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Termination of employees in Malaysia: Reasons, procedures and compensations.

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Termination of employees in Malaysia: Reasons, procedures and compensations

Employees are protected by the employment and labour laws, and employers can terminate their employees only for justified reasons. However, unfair dismissals may happen, and employees have the right to file a claim. We have put together a guide on the termination of employees in Malaysia to provide more information on employee dismissals.

Let’s start.

Reasons for termination

If an employer terminates an employee’s contract, the termination must be with just cause and excuse.

Just cause and excuse means that the employer has a justified reason to terminate the employee.

Reasons for termination include:

  • Breach of contract
  • Death of employees
  • Expiration of a fixed-term contract
  • Major misconduct, such as theft, sexual harassment and failure to follow safety protocols
  • Negligence in performing duties
  • Poor performance
  • Redundancy and closing the business
  • Retirement
  • Termination at the end of probation period

What can employees do if the dismissal is unfair?

If the employee feels that the termination is unfair or is dismissed without reason, the employee can file a complaint with the Director-General of Industrial Relations (IR) within 60 days of the termination.

The IR will then arrange a conciliation meeting between the employer and employee to reach an agreement. If the employer and employee can negotiate, an agreement will be settled, and the issue will be resolved.

If an agreement cannot be reached, the Director-General will transfer the case to the Industrial Court.

Constructive dismissal

Constructive dismissals are when employers intentionally make it difficult or mistreat the employee, which forces the employee to resign.

Examples of constructive dismissal cases include:

  • Allows harassment or bullying
  • Demoted an employee for no reason
  • Discrimination against their age, race or religion
  • Does not provide a safe work environment
  • Refuses to pay or cuts the employee’s salary

Section 20(1) of the Industrial Relations Act states that an employee can file a claim with the Director-General if the employee has been dismissed without a just cause or excuse by the employer.

To file a constructive dismissal claim, the employee must prove that the employer breached the employment contract. The claim must be made to the Director-General within 60 days, and it is recommended to prepare documents to prove that the dismissal was unfair.

Breach of employment contracts usually include:

  • Unlawful salary reduction
  • Changes the employment contract terms without approval
  • Wrongful termination
  • Fail to provide a safe working environment

If the dismissal was a breach of contract, the employee would be entitled to compensation.

Unfair dismissal compensation and remedies

After the claim is transferred to the Industrial Court and the court concludes that the dismissal is without just cause and excuse, the employee will be entitled to the following:

  • Reinstatement – only in the case both parties agree to it
  • Back wages – awarded to cover the period between the dismissal date and the last hearing in the Industrial Court or reinstatement date. According to the Second Schedule of the Industrial Relations Act, back wages should not exceed 24 months’ back wages from the date of dismissal based on the last salary of the dismissed employee.
  • Compensation, in lieu of reinstatement and back wages

Employee termination procedure

If an employee conducted major misconduct or breached the employment contract, a fair dismissal should include the following steps:

  • The employer must provide the employee with a termination notice stating the reasons for termination
  • Employee must be given time to give an explanation
  • Employer must respond to the explanation
  • If an agreement is not reached, a domestic inquiry should be scheduled
  • The domestic inquiry must be conducted by people who do not directly engage with the employee to investigate the facts about the misconduct, breach of contract or poor performance.
  • Witnesses may be summoned if relevant
  • Records of the proceedings must be kept

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Termination notice

According to section 12 of the Employment Act 1955, the employer or employee must give notice within the following lengths:

Length of notice

Years of service

Four weeks

Employed for less than two years

Six weeks

Employed between two to five years

Eight weeks

Employed for longer than five years

Severance payment

Employees employed for less than two years are entitled to 10 day’s wage for every service year completed.

Employees who have been employed for two to five years are entitled to 15 days’ wage for every year completed, and employees of five or more years are entitled to 20 days’ wage for every year completed.

Employees who are dismissed for misconduct, voluntarily terminate their contract or retire are not entitled to severance pay.

Employers can terminate their employees with a just cause and excuse, but if the employee feels like he/she is terminated unfairly, they can file a claim with the Director-General of the IR to reach an agreement with the employer. Feel free to contact Acclime if you have any enquiries regarding the termination of employment in Thailand.

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