A Complete Guide To Employee Termination In Malaysia

With a topic as sensitive as termination, Malaysian employers and HR leaders will naturally have doubts and concerns about how to properly approach the matter.

By ‘properly’, we don’t mean being nice – we’ll leave that part up to you! 

‘Properly’ here means ensuring terminations are fully compliant with Malaysian employment law.

To help, we’ve compiled answers to the ten most frequently asked questions about prematurely ending employment contracts with citations from the following statutes:

• The Employment Act 1955
• The Industrial Relations Act 1967
• Employment (Termination and Lay-Off Benefits) Regulations 1980

We’ve also included a bonus question to end all other questions – the one you should be asking.

Let’s begin!

1. Are there different types of employment termination?

Yes, the term ’employment termination’ itself refers to the ending of an employment relationship between employer and employee.

In practice, there are several different ways this can happen:

Type of Termination	Definition
Voluntary Termination	An employee’s decision to end their employment voluntarily.
Involuntary Termination	The employer initiates the termination of an employee.
Termination for Cause	Ending an employment relationship due to severe employee misconduct or violation of company policy.
Termination Without Cause	Ending an employment relationship without specific fault or wrongdoing by the employee.
Constructive Termination	When an employee resigns due to intolerable working conditions created by the employer.
Redundancy	Termination due to elimination of a position or a need to cut headcount.
Probationary Termination	Ending employment during a probationary period, typically for reasons related to performance or fit within the organization.

Besides constructive termination and termination without cause, other forms of termination are a natural part of employer-employee relations.

2. What are valid reasons for employee termination? 

The most common valid reason for termination is employee misconduct, namely:

• Discipline issues
• Continuous under-performance
• Criminal convictions

These fall under termination for cause, and the employer is required to provide proof of indiscipline and poor performance.

Additionally, Section 12 (3) of the Employment Act allows termination for the following reasons:

• You plan to stop business operations.
• Your business no longer needs the employee for the reason they were hired.
• The employee refuses to transfer to a different work location.
• A sale, transfer, or change in ownership of your business.

These fall under redundancy and come with their own conditions discussed later.

3. What is unfair dismissal?

Unfair dismissal is when an employee is terminated seemingly without just cause.

Under Section 20 of the Industrial Relations Act 1967, an employee who believes they have been unfairly dismissed can file a complaint with the Industrial Relations Department within 60 days of their last day. 

We won’t go into details of what follows a complaint now – just make sure you have a valid reason for termination and provide evidence where necessary.

Some claims are made when employees don’t fully understand why they have been terminated.

Don’t let poor communication be the reason for legal troubles.

4. How many warning letters before termination? 

While it’s common in Malaysia to issue at least two written warnings before a final termination letter, the Employment Act does not actually make it mandatory to send any warning letter at all.

This shouldn’t be confused with a minimum notice period, which is a requirement.

But as far as warning letters go, you’re free to issue any number you see fit.

In practice, this varies depending on type of misconduct, as sexual harassment and stealing office staplers aren’t quite the same.

5. How do you write a termination letter? 

There is no specific format required by law, and we recommend treating it like any other internal business communication, which means:

• being clear about the intent of the letter
• ensuring accuracy of various dates and notice periods
• including any supporting evidence
• maintaining a professional tone throughout
• providing an avenue for questions from the recipient

For a more detailed look at termination letters, check out our guide to eight essential HR letter templates.

6. What’s the minimum notice period for termination? 

According to Section 12(2) of the Employment Act. under normal circumstances, both employees and employers are entitled to the same minimum notice period, which is as follows: 

Length of Employment	Notice Period
Less than two years	Four weeks
Over two but less than five years	Six weeks
Five years or more	Eight weeks

The notice must be in writing and the day on which it is issued marks the start of the notice period.

The logic is clear: the longer the employee-employer relationship, the more reliant both are on each other, meaning high salaries in exchange for high experience.

It takes more time to find a suitable replacement, hence the longer notice periods.

7. Can you terminate employees immediately? 

Provided there is a valid reason, the answer is yes, and this commonly comes in two scenarios:

Payment in lieu

Section 13(1) of the Employment Act allows employers to terminate the employee immediately by paying them a sum equal to wages earned during the notice period or remaining duration of the notice.

Breach of contract

Section 13(2) of the Employment Act allows employers to end the employment contract without notice if the employee deliberately violates a condition of the contract.

As mentioned above, proof of the breach must be provided to avoid claims of unfair dismissal.

8. Can you terminate employees on probation immediately? 

Yes, but it is no easier than immediately terminating any other staff member.

Although no act specifically mentions employees on probation, they are recognised as having the same rights as regular employees.

This means the employer still has the burden of proving a breach of contract that can justify immediate termination, and the employee can file a claim of unfair dismissal if they feel there is grounds for it.

9. Do I have to pay compensation for termination?

Yes, the Employment (Termination and Lay-Off Benefits) Regulations 1980 has mandatory minimum payments for employees earning up to RM4,000 per month and employed for 12 months or more:

Length of Employment	Compensation
Less than 2 years	10 days’ wages for each year of employment
Over 2 years but less than 5 years	15 days’ wages for each year of employment
5 years or more	20 days’ wages for each year of employment

For all other employees, it depends on what is stated in their employment contract.

10. What if the court finds there has been unfair dismissal? 

There are two common forms of remedies:

• Reinstatement of the former employee
• Monetary damages in the form of compensation and back wages

In general, reinstatement is rarely ordered because at this point both parties are usually eager to never see each other again, let alone work together!

Compensation is calculated at one month’s salary for every 12 months of employment.

In addition to reinstatement or compensation, the employee can be awarded a maximum of 24 months’ worth of back wages.

BONUS: How do I solve termination issues permanently?

Have a clear and up-to-date employment contract and employee handbook!

If you’re looking for these answers online, your employee handbook and employment contracts are probably not as comprehensive as they should be.

Well-written employment contracts and employee handbooks explicitly outline all procedures related to termination as well as other key aspects of employer-employee relations. Beyond full compliance with employment law, these procedures are worded in a way that is easily understood by all parties.

Clear expectations lead to easily resolved disputes.

And resolved disputes lead to smooth final goodbyes.

Speaking of which, check out our smooth final goodbye in action right now.

Let MISHU tailor your employee handbook and employment contracts

Is it that surprising that people behave and perform better when they are given clear rules?

Beyond termination, employee handbooks and employment contracts outline other aspects of employment such as leave policies, compensation and benefits, and more.

Our HR experts would love to sit down with you and work it out!