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Employee termination is often one of an employer's most challenging responsibilities. Understanding legal steps and procedures is vital to uphold fair employment practices, and to avoid claims of wrongful dismissal, damage to company reputation, or even costly legal proceedings at the Industrial Court.
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Before taking any action, the employer must determine whether there are legitimate, lawful grounds for termination. Under Malaysian employment law, valid reasons may include:
Under the Employment Act 1955, these reasons must be genuine and justifiable. Termination without cause or excuse could be construed as unfair dismissal, giving the employee the right to seek redress under the Industrial Relations Act 1967.
When employee misconduct or performance issues arise, the employer must conduct a discreet preliminary investigation. This involves gathering evidence, reviewing records, speaking to relevant witnesses, and documenting the findings. The purpose is to confirm whether there is a basis for concern before proceeding with formal disciplinary action.
Investigations should be conducted professionally and fairly, maintaining confidentiality to avoid unnecessary workplace disruption.
If the preliminary findings support further action, the next step is to issue a Show Cause Letter. This letter outlines the alleged wrongdoing and invites the employee to provide a written explanation within a specified timeframe (typically 24–72 hours).
The Show Cause Letter serves as a crucial procedural safeguard—it gives the employee a chance to be heard and ensures that disciplinary action is not taken prematurely.
Upon receiving the employee’s explanation, the employer must evaluate the employee's reply objectively. If the reason is satisfactory and credible, disciplinary action may be dropped or downgraded (e.g. verbal warning). However, further steps are warranted if the response is evasive, incomplete, or inconsistent with evidence.
A poor reply may justify escalation to a formal domestic inquiry process.
If the employee’s explanation is unsatisfactory, a letter of charge should be issued. This formal document outlines the specific misconduct or performance issues and informs the employee that a Domestic Inquiry (DI) will be conducted to determine the truth of the allegations.
The Letter of Charge must be specific, stating the date, nature of the offence, and expected DI schedule.
To ensure a fair and unbiased inquiry process, the employer may suspend the employee with pay pending the outcome of the domestic inquiry. Suspension helps avoid interference with witnesses or tampering with evidence.
Suspension is not a punishment but a protective measure for both parties and should be communicated.
To conduct a Domestic Inquiry is a formal internal hearing chaired by a neutral panel. The employee must be allowed to:
The panel will review all materials, question both parties, and produce a written report on whether the allegations are proven.
Although the Code of Conduct for Industrial Harmony 1975 is not legally binding, Industrial Courts frequently refer to it as best practice. Failure to conduct a fair inquiry may render a dismissal procedurally unfair even if the misconduct is proven.
After receiving the DI findings, management must decide whether to:
The decision must be reasonable, proportionate to the nature of the misconduct, poor performance, redundancy, or breach of contract, and firmly supported by the DI findings.
If dismissal is decided, a formal Termination Letter must be issued. This letter should state:
Clear documentation of the reasons for dismissal, whether due to misconduct, poor performance, redundancy or breach of contract, is critical at this stage to protect the employer from legal challenges.
Once the employee has been terminated, the company must complete all final settlements, including:
The Employees Provident Fund Act 1991 and the Employees Social Security Act 1969 require employers to ensure that all contributions are settled.
Even after termination, employers should be prepared for potential follow-ups, such as:
If the case proceeds to the Industrial Court, the employer must provide comprehensive documentation to defend the decision.
| Law | What It Covers |
|---|---|
| Employment Act 1955 | Minimum termination notice, misconduct procedure, and payment in lieu of notice. |
| Industrial Relations Act 1967 | Unfair dismissal claims, conciliation, and Industrial Court procedures. |
| Code of Conduct for Industrial Harmony (1975) | Guidelines for domestic inquiries and discipline (not binding but persuasive). |
| Trade Unions Act 1959 | Protection from union-related dismissals. |
| Companies Act 2016 | Employer obligations in restructuring or winding up. |
| EPF and SOCSO Acts | Post-termination contributions and settlements. |
Note: Separate ordinances apply in Sabah and Sarawak, similar to Peninsular Malaysia’s provisions.
Termination is never easy, but by following the correct legal procedures and ethical guidelines, employers in Malaysia can safeguard their organisations while treating employees with dignity and fairness.
Remember, a transparent and well-documented process is your best defence against disputes or legal claims. Consider consulting a lawyer specialising in employment and industrial relations in any complex case.