time.”
Da Costa v. Optolis  IRLR 179 EAT: “The claimant was dismissed from his job for not keeping his proper accounts, and he subsequently faced criminal charges though these ended in his favour. It was held that the fact that the Crown Court had acquitted him did not prelude a finding by the employment tribunal that the dismissal was fair. The issues involved were different. In the Crown Court, it had to be decided whether he was guilty of the charge beyond reasonable doubt, whereas in the employment tribunal, it had to be shown whether the employer had reasonable grounds for dismissing him.”
In short, the FC concluded that:
the IC did not consider or rule on whether the operation of the account amounted to misconduct, but instead held that the complaint amounted to CBT which was not proved; and
the COA decided that it required criminal conduct to justify dismissal.
The FC held that the IC “had lost sight of the issue when it proceeded to adjudicate on CBT instead of misconduct in employment” and “took into account an irrelevant matter, namely CBT, but failed to take into account the relevant matter of evidence of misconduct and the complaint”.
The FC ruled that “any reasonable tribunal would find that the dismissal of the Respondents was with just cause” and that the IC “acted without jurisdiction, asked the wrong questions, applied the wrong law, utterly failed to rule on the alleged misconduct and explanation, and reached an irrational result”. The FC unanimously allowed the appeals, set aside the COA order, and restored the order of the HC quashing the award of the IC.
It’s not possible to provide a specific definition of what would sufficiently constitute “misconduct” in the context of employment. As the FC pointed out in this case (quoting from Selwyn’s Law of Employment 17th Edition): “the acts which can constitute misconduct inside employment are too numerous to categorise”.
When determining whether the misconduct of an employee is sufficient to constitute just cause for a dismissal, the crucial consideration is whether the dismissal was reasonable in the circumstances. An employer does not have to prove that the employee was guilty, or would be found guilty on a criminal standard, ie beyond a reasonable doubt.