Terminating an Employee's Employment


Terminating an employee's employment should be done carefully. Before deciding to terminate someone's employment make sure you understand your obligations under their employment contract, award or agreement.

When you terminate an employee's employment you must provide the employee with the following:

  • Appropriate notice (not required if dismissal is for serious misconduct)
  • Any leave entitlements
  • In some instances, redundancy or severance pay

How much is ‘appropriate notice'?
The length of notice that you must give an employee is determined by how long they have worked for you and their type of employment. For example if someone has worked for you continuously for more than one year but less than two you must give them at least four (4)weeks notice.

Each and every employer usually would state the required time for notice of termination in the contract of services and/or employment contract. In the absence of the same, appropriate notice as per Section 4 of the Employment Act 1955, is provided as follows:

  1. Four (4) weeks : Employed for less than two (2) years
  2. Six (6) weeks : Employed for more than two (2) years but less than five (5) years
  3. Eight (8) weeks : Employed for more than five (5) years

An employer can provide payment in lieu of notice, which can be equal to or exceed the total amount the individual would have been paid for the required notice period.

What are employee entitlements?
In most cases full-time and part-time staff will be owed entitlements when their employment ends. These termination entitlements can include payment of any accrued annual and long-service leave.

What do I need to know about redundancy?
Redundancy occurs when a position occupied by a worker is eliminated and the worker is dismissed. It is the position, and not the employee, that becomes redundant. There are a number of reasons why redundancy can arise. These include:

  • Times of economic and financial difficulty
  • Technological change
  • Relocation of the business
  • Slowdowns in the business.

Businesses going through a restructure or operational change may lose talented people who have been valuable to the business and who it would otherwise have been happy to retain. If you choose to make staff redundant it's important to manage the process well and to comply with the relevant legislation, awards, agreements or contract terms. You must provide:

  • Any relevant standard termination entitlements; and
  • Severance payments if the employee is entitled to them.

Retrenchments should be based on business needs and should not be seen to be a reflection on the competence of those you let go. If handled poorly, retrenchments can reflect badly on the business, affect the morale of remaining staff, and potentially could lose you clients.
What is constructive dismissal? Constructive Dismissal is not the normal act of an employer termination the services of its employee from employment. It is somewhat different in the sense that it is defined as an act of an employee terminating his or her service with the company, or resigning due to conduct or behavior by the employer. In other words, the employee chose to leave the company because he feels that he has been mistreated or that his services are no longer wanted by the company. Nine (9) possible circumstances has been identified to lead to constructive dismissal:

    • Arbitrary reduction of wages, commission, allowance etc
    • Withdrawal of contractual benefits e.g. car, housing, entertainment, free meals, free laundry services etc., provided they are stipulated in the Contract of Service
    • Altering or taking away facilities reflective of the position (for example company direct telephone line, room and personal secretary)
    • Demotion to a lower post, with or without reduction of salary, fringe benefits etc.
    • Transfer to a different location if such transferability is not clearly stated in the Letter of Appointment
    • Substantial changes in the job function, especially if the employee is incapable of performing those functions
    • Behavior by the employer, intended to humiliate the employer
    • Acts of victimization (for example, setting unattainable deadlines, constant fault-finding and harassment)
    • Threatening with dismissal if the employee does not resign from the job

An employee can raise a claim for the constructive dismissal at the Industrial Relations Department, as per Section 20 of the Industrial Relations Act 1967. In the event an employee is found to be guilty, then the IR Officer will order for a reinstatement, or rule for a monetary compensation. Proper legal advice should be sought before taking on a legal action.

What is unlawful termination?
Unlawful termination is covered under the laws of Malaysia and cases of such will be referred to the Industrial Relations Department. The onus and burden of proof in this case lies heavily on the employee to prove that such termination is valid and legit under the laws of Malaysia.
If an employee feels that one has been dismissed unjustly, the procedure to claim damages is as follows:

  • Employee to write in to the Director General Industrial Relations Department at the nearest former place of employment. A representation is to be made within sixty (60) days of one’s dismissal.
  • The letter must contain the following information:
  • State remedy sought – damages and/or reinstatement
  • Name and NRIC Number
  • Address and contact details
  • Name, address and contact details of the former employee
  • Occupation
  • Date of Appointment and Dismissal
  • Reasons given for dismissal
  • Whether employee is a member of a union or otherwise
  • Attach copies of supporting documents, ie: letter of appointment, letter of termination etc (if any)
  • The Director General Industrial Relations Department will then try to resolve the case by way of conciliation. No fees need to be paid.
  • The conciliation officer will explain the principles and practices law that are applicable including judgment of the courts, both the Industrial Court and civil courts, so that both parties are aware of their rights and liabilities.
  • If the case failed to be resolved by way of conciliation, the Director General Industrial Relations will then refer your case to the Minister of Human Resources, who will refer the matter to the Industrial Court for adjudication and for an award if he thinks fit.
  • Unlawful dismissal case cannot be brought directly to the Industrial Court. This type of case must be referred to the Industrial Court by the Minister of Human Resources.
  • The Industrial Court upon the matter being referred to by the Minister of Human Resources, then goes to consider whether the your termination of employment is unlawful or whether it is justified.
  • Where the Industrial Court rules that the termination is unlawful, the Court then makes an "Award" to reinstate you to your former position or in lieu awards proper compensation.
  • The normal remedies in a cases of dismissal is the reinstatement into your former employment and award of back waged from dismissal date to the final date of hearing subject to maximum period of 24 months.
  • The Industrial Court may also order compensation in lieu of reinstatement base on the formula on 1 month salary for every year of service.

For employees employed continuously for a period not less than twelve months, the termination and lay-off benefits is governed under Regulation 6 of the Employment (termination and lay-off benefits) Regulations 1980 as follows:

  1. ten days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for a period of less than two years; or
  2. fifteen days’ wages for every year of employment under a continuous contract of serviced with the employer if he has been employed by that employer for two years or more but less than five years; or
  3. twenty days’ wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for five year or more, and pro-rata as respect an incomplete year, calculated to the nearest month.

Obligations to Employees

Workmen As an employer you are responsible for ensuring you have worker's compensation insurance cover in place to protect your employees. This insurance is compulsory. You might also have to extend your cover to include any sub-contractors you have working for you. 

Taxation and superannuation Employee Provident Fund (EPF)
The employer should deduct only the employee's share of the EPF contribution from the employee's wages. The employer should then remit his share of the contribution together with the employee's share to the EPF. Such contributions should be remitted to the EPF on or before the 15th of every month.It is also advisable for employers who hire foreign or flexi-time workers to check on the EPF guidelines to determine whether liability to contribute exists, in respect of this category of employees

Social Security organization (SOCSO)
An employee employed under a contract of service or apprenticeship and earning a monthly wages of RM3,000 and below must compulsorily register and contribute to SOCSO regardless of the employment status whether it is permanent, temporary or casual in nature.SOCSO only covers Malaysian workers and permanent residents. As a result, foreign workers are protected under the Workmen's Compensation Act 1952.

Employee health and safety
A safe workplace is critical to the success of any business, no matter the size. Every business owner in Australia has certain rights and responsibilities regarding health and safety in the workplace. Even if you don't employ workers, you must ensure that your business doesn't create health and safety problems for your customers and the general public.

Occupational Safety & Health Act (OSHA)
The provision of the Occupational Safety and Health Act 1994 are based on the self-regulation scheme. Its primary responsibility is to ensure safety and health of work lies with those who create the risks and those who work with the risks. The National Council for Occupational Safety and Health shall have power to do all things expedient or reasonably necessary for or incidental to the carrying out of the objects of this Act.
Through self-regulating scheme that is designed to suit the particular industry or organization, this Act also aims to establish effective safety and health organization and performance.The concept of self-regulation encourages cooperation, consultation and participation of employees and management in efforts to upgrade the standards of safety and health at the workplace.

The Department of Occupational Safety and Health (DOSH), under the Ministry of Human Resources, is responsible for administrating and enforcing legislation related to occupational safety and health. DOSH ensures that the safety, health and welfare of people at work as well as others are protected from hazards resulting from occupational activities in the various sectors such as:

  • manufacturing;
  • mining and quarrying;
  • construction;
  • agriculture, forestry and fishing;
  • utilities (gas, electricity, water and sanitary services);
  • transport, storage and communication;
  • wholesale and retail trades;
  • hotels and restaurants;
  • finance, insurance, real estate and business services; and


Related Contents



Best Viewed with resolution of 1024 x 768 (higher) and
supports Internet Explorer 7.0+ , Firefox 2.0+ ,Google Chrome, and Safari
© SME Corporation Malaysia, 2011. All Rights Reserved.
You are visitor no: 909097
Privacy Policy | Security Policy | Disclaimer