Introduction 

The Malaysian employment and industrial relations landscape typically relies on the legal structure outlined in the Employment Act 1955 (“EA 1955“) and the Industrial Relations Act 1967 (“IRA 1967“). The EA 1955 establishes the basic statutory benefits and rights of employees. With effect from 1 January 2023, the EA 1955 covers all employees regardless of their wages whereas previously, the EA 1955 only applied to employees earning RM2,000.00 per month or less, with the rest having to rely solely on the terms of their employment contracts. However, there are specific provisions such as overtime and termination benefits that still do not apply to employees earning more than RM4,000.00 per month. 

Termination of Employment 

To dismiss an employee lawfully, there must be valid and substantial reasons, along with adherence to fair process. Pursuant to Section 14(1)(a) of the EA 1955, one of the procedures that must be conducted before a dismissal for misconduct can be justified is a ‘due inquiry’ or ‘domestic inquiry’ to allow employees to be heard. 

In Malaysia, the common law principle of “termination simpliciter” is not recognised, which means that employers are not allowed to terminate an employment pursuant to the termination clause only, i.e. a termination by contractual notice without a just and legitimate reason (see Abdul Hayy Seenivasan bin Narayanan v 9 Bukit Utama JMB [2021] 1 ILJ 41). 

According to Section 20(1) of the IRA 1967, employees who believe that they have been dismissed without “just cause or excuse” by their employer can lodge a complaint with the Department of Industrial Relations to seek reinstatement to their previous position. The phrase “just cause or excuse” is not defined by the IRA 1967; however in general, common reasons for termination of employment include poor performance, misconduct, retrenchment/redundancy etc.  

Employees must be given due notice of termination and an explanation for it. Both the employer and employee must adhere to the termination terms outlined in the contract of service, including notice periods and compensation. In the event the contract of service is silent on the said terms, the statutory notice period outlined in Section 12(2) of the EA 1955 as follows shall be complied with:  

1. Not less than four (4) weeks’ notice if the employee has been employed for less than two (2) years; 
2. Not less than six (6) weeks’ notice if the employee has been employed for two (2) years or more but less than five (5) years; and 
3. Not less than eight (8) weeks’ notice if the employee has been employed for five (5) years or more. 

Termination of Contract without Notice 

Either party to a contract of service may terminate such contract of service without notice:

1. By paying to the other party an indemnity of a sum equal to the amount of wages which would have accrued to the employee during the term of such notice or during the unexpired term of such notice (Section 13(1) of the EA 1955); or  
2. In the event of any willful breach by the other party of a condition of the contract of service (Section 13(2) of the EA 1955).

A. Termination due to Misconduct 

According to Section 14(1) of the EA 1955, if the termination of contract is due to the employee’s misconduct, employers must conduct due inquiry before making a decision to terminate the employee. Due inquiry is not defined under the EA 1955 but generally the employee should be informed of their alleged misconduct and be given an opportunity to explain and/or defend themselves. 

The employer may suspend the employee from work for a maximum of two (2) weeks but is required to pay the employee at least half of their wages during their suspension period (Section 14(2) of EA 1955).  

In the event no misconduct is found, the employer is required to restore the full wages that was withheld during the suspension period to the employee. However in the event the inquiry establishes misconduct, the employer can either (Section 14(1) of EA 1955): 

1. Dismiss the employee without notice; 
2. Downgrade the employee; or 
3. Impose any other lesser punishment as deemed just and fit, and where a punishment of suspension without wages is imposed, it shall not exceed a period of two weeks. 

Absenteeism 

Section 15(2) of the EA 1955  provides that an employee shall be deemed to have broken his contract of service with the employer if he has been continuously absent from work for more than two (2) consecutive working days without prior leave from his employer, unless he has a reasonable excuse for such absence and has informed or attempted to inform his employer of such excuse prior to or at the earliest opportunity during such absence.  

The Federal Court in Pan Global Textiles Berhad Pulau Pinang v Ang Beng Teik [2002] 1 CLJ 181 held that remaining absent without permission is a gross violation of discipline and hence continued absence from work without permission will constitute misconduct justifying termination of the employee. 

 B. Termination due to Poor Performance 

The burden is on the employer to prove that the employee is having performance issues which justify his or her dismissal. However, there are several requirements and/or elements that must be fulfilled by the employer to dismiss the employee on the grounds of poor performance. 

According to the case of I.E. Project Sdn. Berhad v Tan Lee Seng [1987] 1 ILR 165, the elements are summarized as follows: 

1. The employee must have been warned about the poor performance; 
2. The employee must have been given sufficient opportunity to improve; and 
3. Despite the above, the employee has failed to improve his or her performance.

C. Retrenchment/Redundancy 

Retrenchment is the dismissal of an employee that has become redundant and no longer needed by the company. Retrenchment is defined by the Court as “the discharge of surplus labour or staff by the employer for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action” (see William Jacks & Co (M) Sdn. Bhd. v S. Balasingam [1996] MLJU 641). Generally, employers have the right to manage their business as they see fit and the Courts will not interfere with a company’s decision to retrench its employees as long as it’s done in good faith. 

When carrying out a retrenchment exercise, employers must lodge a notification with the nearest Department of Labour, using the standard “Borang PK” form at least thirty (30) days before the termination of employment. 

However, it is pertinent to note that where there is a need to reduce his workforce by reason of redundancy necessitating the retrenchment of any number of employees, the employer shall not terminate the services of a local employee unless he has first terminated the services of all foreign employees employed by him in a capacity similar to that of the local employee (see Section 60N of the EA 1955). 

Termination of Foreign Employees 

Pursuant to Section 60KA (1) of the EA 1955, if a foreign employee is terminated  

1. By his employer; 
2. By reason of the expiry of the employment pass issued by the Immigration Department of Malaysia to the foreign employee; or
3. By reason of the repatriation or deportation of the foreign employee, 

The employer shall inform the Director General of the termination in the manner as may be determined by the Director General within thirty (30) days of the termination of service, regardless of their monthly salary or nature of work. 

According to Section 60KA (2) of the EA 1955, if a foreign employee terminates his service or absconds from his place of employment, the employer shall inform the Director General in the manner as may be determined by the Director General within fourteen (14) days of the termination of service or after the foreign employee’s absence. 

It is pertinent to note that employers are not allowed to terminate the contract of service of a local employee for the purpose of employing a foreign employee (see Section 60M of the EA 1955) 

Unfair Dismissal 

An employee can lodge an unfair dismissal complaint at the Industrial Relations Department (“IRD“) within sixty (60) days of his/her last employment date and the burden of proof lies with the employer to prove that they have a justifiable reason for dismissing the employee and that the dismissal process was carried out fairly. 

Upon receiving a complaint, the IRD will arrange an informal mediation/conciliation meeting between the employer and employee to attempt to mediate a settlement and no legal representation is permitted. In the event parties achieve an amicable settlement, the matter ends there. If the parties cannot reach a settlement, the matter will proceed to an Industrial Court trial. An employer will have a successful defense against claims for unfair dismissal if they can show that: 

1. They had just cause and excuse to dismiss the employee, and 
2. They followed the correct and fair procedure. 

In the event the employer is found to have unfairly dismissed the employee, the employee may be awarded remedies such as: 

1. Reinstatement; 
2. Compensation in lieu of reinstatement; or 
3. The back payment of wages from the date of dismissal up to the date of the award with a maximum of two (2) years of the employee’s last drawn salary. 

Constructive Dismissal 

In a situation where an employee is not dismissed but has no choice but to resign, the Malaysian Courts have adopted the common law right and definition of constructive dismissal. The definition of constructive dismissal can be found in the Supreme Court case of Wong Chee Hong v Cathay Organisation (M) San Bid [1988] 1 MLJ 92: 

“It would be a dismissal if an employer is guilty of a breach which goes to the root of the contract or if he has evinced an intention no longer to be bound by it. In such situations, the employee is entitled to regard the contract as terminated and himself as being dismissed.” 

The test for constructive dismissal is the “contract test” where the courts will not ask whether the employer has acted fairly but whether the conduct of the employer amounts to a fundamental breach which goes to the root of the contract or whether he has evinced an intention to no longer to be bound by the contract. Unlike wrongful and unfair dismissals, in a constructive dismissal the burden of proof is on the employee to prove that their employer is guilty. 

The case of Ng Teck Fay v Mahkamah Perusahaan Malaysia [2021] 10 CLJ 73 has confirmed there are four (4) elements to be fulfilled to establish constructive dismissal: 

1. There must be a breach of contract; 
2. The breach must be sufficiently important to justify the employee’s resignation; 
3. The employee must leave in response to the breach and not for some other unconnected reasons; and 
4. The employee must not unduly delay in terminating the contract (if they do, they could be deemed to have waived the breach and agreed to the new terms of the contract) 

Common situations which may amount to a breach of contract justifying a constructive dismissal claim include: 

1. Non-payment of wages and/or allowances; 
2. Unsafe working environment; 
3. Sexual harassment; 
4. Forced resignations – due to threats or duress; or 
5. Reduction and/or change of job scope 

Conclusion 

In essence, the termination of employment under the EA 1955 is a potentially contentious matter that requires both employers and employees to adhere to the stipulated regulations to ensure fairness and protection of rights. While employers have the authority to terminate contracts under specific circumstances, such as misconduct or redundancy, it is essential that they comply with the relevant statutory provisions to avoid facing a claim for wrongful or unfair dismissal. Likewise, employees should be aware of their rights and seek recourse if they believe their termination was unjust or in violation of the law. Ultimately, ensuring compliance with the EA 1955 fosters an environment where both employers and employees can navigate termination procedures with clarity and integrity.