Termination of Employment in Malaysia

According to Department of Labour of Peninsular Malaysia, termination of employment means “cessation of service due to company closure and workers redundancy”. From the definition, “redundancy situation” happens due to several reasons such as corporate restructuring, a decrease in production, mergers, changes in technology, acquisitions, and others. However, termination of service due to disciplinary action and dismissal of employees have yet to be included.

What should you do (for employer)

Whether the firing process happens on the spot, or by serving the contractually-agreed notice period, the employer must be able to present reasonable cause or excuse of the dismissal or termination. Basically, there are two types of dismissals – direct dismissals and constructive dismissals.

• Direct dismissal – it is the situation where an employer decides to end the employment and dismisses the employee, usually by way of a formal letter of termination. Usually, the courts grant employers an ample space to make [managerial] decisions for their businesses, including the dismissal of employees. The courts will only interfere with a decision to directly dismiss an employee if it is proven unfair.

• Constructive dismissal – a less straightforward case of dismissal where it involves the situation like an employer has shown intention not to continue with the employment relationship. As such, an employee would be entitled to regard the contract as having been terminated by the employer, and that he or she has been dismissed. Such a situation is what is called a constructive dismissal.

When can an employee be dismissed?

Ideally, the relationship between employers and employees would be no need to end the employment relationship. However, the reality is that the employment relationship has to be terminated for a variety of reasons.

The reasons could be:

• Misconducts of employee

• Poor work performance

 
An employer must be able to prove that the dismissal was substantively and procedurally fair. Substantive fairness means that there must be a just reason which gave rise to the decision to dismiss the employee. Procedural fairness means the practical implementation of the dismissal process, which is the domestic inquiry.

Elements of a domestic inquiry

Domestic inquiry is an employer-led investigation aimed at discovering facts and information about a situation [in which an employer has accused] of an employee’s misconduct. In the case of domestic inquiry, the said employee will receive a ‘show cause’ letter requesting an explanation for the alleged misconduct. A more formal domestic inquiry will be conducted if the response from the said employee is not satisfactory. Please note that the domestic inquiry is solely an information-gathering exercise where it does not involve decisions over guilt or punishment.

Before dismissing an employee, employers need to make sure that they have a potentially fair reason. Failure to provide fair reasons in the case of dismissal will lead to unfair dismissal where it has big implication to both employer and employee.

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