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How to terminate employees in Malaysia.

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How to terminate employees in Malaysia
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Terminating employees can be a difficult and sensitive process for any employer and it is critical to understand the proper procedures and legal requirements to ensure the termination is fair. This guide covers the reasons for termination, notice period, compensation and unfair dismissal. Understanding these factors will help employers go through the complex process of dismissing employees while minimising any risks.

Key takeaways

  • Employers must always inform the employee of the reason for termination in writing.
  • Employers are required to follow a fair termination process, which includes giving the employee notice, allowing them to respond, conducting a domestic inquiry if necessary and maintaining records of the proceedings.
  • Severance pay is provided to employees earning RM4000 and below who have worked for the company for at least two years.
  • Employees who are dismissed for misconduct, voluntarily resign or retire are not entitled to severance pay.
  • If an employee feels that they have been unfairly dismissed, they can file a complaint with the Director-General of the Industrial Relations within 60 days of termination.

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
  • Mental Disorders

Employers must always inform the employee of the reason for termination, and it must be stated in the termination letter.

Termination notice

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

Length of noticeYears of service
Four weeksEmployed for less than two years
Six weeksEmployed between two to five years
Eight weeksEmployed for longer than five years

Employee termination procedure

To ensure a fair termination process, the employer must follow the following steps:

  1. The employer must provide the employee with a termination notice stating the reasons for termination
  2. Employee must be given time to give an explanation
  3. Employer must respond to the explanation
  4. If an agreement is not reached, a domestic inquiry should be scheduled
  5. 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.
  6. Witnesses may be summoned if relevant
  7. Records of the proceedings must be kept

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.

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

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 Minister of Human Resources, which will then be decided whether or not to transfer the case to the Industrial Court. This will happen when the Minister believes that the claim contains a major legal issue that should be resolved by the Industrial Court.

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

How Acclime can help

If an employer has a valid reason and explanation, they are authorised to terminate their employees and provide severance payment. Notice must also be given from four to eight weeks depending on the length of employment if the employer dismisses the employee or the employee voluntarily resigns. In the case that an employee feels that their dismissal is unjust, they can submit a claim to the IR Director-General to reach an agreement with the employee. If you have any inquiries about employment in Malaysia, do not hesitate to contact Acclime.

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