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Navigating Termination and Severance: Understanding Employment Laws in Malaysia


Termination of employment is a critical aspect of the employer-employee relationship in Malaysia, prompting concerns among employees regarding the legality of terminations, notice periods, and severance pay. This article seeks to comprehensively explore the key facets of termination and severance under Malaysian employment laws.


Termination of Employment

In Malaysia, the termination of employment can occur for various reasons, each governed by distinct considerations. Employers reserve the right to terminate employees for poor performance, such as consistent underperformance. For instance, if an employee consistently fails to meet performance targets despite adequate support and feedback, termination may be considered. However, it is crucial for employers to maintain proper documentation of performance issues and follow due process to ensure fairness.

Instances of serious misconduct, such as theft, fraud, or workplace harassment, may lead to immediate termination. For example, if an employee engages in embezzlement or creates a hostile work environment through harassment, employers have the right to terminate employment swiftly. Redundancy, arising from changes in business needs, is another valid reason for termination. If a company undergoes restructuring, resulting in certain roles becoming obsolete, employers may need to terminate employees in those roles.

Fixed-term contracts naturally conclude upon completion unless renewed. For instance, if a project-based contract comes to an end, the employment relationship terminates unless both parties agree to renew the contract.

Notice Periods

Notice periods constitute a crucial element of the termination process, serving to ensure a fair and lawful transition. Employment contracts or the Employment Act 1955 prescribe the required notice period for termination, with variations based on the nature of employment and length of service. For example, a managerial position may have a longer notice period compared to an entry-level role. Employers may opt to pay employees in lieu of notice instead of requiring them to work during the notice period. This is a common practice, especially when immediate termination is necessary or when employees are on probation.

Probationary periods typically feature shorter notice periods. During this initial period, both employers and employees have the flexibility to assess the suitability of the employment relationship. Shorter notice periods allow for a more agile adjustment in case the employment relationship is not mutually beneficial.


Severance Pay

Severance pay in Malaysia primarily arises in cases of retrenchment or redundancy. Employers are obligated to provide retrenchment benefits to eligible employees, with calculations based on years of service. For example, an employee who has been with the company for a longer duration may receive a more substantial severance package. However, employees who voluntarily resign are not entitled to severance pay. If an employee decides to resign voluntarily, they are typically not eligible for financial compensation beyond what is stipulated in their employment contract.

Retirement benefits, if provided, are typically outlined in the employment contract or collective agreement. These benefits may include a pension fund, gratuity, or other forms of post-employment financial support. Employers need to clearly communicate retirement benefits to employees, and the terms should be transparently documented in employment agreements.


Legal Compliance

Legal compliance is imperative during the termination process. Employers must ensure that terminations are not unjustly deemed unfair under the Employment Act, particularly avoiding discriminatory or retaliatory dismissals. For instance, terminating an employee based on their gender, race, religion, or in retaliation for filing a complaint would be considered unfair dismissal. Proper documentation of the reasons for termination is crucial for legal compliance. Maintaining a comprehensive record of performance issues, misconduct, or redundancy reasons helps protect employers in case of legal challenges.

In the event of disputes related to termination, resolution avenues include referral to the Industrial Court or mediation services offered by the Department of Industrial Relations. These mechanisms provide a structured approach to resolving disputes outside the court system, promoting efficiency and fairness.



In conclusion, a comprehensive understanding of the legality surrounding terminations, notice periods, and severance pay is essential for both employers and employees in Malaysia. Employers are tasked with adhering to legal requirements during the termination process, emphasizing fairness and transparency. Simultaneously, employees should be vigilant regarding their rights and entitlements. By fostering a termination process conducted with fairness and transparency, both employers and employees contribute to a more equitable employment landscape in Malaysia.





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