Employee Termination Process in Malaysia

The process of terminating an employee depends on whether they are on probation or have been confirmed in their role. Proper procedures must be followed to ensure compliance with Malaysian labor laws, specifically the Employment Act 1955 and Industrial Relations Act 1967 to avoid wrongful dismissal claims.

1. Terminating an Employee on Probation

Employees on probation do not have automatic job security, but termination must still be fair and justified. The process includes:

Step 1: Performance Evaluation

• Assess the employee’s performance, conduct, and suitability for the role.
• Provide feedback and, if necessary, issue a performance improvement notice.

Step 2: Notice Period

• The employment contract typically specifies the notice period (e.g., 1 week or 1 month).
• If no notice period is stated, the employer should provide reasonable notice or compensation in lieu of notice.

Step 3: Termination Letter

• Issue a termination letter stating the reason for termination and last working day.
• No elaborate justification is needed, but it must not be arbitrary or discriminatory.

Step 4: Final Salary & Benefits Settlement

• Pay outstanding salary, unused leave entitlement, and any other dues.
• Ensure all company property is returned.

Step 5: Exit Process

• Conduct an exit interview (optional) and ensure a smooth handover.

Note: While probationers have fewer rights than confirmed employees, they can still challenge an unfair dismissal under Malaysian labor laws.

2. Terminating a Confirmed Employee

For confirmed employees, termination must follow due process to avoid wrongful dismissal claims. The key steps are:

Step 1: Justifiable Reason for Termination

Termination must be based on valid reasons, such as:

• Performance Issues – Poor performance despite warnings.
• Misconduct – Theft, fraud, harassment, insubordination.
• Redundancy – Business downsizing or restructuring.
• Breach of Contract – Violating employment terms.

Step 2: Disciplinary Action & Warning (If Applicable)

• For performance issues, issue a performance improvement plan (PIP).
• For misconduct, conduct a domestic inquiry (a formal investigation) before termination.

Step 3: Notice Period

• Follow the contractual notice period (typically 1–3 months).
• If immediate termination is required, pay salary in lieu of notice.

Step 4: Issuing the Termination Letter

• Clearly state the reason for termination, the last working day, and final salary details.
• Provide details on EPF, SOCSO, EIS, PCB, and other employment benefits.

Step 5: Final Settlement & Clearance

• Settle all wages, allowances, unused leave, and other entitlements.
• Ensure the return of company assets (laptop, access cards, etc.).

Step 6: Notify Authorities (If Required)

• For large-scale retrenchments, notify PERKESO (SOCSO) and other authorities.
• Issue Form EA for tax clearance (if applicable).

Step 7: Exit Interview & Handover

• Conduct an exit interview (optional).
• Ensure a proper handover of tasks and responsibilities.

Key Considerations for Both Cases

What a Letter of Termination Should Include:

A termination letter should be clear, professional, and legally compliant. Key elements include:

1. Date of the Letter – The date when the letter is issued.
2. Employee’s Details – Full name, job title, and department.
3. Employer’s Details – Company name and authorized representative’s details.
4. Subject Line – Clearly stating it is a termination letter.
5. Termination Effective Date – The last working day of the employee.
6. Reason for Termination – A concise explanation of why the employment is ending.
7. Final Compensation & Benefits – Details of final salary, severance (if applicable), unused leave pay, and benefits cessation.
8. Return of Company Property – Instructions for returning company assets like laptops, keys, ID cards, etc.
9. Legal or Contractual References – Mention of relevant clauses in the employment contract, if applicable.
10. Next Steps – Any final HR procedures, exit interviews, or clearance processes.
11. Closing Statement – A polite closing, offering best wishes or stating any support, if applicable.
12. Signature – Signature of the employer or HR representative.

Possible Reasons for Termination:

1. Performance Issues – Consistently failing to meet job expectations.
2. Misconduct – Violating company policies, such as fraud, harassment, or unethical behavior.
3. Redundancy/Layoffs – Company restructuring, downsizing, or financial constraints.
4. Breach of Contract – Violating terms in the employment agreement.
5. Insubordination – Refusing to follow reasonable work instructions.
6. Excessive Absenteeism – Frequent unexcused absences affecting business operations.
7. Workplace Conflict – Irreconcilable differences that disrupt productivity.
8. Business Closure – Company shutting down or ceasing operations.
9. End of Contract – Completion of a fixed-term contract.
10. Legal or Regulatory Violations – Engaging in activities that expose the company to legal risks.