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A Step-by-Step Guide to Domestic Inquiry for Employee Misconduct in Malaysia

Imagine this scenario: a serious allegation of misconduct has been made against one of your employees: perhaps theft, harassment, or gross insubordination. You know you need to act, but a hasty decision could be disastrous. Firing an employee without following the correct procedure is one of the fastest ways to face a costly unfair dismissal claim at the Industrial Court, even if the employee was clearly in the wrong.

This is where the domestic inquiry (DI) comes in. It is a formal, internal hearing process that ensures any disciplinary action is taken fairly and is legally defensible. This guide will provide a clear, compliant, step-by-step process for conducting a domestic inquiry in Malaysia, helping you protect your organization while treating your employees with due process.

What is a Domestic Inquiry (DI) and Why is it Crucial?

A domestic inquiry is a quasi-judicial process where an employer investigates allegations of misconduct against an employee to determine if they are guilty and what punishment, if any, is appropriate.

Defining the Domestic Inquiry: More Than Just a Meeting

A DI is not an informal chat or a simple HR meeting. It is a structured hearing with rules and procedures designed to ensure fairness. It involves presenting evidence, calling witnesses, and allowing the accused employee to state their case and defend themselves. Think of it as an internal company court.

The Legal Basis: Proving “Just Cause and Excuse” for Dismissal

The primary purpose of a DI is to establish “just cause and excuse” before dismissing an employee for misconduct. Under Malaysian law, an employer bears the burden of proving that a dismissal was fair. A properly conducted DI is the single most important piece of evidence you can have to defend against an unfair dismissal claim.

Domestic Inquiry vs. PIP: Understanding the Difference

It’s essential not to confuse these two processes.

• A Performance Improvement Plan (PIP) is used to manage and correct issues of poor performance. The goal is rehabilitation.
• A Domestic Inquiry (DI) is used to investigate allegations of misconduct. The goal is to determine guilt and deliver a punishment, which can include dismissal.

When is a Domestic Inquiry Necessary?

A DI is reserved for serious allegations where dismissal is a potential outcome. It is not necessary for minor infractions like occasional lateness.

Defining “Misconduct” in the Workplace

Misconduct is a deliberate violation of a company’s rules or policies. It is an act of wrongdoing, not an inability to perform. It implies a level of intent or wilful negligence that harms the company or its employees.

Examples of Serious Misconduct Warranting a DI

A DI should be initiated for allegations such as:

• Theft, Fraud, or Dishonesty: Falsifying claims, stealing company property, or any act of financial dishonesty.
• Sexual Harassment or Workplace Violence: Any form of harassment, intimidation, or fighting.
• Gross Insubordination: An employee’s wilful refusal to obey a lawful and reasonable order from a superior.
• Severe Breach of Company Policy: A serious violation of a critical policy, such as data security or a code of conduct.

The 7 Steps of a Legally Compliant Domestic Inquiry Process

Following a clear, sequential process is critical. Skipping or mishandling any of these steps can invalidate the entire inquiry.

Step 1: Preliminary Investigation and Suspension

Before formally charging an employee, conduct a brief preliminary investigation to see if the allegation has merit. If the employee’s presence could interfere with the investigation, you can suspend them. Suspension should be for a maximum of two weeks and the employee must be paid at least half their salary during this period.

Step 2: Issuing the “Show Cause” Letter

If the initial findings suggest misconduct occurred, issue a formal “show cause” letter to the employee. This letter must:

• Clearly state the specific allegations or charges against them.
• Provide enough detail (dates, times, specifics) for the employee to understand the accusation.
• Give the employee a reasonable deadline to provide a written explanation.

Step 3: Forming an Impartial Inquiry Panel

If the employee’s written explanation is unsatisfactory, you can proceed with a DI. You must form an impartial panel to hear the case. The panel should consist of 3-5 members who are not involved in the case and are, ideally, of a higher rank than the accused employee. The panel must be, and be seen to be, unbiased.

Step 4: Serving the Formal Notice of Inquiry

Issue a formal notice of inquiry to the employee. This letter must inform them of:

• The date, time, and venue of the hearing.
• The specific charges against them.
• Their right to bring evidence and their own witnesses.
• Their right to question the company’s witnesses.
  Provide at least 48-72 hours of notice to allow the employee adequate time to prepare their defence.

Step 5: Conducting the Domestic Inquiry Hearing

The hearing should be conducted formally. The key players are:

• The Panel: They act as judges, listening to the evidence.
• The Company Prosecutor: Presents the company’s case, evidence, and witnesses.
• The Accused Employee: Presents their defence, evidence, and witnesses.
  The employee has the right to cross-examine the company’s witnesses, and vice versa. Everything said must be recorded, usually by a secretary.

Step 6: The Inquiry Panel’s Findings and Report

After the hearing, the panel will deliberate in private. Based only on the evidence presented during the hearing, they must decide whether the employee is guilty or not guilty of the charges. Their findings, along with the reasoning, must be documented in a formal report.

Step 7: Deciding on and Delivering the Punishment

The panel’s report is submitted to senior management. Management will then decide on the appropriate punishment, which could range from a warning letter to demotion or dismissal. The punishment should be proportionate to the misconduct. The final decision must be communicated to the employee in a formal letter.

The Legal Consequences of a Flawed DI Process

Getting the process wrong can have severe consequences, even if the employee is guilty.

The “Guilty But Unfairly Fired” Paradox

The Industrial Court separates the question of guilt from the question of procedural fairness. An employee can be found guilty of misconduct, but if the employer conducted a flawed DI (e.g., used a biased panel), the dismissal can still be ruled as “unfair.”

How Procedural Flaws Can Overturn a Dismissal

If the court finds the dismissal was procedurally unfair, it can order the company to pay compensation, which includes backwages and a sum in lieu of reinstatement. This is why following the 7 steps meticulously is not just best practice, it’s a critical legal defence.

How Worksy HRMS Can Support a Domestic Inquiry

While a Domestic Inquiry is triggered by misconduct, a history of documented performance and behavioural issues can provide crucial context. Meticulously tracking an employee’s professional conduct over time is essential, and this is where a modern HRMS plays a vital role.

Worksy HRMS helps you build a comprehensive and objective record of employee performance and conduct long before any serious issue arises. The system allows managers to:

• Log Critical Incidents: Document specific instances of both positive and negative behaviour as they happen, complete with dates and notes. This creates a time-stamped, factual record rather than relying on memory.
• Track Performance Metrics: Monitor an employee’s adherence to KPIs and goals. A sudden, unexplained drop in performance can sometimes be a leading indicator of underlying issues that may eventually lead to a DI.
• Maintain a Centralized Feedback History: Keep all performance reviews, one-on-one meeting notes, and informal feedback in a single, accessible profile.

By maintaining this clear and consistent record within Worksy HRMS, you can establish a pattern of behaviour over time. This data can be invaluable during the preliminary investigation phase of a DI, helping you build a stronger, fact-based case.

Conclusion: Procedural Fairness is Your Best Legal Defence

Conducting a domestic inquiry is a serious undertaking, but it is an essential tool for maintaining discipline and upholding company standards. While the process may seem complex, it is rooted in a simple, universal principle: fairness.

By ensuring that every employee accused of serious misconduct is given a fair chance to be heard through a structured and impartial process, you are not only complying with the law, you are building a workplace culture based on justice and respect. This procedural fairness will always be your strongest legal defence.