Termination of employment in Malaysia has to be managed carefully to ensure a smooth ending. This article explains common reasons and procedures for termination and compensation.
What is the Termination of Employment in Malaysia?
Termination of employment in Malaysia is the ending of an employment relationship. It can be initiated by the employer and employee by following the correct procedures and in accordance with the labour laws.
Under the labour laws on the termination of employment in Malaysia which mainly are the Employment Act 1955 and the Industrial Relations Act 1967, these laws set the legal requirements for the termination of employees, including foreign employees and expatriate employees.
Employment Act 1955 sets the minimum leaves that must be given such as maternity leave, annual leave, and sick leave. Furthermore, it also states the statutory notice period that must be given by the employer and employee before termination of employment.
The notice must follow as set in employment contracts and if there is no such notice, then it follows the law.
Another law, that is Industrial Relations Act 1967, is to prevent unfair dismissal in Malaysia by requiring employers to give good justification and excuse for termination. What it means is the employer must have justifiable reasons to terminate employees.
Common Reasons For Termination
Some of the good and justifiable reasons for termination of employment include:
Misconduct by employees
Depending on specific circumstances, employee misconduct can be classified into minor misconduct and major misconduct. Examples of minor misconduct include being late to work.
Examples of major or gross misconduct include:
(a) Committing criminal offence against the interest of the company such as breach of trust whereby upon conviction, will be sentenced to imprisonment.
(b) Violations of employment pass and major company policies
Poor Performance
Poor performance is another reason for termination as it constitutes an implied breach of contract. However, there should be clear metrics to measure performance and employers should try to improve the employee’s performance through plans such as performance improvement plans.
Redundancy, retrenchment, and closure of business
Redundancy means the requirement for certain roles no longer exists, usually because of company restructuring or if there is cessation or business closure.
In redundancy, the company should follow the policy of terminating foreign employees before the local employees, whether it is a male employee or female employee.
Expiry of Fixed-Term Contract or Probationary Period
Ending a fixed-term contract or probation period is another good reason to terminate the employment relationship.
Breach of Statutory Rights
When the employer fails to provide statutory minimum rights to employees such as paying contributions under the Employees Provident Fund Act 1991 or not paying overtime pay, it is a good reason for the employee to cease the employment.
Constructive Dismissal
One of the duties of the employer is to provide a safe and healthy working environment and pay wages to employees. When the employer breaches these contractual rights by sexual harassment or discrimination, the employees can claim constructive dismissal in Malaysia.
Procedure For Termination of Employment
To prevent cases of unfair dismissal in Malaysia, the employees and employer can follow the below procedures for termination of employment.
Termination by Employee
The employees should tender resignations by giving notice period as set in the terms of employment contracts. If there is no such notice, then it follows the law where the notice period for employment:
Less than 2 years: 4 weeks
2 years or more but less than 5 years: 6 weeks
5 years or more: 8 weeks
If the employee fails to give the required notice, then he will have to pay pro-rated wages for insufficient notice which the employer can deduct from the final pay.
Termination by Employer
The employer can set out the proper termination process and dismissal process in the employee handbooks as follows:
Investigation of complaint
After receiving a complaint in the workplace such as non-performance of employment duties, the employer can investigate the alleged misconduct including conducting background checks on necessary matters/people.
Show cause letter
After investigation and there is a good reason for further investigation, the employer can then issue a show cause letter to the employee. It is a formal notice requesting the employee for an explanation should the employee have a reasonable excuse/reason for the actions.
Domestic inquiry
After the employee responds to the show-cause letter, the employer can conduct a domestic inquiry where the employer and employee can produce witnesses and documents for the matter.
Disciplinary actions
After the domestic inquiry, the employer has the discretion to decide on the disciplinary actions to be taken. A few punishments include:
(a) Reprimand: By issuing a warning letter the employer will not condone a repeat of the conduct.
(b) Immediate termination: Depending on the severity of the offence, the employer can immediately terminate the contract.
(c) Voluntary separation scheme (vss Malaysia): This is a scheme where the employer offers to the employee to resign in return for some payments. However, this is rarely used for the departure of the employee when there is suspected misconduct.
The employee should avoid giving harsh treatment to the employee such as demotion and substantial reduction of salary. Otherwise, the employee can claim constructive dismissals.
Termination
If the employer decides on termination, then it can hold a termination meeting to inform the employee of the decision. In the meeting, the employer should issue a termination letter stating a valid reason for the termination together with the required minimum notice period.
The employer must have a legitimate reason for termination to avoid an unjust dismissal complaint from the employee later on.
Compensation For Termination of Employment
If the employee fails to give the required notice period, then the employer can claim pro-rated wages from the employee for insufficient notice given at the Labour Department.
As for the employee, here are a few things that he can get as part of termination benefits:
Severance payment
Under the Employment (Termination and Lay-Off Benefits) Regulations 1980, the employee can get severance payment as part of compensation. The minimum severance payment depends on the length of employment whereby compensation for each year of the completed tenure of employment:
(a) Less than 2 years of service: 10 days of wages per year
(b) 2 years or more but not more than 5 years of service: 15 days of wages per year
(c) More than 5 years of service 20 days of wages per year
Unfair dismissal claims
If the employer terminates the employment without a good reason, including for constructive dismissal, then the employee can claim for unfair dismissal and have recourse in the Industrial Relations Department.
Within 60 days from the termination, the employee can file claims at the Industrial Relations Department for reinstatement. The department will then organize a few meetings between the employee and employer for conciliation.
If the conciliation fails, the legal disputes will then be referred to the Industrial Court for hearing. After hearing the employment claims following the legal procedures, the court can award back wages up to 24 months (for confirmed employees) and 12 months (for probationers).
However, there will be a deduction if the courts find the workers managed to find work elsewhere after the termination. To avoid any constructive dismissal claim or fines, the employer can set proper procedures to manage termination, preferably with the assistance of an employment lawyer.
Conclusion
Termination of employment in Malaysia has to follow the right processes to ensure the best outcome and avoid cases of wrongful dismissal. If you need any legal advice on employment matters including constructive termination, do contact us and we will assist you.
Frequently Asked Questions
1. What is the procedure to terminate an employee in Malaysia?
The procedure to terminate an employee in Malaysia is to have a good reason for termination such as serious misconduct by the employee. Then, the employer should give the required notice period for termination.
2. What is the notice period for termination in Malaysia?
The notice period for termination depends on the terms of the employment contract. If the contract did not state the required period, then the notice period for employment of:
Less than 2 years: 4 weeks
2 years or more but less than 5 years: 6 weeks
5 years or more: 8 weeks
3. What is the compensation for termination of employment in Malaysia?
Employees who have been employed for at least 1 year are entitled to severance benefits. These benefits depend on the duration of employment, as specified in the Employment (Termination and Lay-Off Benefits) Regulations 1980.
4. What is the policy of employee termination?
The employer should have a good reason for employee termination in Malaysia and give the required notice period. Good reasons include serious misconduct by the employee.
