MCO and Employer- Employee Relationship

By Alicia Rajaretnam, Debra Allison Beaty and Apple Teoh

Moving Control Order (MCO) came into effect on 18/3/2020 as a result of COVID-19, there are concerns faced by employers and employees in this time of uncertainties.  We provide the following guidelines and legal perceptive for employers and employees:

Do employers still need to pay their employees salaries throughout the MCO period?

Yes, an employees’ contract is still deemed to be in force and employees must be paid throughout the MCO period. However, employers may impose salary deduction after consulting with their employees and justifying the reason for doing so.

Can employers force employees to take annual leave / unpaid leave?

Employer shall not force their employees to take annual leave / unpaid leave as MCO  was issued under Prevention and Control of Infectious Diseases Act 1988 limiting movement of all non-essential workers/employees. The Ministry of Human Resources Malaysia (“MOHR”) has issued directives that a company cannot compel its employees to utilize their annual leave for this period, while unpaid leave can only be taken by an employee voluntarily.

Can employers terminate its employee due to MCO?

MCO is not an excuse for employers to terminate their employees. Having said that, employers who face financial constraint due to the MCO can resort to retrenchment and/or lay off exercise.

However, before resorting to lay-off and/or retrenchment, employers must take positive steps to mitigate its losses by adopting the following measures/guidelines by the MOHR which are:-

• reducing the employee’s working hours,

• limiting or freezing new hiring,

• limiting overtime,

• limiting work during the weekends and public holidays.

If, in the event a lay-off and/ or retrenchment is inevitable, the foreign employees should be terminated first. If the lay-off involves locals, then the “Last In First Out” principle should be adhered to.

In addition, there is a requirement to inform the Ministry of Human Resources of the lay-off and/or retrenchment exercise by filling-up and submitting the relevant forms to the MOHR at least thirty (30) days prior to the effective date of termination of the employee(s) services.

Is it compulsory to pay a severance or give retrenchment benefits to the employees who will be retrenched?

For employees who earns salary of less than RM 2,000.00 are covered under the Employment Act 1955, Regulations 6 of the Employment (Termination and Lay-Off Benefits) Regulations 1980 make provisions for lay-off and benefits payable, if the conditions for lay-off are complied with.

 An employee may make a complaint with their local Department of Labour office if an employer failed to pay the retrenchment benefit provided under the law.

Under Section 20 of the Industrial Relations Act 1967, an employee may lodge a complaint to nearest Director General (DG) of Industrial Relations within 60 days from the date of retrenchment for a conciliation process. In the event the conciliation process failed, the DG will refer complaint to the Minister upon which the Minister if he thinks fit, may refer the complaint to the Industrial Courts for an award.

Can an employer after Letter of Offer been signed by employee(s) before MCO and later decide to terminate the contract due to MCO?

Employer is not allowed to terminate the contract by reason of MCO and in doing so Employer would have breached the term of the contract and the employer must compensate the employee in accordance to the term of the employment contract.

Can an employer rely on force majeure clause?

A force majeure clause is a contractual provision which allows the non-performance of one or more of the contractual obligations by a party due to unforeseen events beyond the control of both parties which prevents the performance of the said contractual terms, such as wars, natural disasters, epidemics etc.

However, in order for an employer to rely on force majeure, the contract of employment must provide for such a clause. In the absence of such a clause in the contract, an employer cannot rely on the Covid-19 pandemic to avoid its contractual obligations.`q

Example of a force majeure clause

“Notwithstanding anything to the contrary contained herein, neither party shall be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, acts of war or terrorism, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties or civil unrest or epidemic. Notwithstanding the foregoing, in the event of such an occurrence, each party agrees to make a good faith effort to perform its obligations hereunder.”

Can the employer rely on the doctrine of frustration?

Frustration will apply when it becomes physically or commercially impossible to fulfill the obligations set out under the contract. Based on case laws, the Courts have interpreted “physically or commercially impossible” to mean impossibility of performance over a prolonged period of time.

An employer therefore cannot rely on frustration during the MCO unless the MCO extends for a prolonged period of time such that the performance of the contract becomes impossible.

WAGE SUBSIDY PROGRAMME (WSP) And MCO

The WSP was announced by the Prime Minister on 6/4/2020.

To qualify, the Employer and employee must meet these requirements:

1. The subsidy is only for employees earning below RM 4,000

2. The employees have been registered and contributed to the Employment Insurance Scheme (EIS)

3. The company has seen a 50% decrease in income since 1st January 2020.

Can employer lay-off and/or retrench employee(s) after obtaining WSP?

When employers signs up for the WSP, there are three things they cannot do:

1. They cannot lay off workers;

2. They cannot force workers to take unpaid leave;

3. They cannot cut their workers wages; and

4. Employees also must retain workers for six months –  that is three months under the wage subsidy, then three months after that.  Thereafter, employer may resort to lay-off and/or termination exercise as explained above.

Do note that companies can only claim subsidies for up to 200 workers earning below RM 4,000. The amount of subsidy given will be tiered depending on the size of the company.

• Companies with less than 75 employees are given RM 1,200 for each eligible employee.

• Companies with 76-200 employees are given RM 800 for each eligible employee.

• Companies with more than 200 employees are given RM 600 for each eligible employee.

If employers have done taken all cost cutting measures in relation to its employees and have received Statutory Demand(s) from creditors for repayment(s) can the creditor(s) wind-up company for failure to make payment?

The Companies (Exemption) Order 2020 (“the Order) under Section 615 Companies Act 2016 (CA 2016) which determines that a company is deemed to “unable to pay its debt” if it debts if it fails to satisfy a statutory demand within 21 days (Section 466(1)(a) CA 2016).

Instead of usual definition under (Section 466(1)(a) CA 2016), the Order provides that a company would still be deemed  “unable to pay its debt” if it fails to satisfy a statutory notice of demand for 6 months. The Order takes effect from 23/4/2020 up to 31/12/2020. The inability to pay debts threshold has been increased from RM 10,000.00 to RM 50,000.

It is pertinent to note that the Order does not apply to statutory demands and winding up petition issued prior to 23/4/2020. Whilst the Order may give companies a temporary relief for a  duration of 6 months from being wound-up, it does not prevent the creditors by filing other forms of execution action  provided under the law.

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