Making the Final Decision to Dismiss an Employee After Breach of Contract

If You’re an Employer Managing an Employee Breach

If you’re an employer dealing with an employee who has breached their employment contract, you’re likely facing tough questions about whether you can lawfully dismiss the employee without legal consequences. Will this lead to a claim of unfair dismissal? And how do you protect your company while upholding your responsibilities?

It’s understandable to feel uncertain as termination is never simple. But once your company has gone through the required steps, including a domestic inquiry, you’ll reach a critical point: the final decision.

When a Breach of Contract Disrupts Your Operations

Breaches of contract in the workplace can take many forms, such as an employee sharing confidential information, refusing to comply with job obligations, or repeatedly ignoring contractual duties despite prior warnings.

This could mean disrupted operations, broken client trust, or financial loss for your business. After conducting investigations and giving the employee a chance to respond, you may find yourself with evidence that the breach occurred.

This is when management must decide whether dismissal is appropriate, and more importantly, whether it can be legally justified.

What Malaysian Law Says About Termination for Breach

Several key laws govern termination for breach in Malaysia:

• Employment Act 1955
  • Covers valid reasons for termination, including breach of contract, and outlines procedures such as notice periods and payment in lieu of notice.
• Industrial Relations Act 1967
  • Protects employees from unfair dismissal. Employers must prove they had “just cause or excuse” for termination — failure to do so could result in reinstatement orders or compensation.
• Code of Conduct for Industrial Harmony 1975
  • It is not legally binding but is used by industrial courts to assess whether a fair process was followed, especially in domestic inquiries (DI) cases.

If your termination decision is challenged, the courts will examine what happened and how you made that decision.

How You Can Take Action With Legal Support

To protect your company, your decision must be:

• Fair: Based on facts from a properly conducted Domestic Inquiry.
• Proportionate: The punishment should match the severity of the breach.
• Well-documented: With clear evidence, records, and internal communication.

With legal support, you can:

• Review your investigation and DI procedures
• Draft termination letters that meet legal standards
• Handle any appeals, conciliations, or claims that may follow

Getting advice from a lawyer experienced in employment law helps you move forward confidently and avoid missteps that could cost you later.

Step-by-Step: Making the Final Decision to Terminate

Once the Domestic Inquiry is complete and the panel has submitted its findings, it’s time for management to act. Here’s how to proceed:

1. Review the Domestic Inquiry (DI) Report Thoroughly

Go through the DI findings objectively. Did the panel conclude that the breach was proven? Was the process fair and properly recorded?

You must ensure the report supports the decision you’re about to make.

2. Evaluate All Options

Dismissal is not the only outcome. Consider alternatives if appropriate:

• Final written warning
• Demotion or transfer
• Reinstatement (if breach not proven)

However, dismissal may be justified if the serious breach damages trust or operations.

3. Ensure the Punishment Fits the Breach

Industrial Courts look closely at whether the employer’s response was proportional. For example, termination is more defensible if the breach caused financial loss, exposed confidential data, or broke company policy with intent.

However, courts may favour a warning or lighter disciplinary action for lesser breaches.

4. Document the Reasoning Internally

Before issuing a termination letter, ensure you:

• Record the management’s reasoning in writing
• Keep minutes of any internal meetings or discussions
• Compile supporting documents (show cause letters, DI transcripts, employee response, etc.)

This documentation will become crucial if the employee challenges the dismissal.

5. Draft and Deliver the Termination Letter

The termination letter should be clear, professional, and legally sound. It must include:

• The reason for termination (i.e., breach of contract, as confirmed by the DI)
• The effective date of termination
• Final salary and entitlements (leave, EPF, SOCSO)
• Appeal process or point of contact (if applicable)

Deliver it in person or via registered mail to ensure receipt.

Proceed with Confidence, Not Risk

If you’re about to decide on an employee’s breach, it’s crucial to act carefully, not reactively. Every step, from inquiry to termination, must withstand legal scrutiny.

Don’t leave your business vulnerable to claims of unfair dismissal. If you need help reviewing your case or drafting a termination letter, contact an employment law professional to ensure your next step is both fair and lawful.

FAQ

1. Can I terminate an employee immediately after a breach of contract is discovered?

Not immediately. You must first conduct a proper investigation, issue a show cause letter, and if necessary, hold a domestic inquiry. Termination without following due process can be challenged as unfair dismissal.

2. Is a Domestic Inquiry (DI) mandatory before termination?

While not legally required in all cases, a Domestic Inquiry is strongly recommended, especially for misconduct or contract breaches. It demonstrates that you acted reasonably and allows the employee to respond.

3. What if the employee’s response to the show cause letter is unsatisfactory?

Suppose the reply is evasive, inconsistent, or does not address the allegations. In that case, you can proceed to issue a letter of charge and conduct a Domestic Inquiry to determine the facts before deciding on termination.

4. What should I consider before making the final termination decision?

You must review the DI findings, assess if the breach justifies dismissal, consider alternative actions (if any), and ensure that the decision is fair, proportional, and well-documented.

5. What laws govern employee termination for breach in Malaysia?

Key laws include:

• Employment Act 1955, for termination procedures and notice.
• Industrial Relations Act 1967, for unfair dismissal claims.
• Code of Conduct for Industrial Harmony, as a best practice reference.

6. Can I suspend the employee while conducting an inquiry?

Yes. You may suspend the employee with pay to ensure a fair process and prevent interference with witnesses or evidence. Suspension is administrative, not disciplinary.

7. What must be included in a termination letter?

The termination letter should clearly state:

• The reason for dismissal
• The effective date
• Final salary and benefits to be paid
• Any available appeal process or contact person

8. What happens if the employee files a complaint for unfair dismissal?

They can lodge a claim under Section 20 of the Industrial Relations Act 1967 within 60 days of termination. The matter may be referred to conciliation or, if unresolved, to the Industrial Court.

9. Is documentation important if I decide to dismiss the employee?

Absolutely. Proper records — from show cause letters to inquiry findings and meeting minutes — are essential to defend your decision if challenged legally.

10. Can I terminate for poor performance if it breaches the contract?

Yes, but only if you have provided:

• Clear performance standards
• Documented reviews and warnings
• A fair chance to improve
  Termination without these steps may be seen as unfair.