TERMINATION OF EMPLOYMENT AND

DISMISSALS
THE RIGHT TO TERMINATE
Related legislation
 In Malaysia, the employer-employee relationship is regulated principally by the
Employment Act 1955 (EA) and to some extent by the Industrial Relations Act
1967 (IRA). Both Acts perceive the employer-employee relationship as being
essentially contractual in nature. While the EA describes such relationship in
terms of “contract of service”, the IRA uses the term “contract of employment”.

How an employment contract may be terminated

 An employee’s contract of employment is terminated:
 when the contract period on a fixed-term contract expires;
 when he retires upon attaining the retirement age;
 when he resigns voluntarily from his job;
 when he resigns in protest against the breach of contract by the employer
(constructive dismissal);
THE RIGHT TO TERMINATE
How an employment contract may be terminated
 An employee’s contract of employment is terminated:
 on the initiative of his employer due to any of following situations –
 the employee is unable to perform the work for which he was employed
(frustration of contract);
 the employee’s job performance is not satisfactory;

 there is a breach of contract by the employee;

 the employee has abandoned his employment;

 there is redundancy (retrenchment);

 there is a closure or sale of the employer’s business;

 the employee is found guilty of misconduct (dismissal).

THE RIGHT TO TERMINATE
Security of tenure
 The Malaysian courts uphold the concept of security of tenure of employment,
whereby the simple invoking of a termination clause of a contract of
employment to terminate an employee’s services is not acceptable. Hence,
every termination, if challenged by an employee must be proven by the
employer to be with just cause or excuse.

 Thus the IRA provides a mechanism for an employee to challenge his dismissal
on the ground that it is without just cause or excuse. In most cases, the matter
is referred to the Industrial Court for it to decide whether the dismissal is with
just cause or excuse.
THE RIGHT TO TERMINATE
What amounts to just cause or excuse?
 The four accepted grounds for termination of an employee’s services are:
 Misconduct
 Poor performance
 Redundancy
 Closure or sale of business

 Note that it is employer who has the burden of proving that he had just cause
or excuse to terminate the employee’s service.
TERMINATION BY THE EFFLUXION OF TIME
Retirement
 In the Malaysian context, the retirement age, in general, is set at 55 years of age.

 Regulation 4(1)(a) of the Employment (Termination and Lay-Off Benefits)

Regulations 1980 states that an employee would not be entitled to termination
benefits if his contract of service is terminated “by the employer, upon the
employee attaining the age of retirement if the contract of service contains a
stipulation in that behalf”. Thus, where the contract has not stipulated an age
of retirement, it would appear that the employee can work regardless of age
and if he is terminated for reasons other than misconduct, he would be
entitled to be paid termination benefits or seek redress provided for wrongful
dismissal.
TERMINATION BY THE EFFLUXION OF TIME
Fixed-term contracts
 A fixed-term contract envisages a situation where the employee is employed for
a specific period or task. The duration of the contract is ascertained and agreed
upon at the outset and it inevitably relates to a specific task or project. It
terminates automatically when the time period specified expires or the project
for which the employee is specifically engaged is completed.
TERMINATION BY THE EFFLUXION OF TIME
Non-renewal of fixed-term contracts
 The effect of non-renewal of fixed-term contracts upon expiry of the agreed
period was examined in the case of Taylor College (MS Associates Sdn Bhd)
v. Mdm Yang Show Fooi & 2 Ors [1987] 1 ILR 37, Industrial Court Award No.
20/1987. The management argued that the three teachers were not dismissed
but their respective contracts of service expired by effluxion of time. The Court
found as a fact that the real reason for the non-renewal was a serve drop in the
number of students and that the college had retrenched the teachers and that
therefore the three claimants were not terminated due to effluxion of time.
This point had been considered in the earlier case of Association of Senior
Officers Assunta Hospital v. Assunta Hospital (Industrial Court Award No.
9/1980) where the Court had held that the claimants had been given an
expectation of renewal and that therefore the non-renewal was a dismissal.
TERMINATION BY THE EFFLUXION OF TIME
Non-renewal of fixed-term contracts
 These decisions fall in line with the principle extracted from the decision in
Bhattacharyya v. Secretary General of UN, UN Administrative Tribunal
[1971] 1 LLJ 588 where it was held:
 “... as a general rule fixed-term appointment does not carry the right of
renewal. Nevertheless the tribunal is competent to examine the
surrounding facts in which the letter of appointment was signed. The
tribunal has no consider the contract as a whole, not only by reference to
the letter of appointment but also in relation to the circumstances in which
the contract was concluded ...”
TERMINATION BY THE EFFLUXION OF TIME
Non-renewal of fixed-term contracts
Han Chiang High School v. National Union of Teachers in Independent Schools
[1988] 2 ILR 611
 In this landmark case on non-renewal of fixed-term contract, 35 teachers whose
two-years terms expired were not re-engaged. They subsequently claimed through
their newly formed union that the non-renewal was due to a drop in students. The
Industrial Court in its Award No. 306/1988 commented that in a framework of
statutes which guaranteed security of employment, it would be an obvious loophole
if any employer could evade the statutory protection by making a series of contracts
of finite duration with his workmen. This would, it said, make nonsense of the
whole purpose and intent of, and stultify, the Act as well as offend well-known
principles of interpretation of statutes. It then went on to examine the contracts
and concluded that the so-called fixed-term contract was in fact not done out of
genuine necessity but as a means of control and subjugation of the teaching
employees. It ordered the reinstatement of the teachers. The Award was upheld
both in the High Court and Supreme Court.
TERMINATION WITH NOTICE
Termination by contractual notice
 Either the employee or employer can terminate the contract of service by giving
the other the contractual notice provided for in the employment contract, or
pay salary in lieu thereof.

 Where an employer exercises his right to terminate the services of an employee

by contractual notice, i.e. termination simpliciter, there should be proper
cause or reason for the termination. In other words, the employer does not have
the liberty to terminate at its absolute discretion.
TERMINATION WITH NOTICE
Notice period
 Contracts of service or collective agreements normally specify the length of
notice of termination applicable to either party. If there is no such
specification, sec. 12(2) of the EA provides that the length of notice should be
as follows –
 Four weeks’ notice if the employee has worked for less than two years;
 Six weeks’ notice if the employee has worked for two years or more but less
than five years;
 Eight weeks’ notice if the employee has worked for five years or more.
TERMINATION WITH NOTICE
Notice period
 Note to employer: Where an employee has committed misconduct and the
employer prefers to give the employee concerned a contractual notice of
termination instead of proceeding with the domestic inquiry, the employer is
not protected against possible charges of victimisation as the employee has
been deprived of natural justice. Therefore, it is advisable that a domestic
inquiry be held in the case of misconduct rather than taking the easier way of
termination via contractual notice.
TERMINATION WITH NOTICE
Resignation
 An employee, after entering into a contract of employment with his employer,
has a legitimate right to resign for whatever reason by giving the employer the
contractual notice of termination of employment or paying indemnity in lieu
thereof. However, the exercise of such right should be voluntary. Resignation
obtained under duress, force, threat or coercion is no resignation at all in law.

 In Stanley Ng Peng Hon v. AAF Pte Ltd [1979] 1 MLJ 57, the plaintiff was
employed by the defendant company as manager of the defendant company’s
Singapore office. On the evening of 16 October 1975, the defendant company’s
manager for the Far East Region called the plaintiff in his office and said,
“Stanley, I have to ask you for your resignation.” He was given an envelope
containing money and a statement of the amount of money he was eligible to
receive up to that date.
TERMINATION WITH NOTICE
Resignation
 He asked for reasons but the Regional Manager refused to disclose any reason.
On the following day, i.e. 17 October 1975, Stanley wrote to the Regional
Manager stating that “following my resignation on 16 October ...” and went
onto claim monies still outstanding to him. However, he later filed a suit in the
Singapore High Court and claimed damages for wrongful dismissal. He
asserted that he never had any intention of resigning and the so-called
resignation was a dismissal forced upon him. Choor Singh J held: “It would be
quite erroneous on my part to hold that the plaintiff resigned on his own
volition. There was quite clearly pressure on him.” He then went on to say that a
resignation obtained under compulsion is no resignation in law. On the facts of
this case, the plaintiff was considered dismissed from his employment with the
defendant company. The plaintiff was awarded, inter alia, three months’ salary
in lieu of notice and one month’s bonus which he was entitled to receive.
TERMINATION WITH NOTICE
Frustration of contract
 The law of contract recognises the termination of a contract by way of
frustration. Employment contracts are no exception to this rule. An employer is
entitled to terminate the contract of service of an employee if he is unable to
perform the work for which he was employed.

 In Paal Wilcon & Co AS v. Partenreederai Hannah Blumenhal, The

Hannah Blumenhal [1983] 1 AC 854, the House of Lords reiterated that for
the doctrine of frustration to come into application, two essential factors must
be present –
 there must be some event capable of rendering performance of the
contract impossible or radically different from that which the parties
contemplated; and
 the event itself must occur without fault or default of either party.
TERMINATION WITH NOTICE
Frustration of contract
 In the context of employment contracts, there are four broad situations where
the contract can be deemed to have been frustrated –
 imprisonment
 war
 long term absence through illness or accident; and
 death.
TERMINATION WITH NOTICE
Termination of probationers
 Subject to any stipulation to the contrary in the contract of service or collective
agreement, a workman employed on probation continues as a probationer even
after the probationary period is over unless he is told of his confirmation or is
terminated.

 Where the services of a probationer are terminated upon the expiry of the
probationary period due to unsatisfactory performance of work or other
reason, the probationer has the right to file a representation for re-instatement
under sec. 20 of the IRA just like a permanent employee. But, he may face more
hurdles that the permanent employee in the quest for re-instatement. It had
been held that a probationer had no lien or right to his job and that the court
would not substitute the employer’s opinion on his standard of performance of
work with that of the court (Hotel Continental Sdn Bhd v. Tan Choon Hoe,
Industrial Court Award No. 23/1976).
TERMINATION WITH NOTICE
Termination of probationers
 However, in the case of Khalifah binti Abbas v. Pesaka Capital Corp Sdn
Bhd [1997] 3 CLJ 827, the Court of Appeal held that an employee on probation
enjoys the same rights as a permanent or confirmed employee and his services
cannot be terminated without just cause or excuse.

Termination during probationary period

 In general, an employee should not be terminated during the currency of his
probationary period since the probation period was after all fixed and
determined in advance by the employer and this should accordingly give the
probationer adequate opportunity for his performance to be assessed. The
probationer, of course, can be terminated during his probationary period for an
act of misconduct for which reason even the services of a confirmed employee
can be terminated (Sulnayah Mohd Isa v. Sekolah Kanak-Kanak Pekak
[1999] 6 CLJ 234).
RETRENCHMENT
What is retrenchment?
 Retrenchment arises from redundancy, which refers to a surplus of labour.
Employees will become redundant for a number of reasons such as:
 Re-organisation of the company’s structure for better efficiency.
 Closure of unprofitable product lines or sections.
 Out-sourcing part of the company’s business.
 Merger of two or more companies.
 Introduction of a new technology or process which reduces labour
requirement.
 Financial hardship of the company.
RETRENCHMENT
Management’s prerogative to reorganise the company
 The Industrial Court has handed down an abundance of awards involving
retrenchment. All its awards observe the principle that the reorganisation of
business is a function within the power and prerogative of the management
and no arbitrator should intervene with the bona fide exercise of that power.

Obligations of management under the Code of Conduct for Industrial

Harmony
 The Code, in the document on “Areas for co-operation and agreed industrial
relations practices” provided under Clause 7, stipulates the guidelines for
employers in the event of redundancy and retrenchment.
RETRENCHMENT
Obligations of management under the Code of Conduct for Industrial
Harmony
 Where redundancy is imminent, the Code recommends that the employer
should take steps to minimise reduction of workforce by adopting the
following measures –
 limitation on recruitment;
 restriction of overtime work;
 restriction in number of shifts or days worked in a week;
 reduction in the number of hours of work;
 re-training and/or transfer to other departments/work.
RETRENCHMENT
Obligations of management under the Code of Conduct for Industrial
Harmony
 The Code also recommends that prior consultation should be made with the
employees and the trade union before steps are taken to reduce the workforce,
i.e. if retrenchment becomes necessary, the employer should adopt the
following measures –
 provide early warnings to the workers concerned;
 implement schemes for voluntary separation and retirement including
payment of redundancy and retirement benefits;
 retire employees who are beyond their normal retirement age;
 spread termination of employment over a longer period;
 ensure that no announcement on retrenchment is made before the workers
and their representatives of trade union have been informed.
RETRENCHMENT
The LIFO principle
 The principle of LIFO (“Last in, First Out”) has become entrenched in carrying
out any retrenchment exercise. The Industrial Court allows for a departure
from this principle only where there are sound and valid reasons for the
departure. The rule to be applied in determining seniority has crystallised into
selecting the most junior from a pool of similar workmen within the whole
company to include areas to which the workman is contractually transferable.
The common pool could also spread to involve subsidiaries if the employees
could be contractually transferred to such subsidiaries. Where a company
departed from the principle of LIFO on the grounds that the more senior
employee was only one day more senior and since she was married (as against
the more junior unmarried lady), retrenchment would not affect her adversely,
the court disagreed that marriage or indeed any private or personal reason
could justify a departure from the principle of LIFO.
RETRENCHMENT
Notice of retrenchment
 Employees who are identified for retrenchment should be given notice of
retrenchment. The requisite notice period is as per the contract of employment
or collective agreement, if applicable. In the case of employees who come
within the purview of the Employment Act 1955 (as per sec. 2 and Sch. 1) the
minimum notice period must be as provided in sec. 12 of the Employment Act.
RETRENCHMENT
Obligation to pay retrenchment benefits
• In respect of employees falling within the ambit of the Employment Act 1955
(EA), the minimum benefit payable is as follows:
Length of service Amount of termination benefits

 less than 2 years 10 days’ wages for every year of service

 2 years or more but less than 5 years 15 days’ wages for every year of service

 5 years or more 20 days’ wages for every year of service

Note: in respect of an incomplete year of service, the amount payable is pro-

rated, calculated to the nearest month.
If no retrenchment or severance benefit is prescribed in the terms and
conditions of service of an employee who is not covered by the EA, there is no
obligation to pay any retrenchment benefit and the payment of such benefits
as well as the quantum of such benefits are purely at the discretion of the
employer.
RETRENCHMENT
Consequences of unjustified retrenchment
 Once a retrenchment issue is before the Industrial Court, the relevant
questions for consideration are:
 Did a redundancy situation arise leading to retrenchment? In other words,
did the company make a reasonable decision concerning the necessity of
retrenchment at that particular time or in view of the particular
commercial or industrial condition?
 If there was a redundancy situation, was the consequential retrenchment
executed in compliance with the principle of “Last In First Out” (LIFO)?

 Where the retrenchment is found to be unfair or without justification, the

Court will in most cases order the employer to reinstate the affected employees;
or if reinstatement is not possible, to pay compensation to the employees in
lieu of reinstatement.
DISMISSALS
Summary dismissal
 This is one form of termination that is swift and overrides the consideration of
due notice or payment of salary in lieu thereof. Summary dismissal is restricted
by legislation, in particular sec. 20 of the IRA which imposes the “just cause or
excuse” burden on the employer.

 The most common ground for invoking a summary dismissal would be on the
basis of an act of misconduct committed by the employee. The question then
arises as to whether the misconduct committed was in connection to the
performance of the employee’s duties. An important consideration would be
whether the act of misconduct would affect his work and the image and
reputation of the employer. An employee who is summarily dismissed because
of misconduct stands to lose all benefits (other than the wages earned by him
up to the date of dismissal) which he is otherwise entitled to.
DISMISSALS
Termination simpliciter versus dismissal
 It may be noted that in the context of the IRA, only the word “dismissal” is
used. But for the EA, only the word “termination” is used.

 There has been much argument in the courts as to whether a workman is

eligible to the remedies available for dismissals if he is terminated by
contractual notice. In the case of Goon Kwee Phoy v. J&P Coats (M) Bhd
[1981] 2 MLJ 129, the employer contended that the Industrial Court had failed
to distinguish between dismissal and termination when in its Award No.
66/1979 it said:

 “We do not see any material difference between a termination of the

contract by due notice and unilateral dismissal of a summary nature. The
effect is the same and the result must be the same.
DISMISSALS
Termination simpliciter versus dismissal
 The Federal Court upheld the Award and held:
 “it is the duty of the court to determine whether the termination or the
dismissal is without just cause or excuse. The duty of the court will be to
enquire whether the excuse or reason given by the employer has or has not
been made out. If it finds as a fact that it has not been proved, then the
inevitable conclusion must be that the termination or dismissal was
without just cause or excuse.”
 The above decision in fact followed the Federal Court decision in Dr A Dutt v.
Assunta Hospital [1981] 1 MLJ 304, where it was held that:
 “...that the so called termination simpliciter, i.e. a termination by
contractual notice and for no reason, if ungrounded on any just cause or
excuse would still be a dismissal without just cause or excuse and on the
workman’s representation, the Industrial Court may award reinstatement
or compensation in lieu of reinstatement.”
DISMISSALS
Constructive dismissal
 The issue of constructive dismissal was exhaustively discussed in the case of
Cathay Organisation v. Wong Chee Hong. This case was finally decided in
the Supreme Court ([1988] 1 MLJ 92).

 Mr Wong, the personnel manager of the company was transferred without loss
of pay or service to a nearby theatre as a theatre manager. The company
contended that the transfer would be an invaluable exchange of experience
between the head office and the cinema. Mr Wong refused to accept the
transfer as it amounted to a demotion and was a clear repudiation of his
contract of employment by the employer. He therefore, considered himself as
having been constructively dismissed. He then sought reinstatement as a
personnel manager. The Industrial Court in its Award No. 26/1986 ordered
backwages and compensation in lieu of reinstatement.
DISMISSALS
Constructive dismissal
 The Supreme Court eventually upheld Mr Wong’s contention that he was
“constructively dismissed”, the then Lord President Tun Salleh Abbas saying: “...
no man worthy of minimum self-respect would accept a transfer with demotion
in work, stripped of all power”.

 The common law position of constructive dismissal is stated in The Law of

Redundancy by Cyril Grunfeld (2nd Edition) as follows:
 “The repudiation of the contract of employment by the employer may
involve breach of express term of a contract or of an implied term. For
example, it may take the form of a unilateral reduction of wages or status,
or of both wages and status, or of ordering the employee to work at another
work place without the contractual power to transfer him or of instructing
the employee to undertake a different work from that which he was
engaged to do.
DISMISSALS
Constructive dismissal
 The common law position of constructive dismissal is stated in The Law of
Redundancy by Cyril Grunfeld (2nd Edition) as follows:
 Such attempted unilateral variation will at common law be a repudiation of
the contract of employment which if accepted by the employee constitutes
dismissal by the employer.”
DISMISSALS
Conditions for claims of constructive dismissal
 The workman has the burden of proving that he has been constructively
dismissed and must notify his employer of his stand that he considers himself
constructively dismissed before resigning and lodging a representation seeking
reinstatement (Southern Bank Bhd v. Ng Keng Lian & Anor [2002] 2 CLJ
514).

 The employee has no establish the following four conditions on the balance of
probabilities to sustain a claim of constructive dismissal (Projek Lebuhraya
Utara Selatan Bhd v. Mohd Syukri Ngah [2001] 2 ILR 10; Secure Guards
Sdn Bhd v. Her Bhajan Kaur [1996] 2 ILR 1342):
 The company by its conduct had breached a term or terms (express or
implied) of the contract.
 The breach is a fundamental one going to the root or foundation of the
contract.
DISMISSALS
Conditions for claims of constructive dismissal
 The employee has no establish the following four conditions on the balance of
probabilities to sustain a claim of constructive dismissal (Projek Lebuhraya
Utara Selatan Bhd v. Mohd Syukri Ngah [2001] 2 ILR 10; Secure Guards
Sdn Bhd v. Her Bhajan Kaur [1996] 2 ILR 1342):
 The employee has terminated the contract by reason of the company’s
conduct and the conduct is sufficiently serious to entitle the employee to
leave at once.
 The employee did not delay in terminating the contract following the
breach. If the employee continues for any length of time without leaving,
he will be regarded as having elected to affirm the contract and will lose his
right to treat himself as having been discharged.
REMEDIES FOR WRONGFUL DISMISSAL
Redressals
 A workman or an employee, including a probationer, who feels that he has
been wrongfully dismissed or his contract of employment has been unjustly
terminated may resort to one of the following avenues, where appropriate, to
seek redress:
 Labour Court
 Industrial Court
 Civil Courts
REMEDIES FOR WRONGFUL DISMISSAL
Labour Court
 The Labour Court’s power to inquire into dismissals is limited to a dismissal
pursuant to sec. 14(1)(a) EA, i.e. dismissal for misconduct (see 2.1.9). However,
according to the limitation imposed by sec. 69A of the Act, the Director
General of Labour is not empowered to hear any dispute concerning the
termination of an employee which –
 is pending in any inquiry or proceedings under the Industrial Relations Act
1967 (IRA);
 has been referred to or is pending in any proceedings before the Industrial
Court.
REMEDIES FOR WRONGFUL DISMISSAL
Labour Court
 The Labour Court has no power to order reinstatement of the employee to his
former position. It only has jurisdiction to order payments such as indemnity
in lieu of notice, wages and termination benefits that the employee is entitled
to receive as if no misconduct had been committed by him.

 It is pertinent also to note that the Labour Court has no jurisdiction to hear any
such case (inquire into the decision of the employer) if the employee
concerned fails to lodge his complaint within 60 days from the date on which
the decision under sec. 14 is communicated to him either orally or in writing by
his employer.

 The decisions of a Labour Court are not final and are subject to appeals in the
High Court.
REMEDIES FOR WRONGFUL DISMISSAL
Industrial Court
 The Industrial Court offers a better recourse for employees who have been
wrongfully dismissed. Generally, the monetary award available under the
Industrial Court is far greater than what an employee would receive if he is
successful in a suit for wrongful dismissal at the Labour Court or the Civil
Courts as he stands to receive backwages from the date of dismissal to the last
date of hearing and be reinstated. Should reinstatement not be possible or
suitable, compensation in lieu of reinstatement will be ordered. Such
compensation could amount to one month’s salary for every completed year of
service. Furthermore, should he fail to sustain his claim in the Industrial Court,
he need not pay costs to the employer.
REMEDIES FOR WRONGFUL DISMISSAL
Civil Courts
 The right to seek damages under the contract in common law still exists but is
seldom resorted to partly because of the alternative avenues available and
partly because of the time and costs involved in litigating a claim through this
avenue. However, it is useful for those who are not covered by the EA or IRA
(e.g. public sector employees), or those who have not acted within the
prescribed time limit of 60 days, or those who wish to enforce the terms of the
contract, e.g. for liquidated damages.

 It should be noted that where an award has been made by the Industrial Court,
the award shall operate as a bar to any action for damages by the workman in
any court in respect of wrongful dismissal (sec. 20(4), IRA).
REMEDIES FOR WRONGFUL DISMISSAL
Civil Courts
Case example: Fung Keong Rubber Manufacturing (M) Sdn Bhd v. Lee
Eng Kiat & Ors [1981] 1 MLJ 238

The Federal Court in this case held that:

 “In the case of a claim for wrongful dismissal, a workman may bring an action
for damages at common law. This is the usual remedy for breach of contract,
e.g. summary dismissal where the workman has not committed misconduct.
The rewards, however, are rather meagre because in practice the damages are
limited to the pay which would have been earned by the workman had the
proper period of notice been given. He may even get less than the wages for the
period of notice if it can be proved that he could obtain similar job
immediately or during the notice period with some other employer. He cannot
sue for wounded feelings or loss of reputation caused by a summary dismissal,
where for instance he was dismissed on a groundless charge of dishonesty.
REMEDIES FOR WRONGFUL DISMISSAL
Civil Courts
Case example: Fung Keong Rubber Manufacturing (M) Sdn Bhd v. Lee
Eng Kiat & Ors [1981] 1 MLJ 238

The Federal Court in this case held that:

 “At common law it is not possible for a wrongfully dismissed workman to
obtain an order for reinstatement because the common law knew only one
remedy, viz., an award of damages.”

 Notwithstanding the above case, there have been cases involving public
servants where the courts ordered reinstatement with backwages as remedy for
wrongful dismissal.
The End