Ways to Terminate Employment in Malaysia

Dismissal

In Malaysia, any termination of employment must be done with "just cause or excuse." The following are the most widely recognised types of just cause or excuse for terminating an employment contract:

1. Misconduct,

2. Retrenchment,

3. Poor performance,

4. Retirement,

5. The expiry of a legitimate fixed-term contract,

6. Resignation, and

7. Mutual agreement.

The burden of proof in an unfair dismissal case is on the employer. They must show that they terminated the employment contract with just cause or excuse. An employee who believes they were fired without reason or justification can file a written request with the Director-General of Industrial Relations (DGIR) to be reinstated to their previous position. 

If the DGIR believes there is no likelihood of these representations being settled, they may be directed to an industrial court.

In this country, there is no notification requirement for employment termination. But, if the termination is due to retrenchment or a voluntary separation scheme, the employer must file the required PK Forms I to IV at least 30 days before the employment cessation date. Following that, the employer must file PK Forms V and VI. Unless the collective agreement specifically states otherwise, there is no obligation to notify the trade union of any termination of employment.

No notice is necessary for termination due to misconduct, as an employee can be summarily dismissed. However, it is common practice to take this step of summary dismissal only after conducting an investigation and giving the employee a chance to defend themselves. Because of Section 14(1) of the Employment Act (EA), the duty for proper investigation is even more crucial.

If the reason for the termination is redundancy or poor performance, the employer must follow the contract's notice requirements. Either side can waive the notice, or the employer can choose to pay wage in place of notice.

Redundancies

Retrenchment is a word used to indicate when a company terminates the services of employees who are considered surplus and redundant to the company's needs. An employer has the right and privilege to reorganise their firm in whatever way they deem suitable, as long as the method is legitimate and serves no other purpose.

Employees may, however, dispute an ill-planned layoff exercise by filing unfair dismissal complaints with the DGIR, which may then be transferred to an industrial court for adjudication. If the legality of the layoff is questioned, the employer must establish that there was a genuine redundancy crisis and that the retrenchment was necessary to protect its interests. 

The relevant queries for consideration are:

1. Whether there is a genuine redundancy scenario that led to the retrenchment exercise, and

2. If yes, was the subsequent retrenchment exercise carried out under the accepted standards of procedures?

Multiple redundancies, collective dismissal, and reduction in force have no legal distinction. However, if there are several redundancies or a collective dismissal or reduction in force, it will be harder for an employee to claim that they were negatively affected as the retrenchment affects several employees of the company, not only one.

In redundancy situations, an employer should comply with the Code of Conduct for Industrial Harmony (the Code).

Although the Code is without the force of law, it is widely used as a reference guide by industrial courts when determining whether an employee was appropriately retrenched via fair procedures. The Code outlines the steps that an employer should take in the event of redundancy, including: 

• Limiting recruitment, 

• Restricting overtime work, 

• Restricting work on the weekly day of rest, 

• Restricting the number of shifts or days worked per week, 

• Restricting the number of hours worked, and 

• Retraining or transferring workers to other departments or types of work.

According to the employment contract terms, an employer must offer sufficient notice of termination to its employees. However, for employees covered by the EA, an employer is required to provide employees with a minimum notice of termination (as defined in the EA) before the day of retrenchment. Either party has the option of waiving the right to the requisite notice. However, if notice is not given, the employer may be required to pay employees an indemnity for the lack of notice equivalent to the notice period.

Employers must also pay retrenchment benefits for EA employees, provided they have worked for a continuous period of 12 months or more. 

For unionised employees, an employer must look at the wording of the collective bargaining agreement to see if there are any clauses dealing with retrenchment or termination benefits. If this is the case, the employer must pay per the collective bargaining agreement's terms.

The employer should also look at the terms of the employment contract and the employee handbook to see if there are any provisions for retrenchment or termination benefits in the contract or handbook. If so, the employer should pay according to the contract or handbook's conditions if they are more favourable than the statutory termination benefits.

Although the industrial courts recognise a genuine retrenchment as a valid reason for terminating employment, some businesses offer a voluntary separation plan (VSS) to reduce the number of employees. A VSS is, by definition, voluntary and is offered to employees at the employer's discretion. Employees may accept or reject the VSS. Before a retrenchment, it is usual for firms to issue a VSS.

Instead of conducting a VSS, a corporation may choose to engage in one-on-one negotiations with each employee to reach an agreement on mutual separation. This is also an accepted way to terminate an employment contract. However, the employer must use caution to avoid accusations of coercion or forcing a worker to sign a mutual separation agreement.

Source: Rahmat Lim & Partners | Lexology

Disclaimer: The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. Please seek legal advice or other professional advice in relation to any particular matters you or your organisation may have.