Employer’s Rights and Prerogatives

In principle, as stated by Bentham, J. (1948) any right enjoyed as a privilege by one person must be followed by the person's fulfillment of a certain responsibility to one or more other person(s).

Remember, the law recognize that the employer retains all rights to manage, direct and control its operations in all matters and employees internal rules and regulations (subject to the employment agreement and relevant provisions of law). These rights include directing and supervising, appointing, promoting, transferring, assigning, demoting, suspending, and discharging; laying off unnecessary employees (eg. due to lack of work, for budgetary reasons or for other like factors), maintaining the efficiency of employer business, determining the means, methods and workforce by which such operations are to be carried out, and taking whatever steps may be necessary to carry out the goal of the employer. Remember, the determination of such situations is the prerogative of the employer.

On the other side, the employees must recognize the said rights and prerogatives of the employer (subject to the terms of employment agreement too).

Justice Kennedy (U.S Court of Appeal) in McKennon v. Nashville Banner Publishing Company (No. 93-1543 (1995) stated that the statute does not constrain employers from exercising significant other prerogatives and discretions in the course of the hiring, promoting, and discharging of their employees.

May Evans Co. (2007), gave their view that the employer's reserved or retained rights are considered to exist even though the employer does not insist on listing them in the collective bargaining agreement. Rights associated with determining the product, price, methods of operation, hiring and supervision of personnel, and rule making are matters uniquely within the province of the employer and rarely subject to negotiation. These and related matters are inherent managerial rights that accrue to the employer whether or not specified in the employment agreement

As we know, our industrial relations system in Malaysia operates within the legal framework of the Industrial Relations Act, 1967 and the Industrial Relations Regulations, 1980, which is applicable throughout Malaysia. The preamble to the Industrial Relations Act states: To provide for the regulation of the relations between employers and workmen and their trade unions, and the prevention and settlement of any differences or disputes arise from their relationship and generally to deal with trade disputes and matters arising there from.

The right of the employer to make reasonable rules and regulations not in inconsistency with the employment agreement, as it may from time to time deem best for the purpose of maintaining order, safety and/or efficient operation of the business and to require compliance therewith by employees is recognized, provided employees are notified of the rules and regulations. However, we shall take note that the employee has the rights under the law to challenge the reasonableness and application of the employer's rules and regulations through the grievance procedure.

Aya V. Jallorina  (2007)  reminds us that the employers' rights or what is generally referred to in labor jurisprudence as "management prerogatives" include: the right to freely choose the business they want to invest in, including the right to close shop; the right to just returns on investments; and the right to manage business freely in accordance with the exigencies of the market, including the inherent right to manage work and work processes and to discipline employees subject only to the limitations imposed by law, and fair play. The said writer added further that the management prerogatives cannot be exercised whimsically to the detriment of the employees. For instance, although an employer has the right to close shop or retrench employees because of business losses, it cannot do so without a proper showing that it is really suffering huge losses and that a continued operation will result in bigger loss.  There are instances when a company also closes shop because it wants to avoid the birth of a union. Thereafter, it creates another company and hires new employees who are less prone to unionism.

Justice Melo (Supreme Court of Philippines) in Philippines Airlines, Inc (PAL) v.  National Labour Relations Commission (G.R. No. 85985 August 13, 1993) stated that the exercise of management prerogatives was never considered boundless. Thus, in Cruz v. Medina (177 SCRA 565 [1989]) it was held that management's prerogatives must be without abuse of discretion. He referred to San Miguel Brewery Sales Force Union (PTGWO) v. Ople (170 SCRA 25 [1989]), in which the court upheld the company's right to implement a new system of distributing its products, but gave the following caveat:

“So long as a company's management prerogatives are exercised in good faith for the advancement of the employer's interest and not for the purpose of defeating or circumventing the rights of the employees under special laws or under valid agreements, this Court will uphold them”.

Justice Melo, stated further that, “all this points to the conclusion that the exercise of managerial prerogatives is not unlimited. It is circumscribed by limitations found in law, a collective bargaining agreement, or the general principles of fair play and justice (he referred to University of St. Tomas v. NLRC, 190 SCRA 758 [1990]). Moreover, as enunciated in Abbott Laboratories (Phil.), v. NLRC (154 713 [1987]), it must be duly established that the prerogative being invoked is clearly a managerial one”.

Further, in Allen v Flood ([1898] AC 1128),  Lord Davey said, “An employeer … may refuse to employ an employee for the most mistaken, malicious or morally reprehensible motives that can be conceived, but the employee has no right of action against him”.

 

NOTE: THE ABOVE IS EXTRACTS FROM A COURSE CONTENT PREPARED (DRAFT PREPARED BY ME) FOR THE OPEN UNIVERSITY OF MALAYSIA. FOR THE FINAL VERSION PLEASE REFER TO THE SAID UNIVERSITY (COURSE BMIR 5103: INDUSTRIAL RELATIONS)