Carrying Out Fair Termination In Malaysia

• Published date: 09 January 2024
• Subject Matter: Employment and HR, Contract of Employment, Unfair/ Wrongful Dismissal, Employee Rights/ Labour Relations
• Law Firm: Azmi & Associates
• Author: Ms Melinda D'Angelus

Termination of an employee is a sensitive and critical aspect of the employer-employee relationship. It requires careful consideration and adherence to legal and ethical principles. In Malaysia, the termination process is governed by comprehensive labor laws¹ which were drafted and enforced to protect the rights of both employers and employees. Employers must adhere to these laws to ensure fair treatment and avoid legal complications. It is also imperative to maintain a harmonious work environment and preserve the dignity of the departing employee. In this article, we will explore the key aspects of fair termination in Malaysia and provide a guide for employers on how to conduct terminations in compliance with the law while upholding employee rights.

An employment contract can be in the form of an oral agreement or a written agreement. If a contract of service covers a period exceeding one month, there shall be a clause setting out termination provisions.² It is very common for employment agreements to contain provisions that allow either party to terminate the employment agreement by serving the notice set out in the agreement. However, this is not as straightforward as it appears when it comes to an employer terminating the employment agreement.³

In Malaysia, the common law principle of 'termination simpliciter' is not recognized, which means that employers are not allowed to terminate an employment pursuant to the termination clause only, i.e. by giving due notice and without substantiating said termination with a just and legitimate reason. This non-applicability of termination simpliciter has been demonstrated in the following cases:

1. In Omar bin Othman v Kulim Advanced Technologies Sdn Bhd (previously known as KTPC Technologies Sdn Bhd) [2019] 1 MLJ 625 the Court of Appeal reinstated the Industrial Court's decision which held that a termination by way of termination simpliciter would amount to unlawful dismissal.

2. The Federal Court in Dr A Dutt v Assunta Hospital [1981] 1 MLJ 304 held that the action of termination simpliciter which is not grounded on any just cause or excuse would enable the Industrial Court to award compensation if it would not order reinstatement.

3. The Industrial Court in the case of Malaysia Milk Sdn Bhd v Ng Chee Meng [1987] 1 ILR 175 (Award No 59 of 1987) held that termination simpliciter is no longer acceptable as valid if challenged in industrial law. The Court further stated that the termination of the employment of a...