Termination of Employment Contract in Malaysia

Termination of Employment Contract in Malaysia: What You Need to Know

The termination of an employment contract can be a difficult process for both the employer and the employee. In Malaysia, there are laws and regulations in place to govern the termination of an employment contract to ensure that the process is fair and just for both parties. In this article, we will discuss the key points you need to know about the termination of employment contract in Malaysia.

Types of Termination

In Malaysia, there are two types of termination: termination with notice and termination without notice. Termination with notice is when either the employer or the employee gives notice to the other party that they intend to terminate the employment contract. The notice period is usually stipulated in the employment contract or in the Employment Act 1955. Termination without notice is when either party terminates the contract without giving the other party any notice.

Termination with Notice

If an employer wishes to terminate an employee’s contract with notice, they must give the employee a minimum of:

– Four weeks’ notice if the employee has been employed for less than two years

– Six weeks’ notice if the employee has been employed for two years or more but less than five years

– Eight weeks’ notice if the employee has been employed for five years or more

If an employee wishes to terminate their contract with notice, they must give their employer the same notice period as stipulated in their employment contract.

Termination without Notice

Termination without notice can occur if either the employer or the employee breaches the terms and conditions of the employment contract. This could include, but is not limited to, the employee being absent from work without justification, the employee being found guilty of misconduct, or the employer not paying the employee’s salary.

The party that breaches the contract will be liable to pay compensation to the other party. The amount of compensation will be determined by the Industrial Court or the civil court, depending on the nature of the contractual breach.

Retrenchment

Retrenchment is a form of termination where an employer needs to reduce their workforce due to economic reasons. Retrenchment is only applicable if the employer can prove that they are facing financial difficulties and that retrenchment is necessary to prevent the closure of the business.

If an employer wishes to retrench an employee, they must follow a specific process. The employer must provide the employee with a written notice, stating the reasons for the retrenchment and the number of employees to be retrenched. The employer must also consult with the affected employees and their trade union (if applicable) before making any decision.

Severance Payment

When an employer terminates an employee’s contract without notice, they must pay the employee a severance payment. The amount of the severance payment is determined by the length of the employee’s service and the terms of their employment contract.

Conclusion

Termination of an employment contract can be a stressful and challenging process for both employers and employees. It is essential to follow the correct procedures and comply with the laws and regulations in Malaysia to ensure a fair and just outcome for all parties involved. By understanding the types of termination, the process of retrenchment, and the requirements for severance payments, you can be better prepared to navigate the termination of an employment contract in Malaysia.