Termination of Employees
Rising Global Consultants
Two Types of Termination
Direct Dismissal – When an employer decides to end employment and dismiss an employee, typically through a formal termination letter. Courts generally allow employers considerable discretion in making business decisions, including terminating employees. The court will only intervene in direct dismissal decisions if proven to be unfair.
Constructive Dismissal – A less direct form of dismissal, where the employer indicates an intention not to continue the employment relationship. In this case, the employee can consider the contract as having been terminated by the employer, and thus they have been dismissed. This is known as constructive dismissal.
Under what circumstances can an employee be terminated?
- Employee Misconduct
- Poor Job Performance
The employer must be able to prove that the termination is fair both substantively and procedurally. Substantive fairness means there must be a justifiable reason leading the employer to decide to terminate the employee. Procedural fairness refers to the actual execution of the termination process, such as conducting an internal investigation
Termination Procedures
According to the Employment Act 1955, the following notice periods must be observed when terminating an employee, depending on the length of their service:
- Employees with less than two years of service: Four weeks’ notice
- Employees with two to five years of service: Six weeks’ notice
- Employees with more than five years of service: Eight weeks’ notice
The reasons for terminating an employment relationship must be lawful and made in good faith. Unfair dismissal can lead to legal consequences, so there must be a justifiable reason and a reasonable explanation for the termination, including the following situations:
- Serious misconduct, such as theft, sexual harassment, and failure to follow safety protocols
- Negligence of duties
- Poor job performance
- Redundancy and business closure
- Breach of contract
- Termination at the end of the probation period
- Expiration of a fixed-term contract
- Mental illness
- Bankruptcy
- Criminal offenses
- Absence for more than two consecutive days without leave and/or without a reasonable excuse
Additionally, based on the employee’s length of service, severance pay must be provided in certain circumstances, with the amount depending on the duration of service. However, there are exceptions, such as in cases of employee misconduct, where severance pay may not be required.
Hiring Foreign Employees
One of the significant changes in the Employment Act 1955 is the new requirements for hiring foreign employees.
Currently, if employers in Malaysia wish to hire foreign employees, they must first obtain prior approval from the Director General of Labour (DGL) in Malaysia. This requirement applies to all non-Malaysian citizens and non-permanent residents who wish to work in the country and need to obtain a work permit.
The approval from the DGL must meet the following conditions:
- The employer has not been convicted of offenses related to human trafficking or forced labor
- The employer does not have unresolved violations under the Employment Act 1955
- The employer has no unresolved violations related to social security, minimum wage, or housing standards
After obtaining approval from the DGL, the employer can proceed with the following steps:
- Apply to the Ministry of Home Affairs for approval of foreign employee quotas
- Identify which positions are open to foreign candidates, as not all positions have vacancies. Typically, these positions require specific skills or expertise that are not available among local Malaysians, including executive or highly specialized roles
- Once the employer successfully finds a suitable candidate, submit the required documents to the Immigration Department
- The employer must submit a work permit application detailing why the foreign individual is the best fit for the role. The approval process generally takes about three months
Layoff Form (Form PK)
1. According to the Employment Retrenchment Notification 2004, all employers must submit the layoff form to the nearest Labor Department before taking any of the following actions:
- Layoffs
- Voluntary Separation Scheme (VSS)
- Temporary Dismissal
- Salary Reductions
2. Employers must submit Form PK to the nearest Labor Department at least 30 days before taking the above actions.
Notify the relevant authorities
According to Section 63 of the Employment Act 1955, any employer who fails to comply with the above regulations is guilty of an offense and will be fined up to RM10,000 for each violation.
Form PK must be submitted in stages. Parts I to IV must be submitted 30 days before the actual layoffs. Part V must be submitted within 14 days after the layoffs. Part VI must be submitted within 30 days after the implementation of the layoffs. If layoffs or a voluntary separation scheme is implemented, Parts V and VI must be submitted. Form PK is a notification form, not an approval application form. Therefore, employers do not need to obtain approval from the Labor Department before proceeding with layoffs.
Guidelines for Form PK: http://jtksm.mohr.gov.my/images/pdf/Borang/Pemberhentian_Pekerja/garis_panduan_pemberhentian_pekerja.pdf
About Layoff-Related Issues
Yes. The “Layoff Notice of 2004” (Form PK), enacted through the constitution on November 11, 2004, under number PU (B) 430/2004, stipulates that any employer who fails to comply with this requirement violates Section 63 of the Employment Act 1955. If convicted, each offense is punishable by a fine of up to RM10,000.
The payment of severance pay should follow the provisions of the service contract but must not be less than the rates specified in the Employment Act 1955 and the Employment (Termination and Retirement Benefits) Regulations 1980:
a) If the length of service is less than two years, entitlement is for 10 working days’ salary per year.
b) If the length of service is two years or more but less than five years, entitlement is for 15 working days’ salary per year.
c) If the length of service is five years or more, entitlement is for 20 working days’ salary per year,
and prorated for incomplete years to the nearest month. The formula specified in the Employment (Termination and Retirement Benefits) Regulations 1980 is as follows:
Employees are entitled to detailed information on the amount and calculation of severance pay. The severance benefits must be paid within 7 days from the termination of the employee’s service.
Employees eligible for temporary layoff or retrenchment are those who are paid on an hourly, daily, or piece-rate basis.
According to Section 6 of the Employment (Termination and Retirement Benefits) Regulations 1980:
- Employees with less than 2 years of service are entitled to 10 days’ wages for each year of continuous service
- Employees with 2 to less than 5 years of service are entitled to 15 days’ wages for each year of continuous service
- Employees with 5 or more years of service are entitled to 20 days’ wages for each year of continuous service
For those with less than one year of service, the benefit is calculated based on the nearest month’s ratio.
The following employees are not entitled to termination benefits:
- Employees who reach the retirement age specified in their service contract
- Employees dismissed by the employer for misconduct
- Employees who voluntarily resign
- Employees who must have served the company for more than 12 months.
- Employees with a salary exceeding RM4,000, as severance pay is governed by the direct employment agreement between the parties
- Additionally, employees with a salary above RM4,000 are not covered by the following provisions：
- Section 60(3): Overtime on rest days
- Section 60A(3): Overtime beyond normal working hours
- Section 60C(2A): Shift allowances
- Section 60D(3): Overtime and allowances on public holidays
- Section 60D(4): Payment for half-day holidays
- Section 60J: Severance pays
- Under Section 12 of the Employment Act 1955 regarding termination of contracts:
- Less than 2 years of service: Four weeks‘ notice
- 2 years or more but less than 5 years: Six weeks‘ notice
- More than 5 years: Eight weeks‘ notice
- Under Section 13, if either party fails to give sufficient notice, they must pay the other party a sum equivalent to the wages for the notice period days or the remaining days of the notice period
Constructive dismissal occurs when an employer’s actions or decisions force an employee to resign, as they have no other choice. For example, if an employer suddenly revokes allowances and benefits, or unjustly reduces salary or demotes the employee to harass or humiliate them, the employee is considered to have been forced to resign rather than being directly dismissed. In such cases, the employee can still file a claim with the Industrial Court
It is important to note that the employee must file the claim with the Industrial Court within 60 days of the dismissal. Claims made after 60 days will not be accepted
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