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In Malaysia, valid reasons to terminate an employment fall under two categories; business-related or behavior-related.
Business related issues include;
Behavior-related issues include;
Navigating employee terminations and handling severance packages can be complicated for companies expanding overseas for the first time. Horizons’ Malaysia PEO can mitigate risk for foreign companies and provide guidance throughout the entire process.
The Industrial Relations Act (1967) introduces protections against unfair dismissal. When terminating an employment agreement, Malaysian employers must provide “just cause and excuse”. Cases of unfair dismissal are usually handled by the Industrial Court of Malaysia which proposes suitable remedies.
Discriminatory terminations include protected employees such as disabled persons and employees on maternity leave. Employers cannot terminate an employee who is on maternity leave except on the grounds of misconduct, willful breach of the employment contract, or closure of the business.
The Employment Act (1955) requires Malaysian employers to give due notice when terminating an employment agreement. Due notice involves providing the employee(s) to be terminated with justification for the dismissal.
The required notice period should be detailed in the employment agreement. In instances where a notice period clause has not been specified in the employment agreement, employers should follow the minimum notice periods as set out in the Employment Act (1955):
Alternatively, if an agreement is reached between both parties, employers can make a payment in lieu of notice.
In most cases, employers are also required to pay severance to terminate employees. The Employment (Termination and Lay-Off Benefits) Regulations 1980 sets out the minimum statutory severance payments that should be paid to employees who have been employed for more than 12 months:
Most employers also include any accrued and untaken days of leave in the severance payment.
Employers do not need to provide notice or severance when terminating an employment agreement for a behavioral issue, such as a serious violation of workplace discipline, severe damage due to grave negligence or a criminal conviction.
Resigning employees are required to give due notice to their employer. Unless otherwise stated in the employment agreement, the length of notice required is based on the length of employment as follows:
Employees may resign without giving notice in instances where their employer has wilfully committed a breach of contract.
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Although the Industrial Relations Act (1967) introduces protections against unfair dismissal of employees, it isn’t overly difficult to terminate an employment contract in Malaysia. Employment agreements can be terminated for poor performance, provided a proper internal dismissal procedure/due inquiry process has been followed.
When terminating an employment agreement in Malaysia, the risk revolves around a case of unfair dismissal being lodged with the Industrial Court of Malaysia.
