Sources of regulation
The central pieces of legislation governing the termination of employment
in Malaysia are the Employment Act, 1955 (as amended) (EA), the Industrial
Relations Act, 1967 (as amended) (IRA), and the Employment (Termination and
Lay-Off Benefits) Regulations, 1980 (as amended). In addition, the common
law, as developed by Industrial and Appeal Courts, is an important source
of law. Collective agreements and individual contracts of service may also
be additional sources of regulation.
Scope of legislation
The EA applies to all employees, irrespective of their occupation, who are
paid less than a specified rate (First Schedule, EA, as amended by the EA
Amendment Act, 1980). In 1955, the EA’s scope of application was limited
to the West Malaysia. In 2000, it was extended to the Federal Territory of
Labuan (sec. 1, EA).
The IRA applies to all “workmen” and defines “workman” widely, to include
any person employed by an employer under a contract of employment, including
apprentices (sec. 2, IRA).
The Employment (Termination and Lay-off Benefits) Regulations apply to all
employees with at least one year of service, except outworkers (secs.
3 and 7 of the Regulations).
Contracts of employment
The EA defines the contract of employment as “contract of service, which
means any agreement, whether oral or in writing, whereby one person agrees
to employ another as an employee and that other agrees to serve his/her employer
as an employee and includes an apprenticeship contract” (sec. 2(1), EA).
In each written contract of employment, a clause must be included setting
out the manner in which such a contract may be terminated by either party
(sec. 10(2), EA).
Fixed-term contracts are permitted in Malaysia,
and must be in writing, if concluded for a period
exceeding one month (sec. 10 (1), EA). In addition, the courts have been in charge
of examining the non-renewal of contracts to ascertain if the reasons for
non-renewal are genuine, in order to prevent employers from circumventing
the applicable statutory protections.[1]
In relation to probationary employees, case law has established that an
employee continues as a probationer even after the expiry of the probation
period, until the appointment is confirmed.[2] A termination within the probation period
will not be set aside, unless the probationer can show the employer acted
with malice.[3]
Termination of employment
Subject to the limitations discussed above, fixed-term contracts will terminate
on the expiry of the term (sec. 11, EA).
Contracts of employment may also terminate through the employee giving notice
(sec. 12, EA). Employees may terminate the contract without notice
if they are ill-treated or exposed to a risk of disease or injury that they
did not contract to undertake (sec. 14(3), EA). The Malaysian courts
also recognize the concept of constructive dismissal and will treat a resignation
as a dismissal if the resignation is involuntary or under threat of dismissal.[4]
Retirements are not considered dismissals for the purposes of statutory
redundancy benefits (sec. 4(1)(a), Employment Termination and Lay-Off
Regulations, 1980).
Dismissal
Each party to a contract of employment may at any time terminate such employment
by giving notice to the other party (sec. 12(1), EA).
While the relevant statutes do not set out a detailed prohibition against
unfair dismissal, the courts have used the existence of the statutory remedy
of reinstatement to develop a principle against dismissals, unless they are
based on a “just cause”.
Dismissals are possible for operational reasons, provided the requisite
notice periods are complied with (sec. 12(3), EA, as amended). The
courts have refused to interfere with the employer’s prerogative to retrench
workers, provided the retrenchment decision is bona fide and not taken to
victimize the employee.[5]
If an employee is absent for more than two consecutive working days, without
leave or reasonable excuse, then his or her employment may be terminated
(sec. 15, EA, as amended).
The courts have required employers to operate the “last on, first off” principle
when retrenching employees, unless there are sound and valid reasons for
departing from this principle.[6] In addition, for retrenchments, there
is statutory severance pay which must be paid (see below).
Dismissals on the grounds of misconduct are possible without notice, but
only after “due inquiry” by the employer (sec. 14, EA).
Pursuant to the IRA, it is unlawful to dismiss an employee for trade union
membership or activities (sec. 5(1)(d), IRA).
Notice and prior procedural safeguards
Statutory notice periods, applicable to all dismissals, including those
for operational reasons, but except dismissals for misconduct, are as follows
(sec. 12(2), EA, as amended):
- four
weeks for employees with less than two years of service;
- six
weeks for employees with two to five years of service; and
- eight
weeks for employees with more than five years of service.
These provisions are merely statutory minima, and it is open to employers
and employees to agree on greater periods of notice, which must be determined
in writing in the contract of employment.
Either employers or employees may make a payment in lieu of notice (sec.
13, EA, as amended).
In case of misconduct, employees are entitled to receive due inquiry before
being dismissed. However, the courts have held that any defect in an internal
inquiry held by the employer can be “cured” by the court, provided there
is a substantial reason for the dismissal.[7]
Domestic workers are governed by separate provisions of the EA (sec.
57, EA): domestic workers can be dismissed on 14 days’ notice, or payment
in lieu of notice, or without notice in the event of conduct “inconsistent
with” the terms and conditions of their employment contract.
Severance pay
The Employment (Termination and Lay-Off Benefits) Regulations, 1980, provide
for statutory severance pay in the event of terminations for operational
reasons or performance, on the following scale (sec. 6(1)):
- ten
days’ wages for each completed year of service of less than two years;
- 15
days’ wages for each year of two to five years’ service; and
- 20
days’ wages for each year of service exceeding five years.
These Regulations apply to employees with more than one year’s service (sec.
3(1)) and, again, set out statutory minima only, which the parties
are free to increase by agreement. They do not apply to:
- dismissals
for misconduct, after due inquiry;
- terminations
upon the employee attaining retirement age; or
- voluntary
terminations by the employee (sec. 4).
Avenues for redress
An employee covered by the IRA may complain to the Industrial Relations
Department and seek reinstatement if his or her dismissal is not for a “just
cause” (sec. 20(1), IRA, as amended). The Industrial Relations Department
then may attempt to settle the dispute, including by conciliation. If no
settlement is possible, the Department will report the matter to the Minister,
who may refer the matter to the Industrial Court. The Industrial Court may
award either reinstatement or compensation (including one month’s wages for
every year of service). In practice, the Court has not often awarded reinstatement
and has stated it will not order reinstatement if this would not be in the
interests of industrial peace in the establishment. There is a limited right
of reference to the High Court for questions of law which arise during proceedings
in the Industrial Court, if the Industrial Court elects to refer the question.
The decision of the High Court on any question of law so referred is final
and binding.
Alternatively, an employee can proceed in the civil courts in an action
for wrongful dismissal.
Employees may also seek unpaid wages or notice payments in the Labour Court,
and retain the right to bring proceedings, such as for breach of contract
or wrongful dismissal, in the civil courts.
Further information
[1] For example, Taylors
College v. Yang Show Fooi and others, Award 20/87,
and Han Chiang High School v. National Union of Teachers
in Independent Schools, Award 306/88.
[2] K.C. Matthews v. Guthries (1981) 2 MLJ 320; Express
Newspaper Ltd. v. Labour Court & Anor (1964) AIR SC 806.
[3] Hotel Continental v. National Union of Hotel, Bar & Restaurant Workers, Award 23/76.
[4] Stanley Ng Peng Hon v. AAF
Pte. Ltd. (1979) 1 MLJ 57.
[5] Trebor v. Tamil
Selvam Gopal, Award 36/87.
[6] East Asiatic v. Ong
Wai Beng, Award 24/87.
[7] Dreamland Corporation v. Choong
Chin Sooi & Another, Supreme Court Civil Appeal No. 385 of 1987.
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