What You Need to Know About Termination Due to Misconduct

We sometimes find cases in companies where employees make mistakes that are so serious and harmful to the company that they can no longer be tolerated. To protect the company’s reputation, and maintain harmony between employees, and finances, the last resort is to terminate the employee for misconduct.

But what counts as misconduct? How can employers make sure the termination process is fair and legal? Let’s break it down step by step.

What is Termination due to Misconduct?

Termination due to misconduct happens when an employer ends an employee’s contract because of inappropriate behaviour or violations of company policies. Unlike terminations due to business needs, this type of termination is based on the employee's actions, which are deemed unacceptable for the workplace.

Misconduct can range from minor issues, like repeated lateness, to major violations, such as theft, fraud, or harassment. The key is that the behaviour disrupts the workplace's normal operations, safety, or harmony.

Types of Misconduct

There are two types of misconduct, major and minor misconduct. Both have a bad impact on the company, but the difference is how far the impact and the consequences that the employee will get.

1. Major Misconduct

Major misconduct, or "gross misconduct," refers to severe actions that can lead to immediate termination. These actions break the trust between employer and employee, often resulting in summary dismissal without notice.

Actions that are categorised as major misconduct according to AI HR are:

• Theft or fraud
• Physical violence or bullying
• Damage to property
• Serious insubordination
• Serious safety and health regulations breaches
• Establishing a competing business
• Discrimination or harassment
• Wrong use of an organization’s property or name
• Bribing or accepting bribes
• Leaking company information or causing a serious breach
• Breach of confidence

In some cases, if the employee’s misconduct has caused the company financial losses, the employer may even take of their salary.

2. Minor Misconduct

Minor misconduct involves actions that violate company rules but are not severe enough to warrant immediate termination. These can disrupt work but are not criminal offenses. However, if the behavior persists, it can escalate to a more serious issue.

Some actions that include in minor misconduct based on Chron are:

• Poor task performance
• Excessive absences
• Safety violations
• Not following directions
• Unintentional information leak
• Tardiness
• Unauthorized breaks
• Misuse of company property

While minor misconduct typically leads to warnings and corrective measures, employer needs to address the behavior before it becomes a bigger problem.

Why Termination due to Misconduct is Important

Termination for misconduct is more than just removing a problematic employee, but it also about protecting the overall health and stability of the company. 

1. Protecting company integrity

A company's reputation is its most valuable asset. Misconduct like fraud, harassment, or unethical behavior can damage how the company is viewed by the public, clients, and partners. Taking action shows that the company stands for honesty and professionalism.

2. Ensuring a safe and productive work environment

All employees deserve to work in a place where they feel safe and respected. Misconduct can make the workplace uncomfortable or even dangerous. Addressing these issues promptly helps create a positive, productive, and safe environment.

3. Upholding workplace discipline and policy compliance

Rules and policies exist to keep things running smoothly. If a company ignores misconduct, it will disrupt workflow and can harm team morale. Taking appropriate action against misconduct will maintain order and ensure everyone follows the same standards.

Steps to take before terminating an employee for misconduct

Terminating an employee because of misconduct is a serious decision. So, it needs to follow the correct process. Doing so ensures the decision is fair and legally sound, reducing the risk of wrongful dismissal claims. Below are the steps according to AI HR:

1. Conduct a thorough investigation

Gather all the facts and evidence before making any decisions. This might involve:

• Collecting witness statements.
• Reviewing any available footage, such as CCTV, or checking communications like emails or messages.
• Looking into the employee’s history and past disciplinary record.

The goal is to get a clear understanding of what happened. Make sure to document all findings clearly and fairly. If the misconduct is severe and poses an immediate threat to the company or others, consider suspending the employee temporarily while the investigation is ongoing.

2. Meet with the accused employee

Once you have gathered all the necessary information, meet with the employee to discuss the misconduct. Even if the evidence is strong, allow the employee to explain their side of the story. This meeting is often called a disciplinary hearing. 

Make sure to explain the allegations clearly and provide the evidence you have gathered. Give the chance for the employee to respond to the claims and provide any explanations or additional context. After listening to their response, end the meeting so you have time to think about what to do next.

Do not forget to consider the employee’s disciplinary history, length of service, and overall behavior at the company before making a final decision.

3. Issue a formal disciplinary action

If disciplinary action is needed, notify the employee in writing. The letter should:

• Clearly state the findings of the investigation.
• List the offenses and details of the disciplinary meeting.
• Inform the employee of their right to be accompanied by a colleague or union representative.

During the hearing, read the offenses and explain the decision. If termination is the outcome, clearly list the reasons and provide a timeframe for the employee to appeal.

4. Consider alternatives to termination

Termination should always be the last resort, especially for minor misconduct. Before terminating an employee, consider other disciplinary actions, such as:

• Suspension: Temporarily removing the employee from the workplace.
• Demotion: Reducing the employee’s role or responsibilities.
• Final written warning: Issuing a stern warning about the behavior, with a clear message that further issues will result in termination. Usually in Malaysia, a company sends two warning letters before a termination letter.

These alternatives can help correct behavior without resorting to termination, especially if the employee has otherwise been a good performer.

The Legal Process of Termination due to Misconduct in Malaysia

In Malaysia, terminating an employee for misconduct involves a careful legal process to ensure fairness and compliance with local labor laws. 

The primary regulations governing this are the Employment Act 1955 (EA) and the Industrial Relations Act 1967. 

The EA outlines basic protections, such as notice periods and severance payments, while the Industrial Relations Act provides a framework for resolving disputes, particularly those related to unfair dismissal.

According to Section 12(2) of the EA, employers must provide notice based on the employee’s length of service:

• Less than 2 years: 4 weeks
• 2 to 5 years: 6 weeks
• 5 years or more: 8 weeks

For major misconduct, immediate termination is permitted if a proper inquiry is conducted.

The notice period helps both parties manage the transition and search for replacements if necessary. However, if the dismissal is for major misconduct, immediate termination without notice is permitted, provided the proper due inquiry is conducted.

Proper procedures for dismissal:

When terminating an employee for misconduct, employers must follow clear steps to ensure fairness and legal compliance. Here’s a breakdown of the process:

Issuing a show-cause letter

This letter clearly outlines the misconduct or allegations against them and gives them a chance to respond or explain their actions. It should specify the behavior in question, reference the company policy that was violated, and provide the employee with a reasonable time frame to respond (usually between 3-7 days).

Conducting a domestic inquiry

If the response is unsatisfactory, an inquiry is held to review the case fairly. This process involves neutral parties, evidence presentation, and giving the employee a chance to defend themselves.

Adhering to legal requirements

According to Section 14 of the Employment Act (EA), employers must conduct a proper inquiry before taking any disciplinary action. This involves informing the employee about the misconduct, allowing them to share their side, and ensuring the process is unbiased. 

During the inquiry, employers are permitted to suspend the employee for up to 2 weeks for investigation purposes. However, they must pay the employee at least half their salary during this period. If the inquiry finds no misconduct, the employer is required to pay back the full salary.

Taking disciplinary action

If the inquiry concludes that serious misconduct occurred, the employer can take disciplinary action, which may include:

• Termination without notice, also called summary dismissal. This is for severe cases like theft or violence.
• Downgrading or demotion is where the employer assigns the employee to a lower role with less responsibility and possibly lower pay.
• Other lesser punishments can include issuing a final warning or suspending the employee without pay for up to 2 weeks.

Employee rights and employer responsibilities

The process of termination must be balanced, ensuring that both parties' rights are respected. Employers are responsible for:

• Ensuring that the process aligns with internal policies and the terms of the employee’s contract.
• Providing a fair opportunity for the employee to explain their actions and defend themselves.
• Keeping records of every step taken, from the issuance of the show-cause letter to the conclusion of the domestic inquiry. This documentation is crucial in case of a dispute.

Employees, on the other hand, have the right to a fair hearing, the right to defend themselves, and the right to representation (by a colleague or union member, if available) during the domestic inquiry.

Avoiding wrongful dismissal claims by adhering to legal requirements

A wrongful dismissal occurs when an employee is terminated without just cause or excuse or if the employer fails to follow the proper process.

If a termination is challenged, the Industrial Court will examine whether:

• The misconduct was sufficiently serious to warrant dismissal.
• The process followed was fair and lawful.
• The employer acted reasonably based on the evidence provided.

By following the proper procedures, such as issuing a show-cause letter and holding a domestic inquiry, employers can greatly reduce the risk of being found liable for wrongful dismissal.

Issuing a Show-cause Letter

A show-cause letter is a formal notice given to an employee, asking them to explain why they should not face disciplinary action for alleged misconduct or poor performance. Think of it as a way for the employee to "show cause" or give their side of the story before any decisions are made.

The purpose of this letter is to give the employee a fair chance to respond to the concerns raised by their employer. It outlines the issues or behaviour in question and allows the employee to explain themselves, providing their perspective before any final action is taken.

Before issuing a show-cause letter, make sure to investigate thoroughly. Gather all the facts, talk to any witnesses, and review relevant documents to understand the situation clearly. A complete investigation ensures that you base the decision to issue the letter on solid evidence.

When you are ready, meet with the employee privately to deliver the show-cause letter. Explain the concerns raised and let them know this is their chance to respond. Keep the conversation respectful and confidential, emphasizing that the goal is to understand their side of the story.

Finally, document the meeting by noting the date, key points discussed, and any questions asked. Make sure the employee acknowledge they received the letter. Properly handling the process ensures fairness and transparency, benefiting both the company and the employee.

Learn further about show-cause letter in this article.

How to Handle the Termination Meeting

Handling a termination meeting is a delicate process that requires sensitivity, respect, and clarity. The way you conduct this meeting can leave a lasting impression on both the employee being terminated and the rest of your team. Here are key steps to follow for a smooth and professional termination meeting:

Prepare for the meeting

Before the meeting, make sure you are fully prepared. Have all necessary documentation ready, such as the termination letter, any supporting evidence (like performance reports or records of misconduct), and details about final pay and benefits. 

If possible, plan to have a witness from HR or another manager present during the meeting. This can provide support for both you and the employee, and ensure the meeting is handled appropriately.

Deliver the termination news with professionally

When the meeting happens, be direct but respectful in delivering the news. Begin the conversation calmly and get straight to the point, explaining that the decision to terminate has been made. 

While it is important to stay firm, show your empathy at the same time. The goal is to deliver the news professionally without causing unnecessary distress. 

Avoid long explanations or trying to justify the decision repeatedly. Be clear and straightforward in delivering the decision. For example, you might say, “After careful consideration, we have decided to end your employment with the company effective immediately.”

Providing clear reasons and explaining the next steps

Once the news has been delivered, clearly explain the reasons for the termination. Reference any documentation or past conversations that have led to this decision, ensuring the employee understands why this step was necessary. 

Then, move on to the next steps. Provide details on their final paycheck, including any outstanding wages, severance (if applicable), and when they can expect to receive payment. Also, cover practical matters like returning company property, such as laptops, keys, or ID cards. Provide a written summary of these points so the employee knows what to do next.

Consequences of Unfair Dismissal

Unfair dismissal happens when an employer fires an employee for no valid cause, fails to follow proper procedures, or breaches employment laws. 

In Malaysia, if an employee believes they have been unfairly terminated, they have the legal right to contest the decision, which can have serious ramifications for the employer. Let's look at what those implications are and how they can affect both parties.

Potential legal consequences

If an employee believes they were unlawfully terminated, they can submit a complaint with the Industrial Relations Department within 60 days following the dismissal. According to Mishu, the ramifications for employers could include:

Potential legal action and claims

If an employee believes they were dismissed without "just cause or excuse," they can file a complaint with the Industrial Relations Department within 60 days of their dismissal under the Industrial Relations Act 1967. 

The complaint will then be assessed, and if it moves forward, it could be referred to the Industrial Court. At this stage, the employer will be required to prove that the termination was lawful and justified. If the court finds the dismissal to be unfair, the employee could be entitled to several remedies, including reinstatement or compensation.

Compensation and reinstatement

When a dismissal is deemed unfair, the Industrial Court typically offers two types of remedies:

• Reinstatement

The employee may be reinstated to their previous job, meaning they can return to their role as if the dismissal never happened. Although reinstatement is possible, it is not always the preferred option for either the employer or the employee, as it may be difficult to restore the working relationship after a dispute.

• Compensation

If reinstatement is not suitable, the court may award the employee compensation. This can include a payment for loss of earnings (known as "back wages"), which can be up to 24 months' worth of the employee’s last drawn salary. Additionally, compensation is typically calculated at one month’s salary for every year of employment with the company.

This means employers could face significant financial liability if a dismissal is found to be unfair.

How to avoid unfair dismissal claims

To avoid the consequences of unfair dismissal, employers should always follow proper legal procedures when terminating an employee. This includes conducting a fair and thorough investigation into any misconduct, giving the employee a chance to explain their actions, and ensuring that the termination is based on valid and justifiable reasons. 

Proper documentation and adherence to company policies are also key steps to reduce the risk of legal disputes and uphold fairness.

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Terminating an employee for misconduct is a serious decision that requires careful consideration, fairness, and adherence to the law. By following clear and well-documented procedures, employers can ensure that the process is not only fair to the employee but also legally compliant. 

Properly handling terminations helps maintain the company’s integrity, reinforces its values, and creates a safer and more disciplined work environment.

Employers who follow the correct steps can avoid potential legal disputes and uphold their workplace standards. Ultimately, a transparent and fair termination process benefits both the organization and its employees, fostering a respectful and positive company culture.

 

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