Case Background & Strategy

Dishonesty cases are, in one sense, the easiest dismissals to defend — and the easiest to lose. They are easy to defend because an employee who falsifies company records strikes at the trust the relationship depends on. They are easy to lose because employers often cut corners on process, then discover that proof, not outrage, is what the Industrial Court wants to see. A recent award shows an employer doing it right: a clean record of the employee’s own admissions carried the day, even though no domestic inquiry was ever held.

This case insight strips out the names of the parties and presents the principles, the winning arguments and the practical lessons. The reasoning is broadly applicable to any Malaysian employer dismissing for dishonesty or data manipulation — particularly where the employee pleads long service, lack of training, or that he was merely obeying instructions.

The case at a glance

The legal framework the Court applied

The dispute was referred under Section 20 of the Industrial Relations Act 1967. The Court’s task was the familiar two-fold inquiry: first, whether the misconduct complained of was established; and second, whether what was proven amounted to just cause or excuse for the dismissal.

Three settled principles framed the analysis.

1. The burden sits squarely on the employer

In a dismissal case the employer must produce convincing evidence that the employee committed the misconduct relied upon. The employer must prove the employee guilty — it is not for the employee to prove himself innocent. An unsupported allegation of dishonesty will not survive scrutiny.

2. The standard is the balance of probabilities

The employer need not prove its case beyond reasonable doubt. The civil standard applies, flexible according to the gravity of the allegation — so a serious charge such as dishonesty calls for cogent, convincing evidence, but still only on the balance of probabilities.

3. Misconduct is any breach of the duty of fidelity

Every contract of employment carries an implied duty of fidelity — the employee must serve honestly and have regard to the employer’s interests. Any conduct inconsistent with the faithful discharge of his duties is misconduct. Falsifying records to mislead the employer sits at the gravest end of that spectrum.

Why the employer won

The award turned on evidence and a clean record of admissions, not on the absence of a formal inquiry. Five pillars carried the defence.

The admission did the heavy lifting

During the investigation the employee admitted manipulating the inventory data — inflating usage in the cut-off files and making unauthorised recounts at month-start and month-end to keep reported shrink within the KPI, and to trigger fresh stock orders before reversing the entries. A signed investigation summary recording those admissions made the misconduct very hard to attack later. Admissions of this kind show the employee was fully aware of what he was doing.

“I was only following instructions” is not a defence

The employee sought to shift the blame to his superiors, saying he had acted on their instructions. The Court was unmoved. An employee need only obey lawful and reasonable directions; an instruction to falsify records is neither. Even if such an instruction had been given, the proper course was to report it, not to carry it out — and there was no evidence the instruction was ever given. Blind obedience to an unlawful order does not excuse misconduct; it makes the subordinate an accomplice.

Only lawful and reasonable directives or instructions must be obeyed by the subordinate. Instructions which are dubious and plainly unlawful ought not to be obeyed — to do so would in fact make a subordinate an accomplice. — Court of Appeal, on why “I was only following orders” is no defence

No domestic inquiry — but no fatal flaw

It was common ground that no domestic inquiry had been held before dismissal. That did not sink the employer’s case. A failure to hold a domestic inquiry, or the holding of a defective one, is not fatal: any procedural breach is cured by the hearing before the Industrial Court, which rehears the matter afresh on the evidence. The employer here had in any event given the employee an interview with the audit team, a show-cause letter, a chance to reply in writing, and an investigation interview — ample opportunity to be heard.

Long service and a clean record are not a shield

The employee leaned on his eleven years of service and the absence of any prior warning. The Court accepted these as relevant, but not decisive. There is no fixed rule that an employee with an unblemished record cannot be dismissed for a single act of misconduct — it depends on the gravity of the act. A single act that is grave and serious, such as dishonesty, can justify dismissal on its own.

Loss of trust is the heart of it

Honesty and integrity are virtues that cannot be compromised, whatever the employee’s rank. As a supervisor entrusted with the integrity of the company’s stock data, the employee occupied a position of trust; by falsifying the very records he was paid to safeguard, he destroyed the confidence on which that role depends. Where trust is irretrievably lost, dismissal is justified — and the choice of penalty is the employer’s prerogative, which the Court will not lightly second-guess.

Practical lessons for employers

• Capture the admission in writing. A dated investigation summary that the employee has signed and agreed is the single most powerful exhibit in a dishonesty case. Record what was admitted, in the employee’s own words where possible.
• Still hold a domestic inquiry where you can. A missing inquiry was cured here by the rehearing — but treat that as a safety net, not a plan. A properly run inquiry closes off a whole line of attack.
• Run a visible, fair process. Show-cause letter, a real opportunity to reply, and an investigation interview gave the Court the procedural fairness it looks for. Keep the file clean of anything suggesting the outcome was pre-decided.
• Plead your charge, and prove it. Late, unpleaded excuses — “I was never trained”, “I don’t understand English” — were shut out because parties are bound by their pleadings and the excuses were contradicted by the evidence. Frame the charge precisely and lead evidence on each limb.
• Frame it as trust, not just ringgit. The six-figure loss mattered, but the decisive point was the breach of trust by a data custodian. Position the dismissal around honesty and the integrity of the role.
• Enforce access controls. Password-sharing and shared logins defeat segregation of duties and weaken every audit trail. Treat them as misconduct in their own right and police them.

The bottom line

Dishonesty by an employee in a position of trust is one of the strongest grounds for dismissal Malaysian law recognises — but the employer still has to prove it. Where the employee’s own admissions are captured, the charge is properly pleaded, and a fair process is run, neither long service, a clean record, nor “I was only following orders” will save the dismissal, and a missing domestic inquiry will usually be cured by the rehearing before the Industrial Court. As with every dismissal, the paperwork decides it.

Authorities considered

• Milan Auto Sdn Bhd v Wong Seh Yen [1995] 4 CLJ 449 — the two-fold function of the Industrial Court.
• Goon Kwee Phoy v J & P Coats (M) Bhd [1981] 2 MLJ 129 — the Court enquires into the reason advanced by the employer.
• Stamford Executive Centre v Dharsini Ganeson [1986] ILR 101 — the employer must produce convincing evidence of guilt.
• Telekom Malaysia Kawasan Utara v Krishnan Kutty Sanguni Nair [2002] 3 CLJ 314 — the balance-of-probabilities standard.
• Zaharen Hj Zakaria v Redmax Sdn Bhd [2016] 7 CLJ 380 — only lawful and reasonable instructions need be obeyed; the duty of fidelity.
• Wong Yuen Hock v Syarikat Hong Leong Assurance Sdn Bhd [1995] 2 MLJ 753 — a missing domestic inquiry is cured by the de novo hearing.
• Hong Leong Equipment Sdn Bhd v Liew Fook Chuan [1997] 1 CLJ 665 — the findings of a domestic inquiry do not bind the Industrial Court.
• Ranjit Kaur S Singh v Hotel Excelsior (M) Sdn Bhd [2010] 8 CLJ 629 — parties are bound by their pleadings.
• Norizan Bakar v Panzana Enterprise Sdn Bhd [2013] 6 MLJ 605 — the Court must consider the proportionality of the punishment.
• Harianto Effendy Zakaria v Mahkamah Perusahaan Malaysia [2014] 4 ILR 241 — long service and a clean record are no automatic shield.
• Lim Phooi Man v Samsung Malaysia Electronics (SME) Sdn Bhd [2019] 2 ILR 540 — an irretrievable loss of trust justifies dismissal.

Frequently asked questions

Q. Can an employer in Malaysia dismiss an employee for dishonesty or falsifying records?

A. Yes. Dishonesty — including manipulating or falsifying company records — is serious misconduct. If it is proven on a balance of probabilities and strikes at the trust the role requires, dismissal can be with just cause and excuse, even for a long-serving employee with a clean record.

Q. Is “I was only following my manager’s instructions” a valid defence?

A. Generally no. An employee need only obey lawful and reasonable instructions. Following an instruction the employee knows to be unlawful — such as falsifying records — does not excuse the misconduct and can make the employee an accomplice. The employee is expected to report the wrongdoing rather than carry it out.

Q. Must an employer hold a domestic inquiry before dismissing for misconduct?

A. Good industrial practice favours it, but a failure to hold a domestic inquiry is not fatal. Any procedural gap can be cured by the rehearing before the Industrial Court, where the employer leads its evidence afresh. The safer course is still to hold a proper inquiry.

Q. Does long service or a clean disciplinary record protect an employee from dismissal?

A. Not automatically. Long service and an unblemished record are relevant, but there is no fixed rule that they bar dismissal. Where a single act of misconduct is grave and serious — such as dishonesty — dismissal may still be justified.

Q. Can an employee raise a new excuse at the Industrial Court that was not in his pleadings?

A. Usually not. Parties are bound by their pleadings. An excuse raised for the first time at the hearing — and unsupported by evidence — is likely to be disregarded by the Court.