OUTLINE
Notice period in Malaysia
Termination of employment in Malaysia
Post-termination restraints in Malaysia
Employment waivers in Malaysia
Transfer of undertakings in Malaysia
Mitigate risk with CXC’s end-to-end employment solutions
Dismissal of an employee in Malaysia
Navigating the dismissal of an employee in Malaysia requires a clear grasp of the country’s employment laws and proper procedural safeguards. Whether you are dealing with performance issues, restructuring, or misconduct, understanding the right steps can help protect your business from potential legal challenges.
When it comes to how to dismiss an employee legally in Malaysia, employers must ensure they follow due process. This typically involves issuing a show cause letter, conducting a domestic inquiry if needed, and providing the employee with a fair chance to respond. Any failure to observe these steps could lead to claims of wrongful dismissal of an employee in Malaysia, which may result in compensation or reinstatement orders by the Industrial Court.
The employee dismissal procedure in Malaysia varies depending on the employment type, reason for termination, and terms of the employment contract. For example, in cases involving redundancy or business transfers, employers should provide written notice and consider any applicable severance entitlements.
Even in cases of permanent employee dismissal in Malaysia, the employer must observe statutory obligations such as notice periods under the Employment Act 1955, or payment in lieu of notice. Employees on probation are subject to similar requirements, although some flexibility is permitted.
It is also important to understand post-termination issues, including restraint of trade clauses and mutual separation agreements. While employment waivers may apply to contractual rights, statutory rights cannot be waived, and employees are entitled to protections even after their employment ends.
To reduce risk, employers are encouraged to document every stage of the termination process, ensure transparency, and seek legal advice where necessary. Taking a fair and compliant approach not only upholds legal standards but also supports a respectful and professional workplace culture.
Notice period in Malaysia
Managing notice periods is a crucial part of the employee exit process in Malaysia. Both employers and employees need to understand their rights and obligations regarding notice periods, as outlined in the Employment Act 1955 and other related regulations. Clear communication and proper adherence to legal requirements help ensure smooth transitions and avoid disputes.
Resignation notice period in Malaysia
When an employee decides to resign, they are required to provide a resignation notice period in Malaysia. The length of this notice period depends on the employee’s length of service:
- 4 weeks’ notice if the employee has been employed for less than 2 years.
- 6 weeks’ notice if the employee has been employed for 2 years but less than 5 years.
- 8 weeks’ notice if the employee has been employed for 5 years or more.
Employers can also agree on a shorter or longer notice period, but the minimums set out by the Employment Act must still be adhered to. In cases where either party wishes to end the employment relationship immediately, they may opt to pay in lieu of notice, which is a common alternative.
Termination notice period in Malaysia
In cases where an employer wishes to terminate the employment of an employee, they are also required to adhere to the notice period employment rules in Malaysia. The notice period for termination by the employer follows the same timeline as resignation, based on the employee’s length of service.
If the employer terminates an employee immediately without notice, they must provide payment in lieu of the notice period. Employers should ensure that they follow legal processes, as wrongful dismissal could lead to disputes or claims of unfair treatment.
Probation notice period in Malaysia
For employees within their probation period, the probation resignation notice period in Malaysia may differ slightly. The standard probation period ranges from 1 to 3 months. During this time, either the employee or employer can terminate the contract with a shorter notice period, typically one week. However, employees within probation still retain their basic rights under the Employment Act.
It is important to note that the law does not differentiate entitlements between employees in probation and those who are confirmed unless stated in the employment contract.
Severance pay in Malaysia
Under the notice period regulations in Malaysia, employees who are dismissed without notice or whose contract ends under certain conditions may be entitled to severance pay. The severance pay is calculated based on the length of service:
- For employees with less than two years of service: 10 days of severance pay per year of service.
- For employees who have worked between two and five years: 15 days of severance pay per year of service.
- For employees with five or more years of service: 20 days of severance pay per year of service.
Employers should ensure these payments are made in accordance with the Employment Act to avoid any claims for wrongful dismissal. Factors like taking unpaid leave during their notice period in Malaysia may also affect severance pay.
Termination of employment in Malaysia
Letting go of an employee is never easy, but when handled correctly, it can be a fair and professional process for all involved. In Malaysia, the termination of employment is guided by clear legal frameworks that aim to protect both employers and employees. Following the right procedures is key to ensuring compliance with local regulations and minimising the risk of disputes.
Termination of employment policies in Malaysia
The termination of employment in Malaysia is primarily governed by the Employment Act 1955 and relevant industrial relations laws. Employers must provide valid grounds for dismissal, whether for poor performance, misconduct, redundancy, or business closure.
According to Malaysia’s Employment Act, procedures require written notice, which must correspond to the terms of the employee’s contract or statutory notice periods if unspecified. Alternatively, payment in lieu of notice is permitted. For certain categories of workers, such as pregnant employees, there are added protections. Terminating a pregnant employee is only allowed under specific conditions, such as breach of contract, proven misconduct, or if the company is ceasing operations.
Employers must also notify the Director General of Labour in writing regarding the termination, as part of compliance with employment termination and layoff benefits regulations in Malaysia.
Compensation for terminated employees in Malaysia
When a dismissal occurs, employers in Malaysia may be required to provide compensation for termination of employment. The amount depends on the employee’s length of service and the reason for termination.
For redundancies or company closures, the statutory severance payments are:
- 10 days’ wages per year of service for employees with less than 2 years of service.
- 15 days’ wages per year of service for those employed between 2 and 5 years.
- 20 days’ wages per year of service for employees with 5 years or more.
These payments apply unless more favourable terms are outlined in the termination clause in the employment contract in Malaysia.
Best practices when terminating employment contracts in Malaysia
To ensure smooth offboarding, employers should follow best practices alongside legal compliance. Having a clear and documented termination of employment policy in Malaysia is vital. This helps ensure consistency and transparency across the organisation.
Key steps include:
- Conducting internal investigations if dismissal is for misconduct.
- Keeping detailed records of employee performance and any disciplinary action.
- Providing fair warning and opportunities for improvement where appropriate.
- Offering support through notice periods and managing the exit professionally.
While the process can be challenging, following the proper legal route ensures that the employer’s actions remain defensible and respectful of the employee’s rights.
Post-termination restraints in Malaysia
Employers often want to protect their business interests when an employee leaves the company, especially if that employee had access to sensitive information or key client relationships. In Malaysia, while it is common to include post-termination restraints in contracts, the legal enforceability of such clauses is limited and depends on how they are framed.
Restraint of trade contract in Malaysia
Under Section 28 of Malaysia’s Contracts Act 1950, any agreement that restrains a person from exercising a lawful profession, trade, or business is void. This means that restraint of trade contract law in Malaysia generally does not recognise non-compete clauses. Even if a former employee agreed to such a restriction, the courts are unlikely to enforce it unless very specific exceptions apply.
That said, this does not mean employers have no recourse at all. While a broad non-compete clause may not hold up in court, other post-termination terms, especially those protecting confidential information, can still be valid.
Non-solicitation of clients’ clause in Malaysia
Unlike non-competes, restraint of trade clauses in employment contracts in Malaysia that aim to prevent ex-employees from soliciting the company’s clients are enforceable in limited circumstances. These clauses are only valid where the former employee has misused confidential information or trade secrets. The courts look closely at whether there has been a breach of trust or confidentiality rather than a simple attempt to win over former clients.
To improve enforceability, such clauses should be precise, time-bound, and directly tied to the protection of sensitive business data.
Non-solicitation of employees’ clause in Malaysia
Similarly, non-solicitation clauses that restrict former employees from poaching team members are enforceable only where there has been a misuse of confidential information. A blanket restriction without any evidence of breach or misconduct is unlikely to stand in court.
To protect against internal disruption, employers should include clear terms around confidentiality and internal recruitment in their contracts and exit processes.
Employment waivers in Malaysia
Employment waivers can be a useful tool in managing exits or restructuring processes, but in Malaysia, their enforceability depends greatly on the type of rights being waived and the circumstances under which the waiver is signed. Employers should approach such agreements with clarity and legal precision to ensure compliance with local labour laws.
Enforceable employment waivers in Malaysia
Employment waivers are generally only enforceable when they relate to contractual, not statutory, rights. Employees cannot legally waive rights that are protected under the Employment Act 1955, even if compensation is offered in return.
These statutory rights include:
- Minimum notice periods
- Overtime entitlements.
- Paid annual leave.
- Rest days and public holidays.
Attempts to waive these protections, even within mutual agreements, are typically considered invalid by Malaysian courts.
On the other hand, waivers involving contractual rights may be enforceable if they are entered into voluntarily and supported by valid consideration. This could include waiving entitlement to discretionary bonuses or additional leave not covered by law, in exchange for compensation or another benefit.
Such waivers are most commonly used in mutual separation agreements, where the employer and employee agree to specific termination terms. These agreements should always be carefully drafted to distinguish between statutory and contractual rights and ensure that employees are not pressured into signing away their legal entitlements.
Employers should also note that a waiver signed by an employee agreeing not to pursue claims of unfair dismissal or wrongful termination is not enforceable in Malaysia.
Malaysia’s visa waiver programme
For foreign professionals working in Malaysia, immigration compliance is another area of concern. While not directly related to employment waivers, employers should be aware of the visa waiver programme in Malaysia, which allow nationals from certain countries to enter Malaysia for short stays without a visa. However, such waivers do not permit employment. Any foreign national intending to work in Malaysia must obtain a valid work pass or employment visa in accordance with immigration law.
To ensure lawful hiring, always confirm that employees entering under visa-free travel arrangements are not undertaking work unless appropriately authorised.
Transfer of undertakings in Malaysia
Business transfers, mergers, and acquisitions can be complex enough on their own, add people into the mix, and there is an even greater need for clarity. In Malaysia, transferring a business does not automatically transfer its people. Employers planning a change in business ownership need to understand the proper processes to ensure both compliance and employee confidence.
Malaysia’s merger controls
While Malaysia does not have a single, overarching merger control regime, transactions involving mergers and acquisitions may be subject to sector-specific regulations (such as in telecommunications or banking) and must comply with competition principles laid out in the Malaysian Competition Act 2010. From an employment perspective, there is no provision for automatic transfer of employment when a business is sold.
In practice, a transfer of undertakings involves the seller terminating the affected employees and the buyer offering them new contracts. This rehiring process ensures continuity of employment, provided that the new terms are not less favourable than those offered by the previous employer.
If the buyer’s offer meets this condition and an employee unreasonably refuses the offer, they may lose entitlement to statutory severance payments. Conversely, if no reasonable offer is made, the responsibility for severance may fall back on the seller.
Employee rights in Malaysia during transfer of undertakings
When it comes to employee rights in Malaysia, employers must tread carefully. The Employment Act 1955 protects employee rights in the workplace, and the act of terminating staff in a transfer scenario should not be confused with a dismissal due to misconduct or poor performance.
It is also important to note that a change in ownership does not void existing entitlements, such as earned leave, benefits, or claims under the previous employer, unless expressly stated and mutually agreed upon. Open communication, legal due diligence, and mutual agreements are key to protecting both employee and employer rights in Malaysia throughout a transfer of undertaking.
Mitigate risk with CXC’s end-to-end employment solutions
There are various ways an employment contract can come to an end, but regardless of the reason, it is important to follow Malaysian labour laws to avoid potential legal risks.
Our solutions help ensure your business remains compliant and protected when the employment relationship ends, whether it is due to resignation, dismissal, or restructuring. We also support you in exploring opportunities to retain or reassign talent where possible, reducing disruption to your workforce.
Speak to our team to learn how our Employer of Record (EoR) solution can simplify offboarding and protect your organisation at every stage of the employee lifecycle.
Compliantly hire employees anywhere with CXC
With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.
DISCLAIMER: The information contained on this website is provided for general informational purposes only and should not be construed as legal, tax, or other professional advice on any subject matter. While we endeavor to ensure that the content is accurate and up to date, we make no warranties or representations of any kind regarding the completeness, accuracy, reliability, suitability, or availability of the information contained herein. The content on this site is not intended to be a substitute for professional advice. Users should not act or refrain from acting based on any information on this website without seeking the appropriate legal, tax, or other professional advice tailored to their specific circumstances from qualified professionals. We expressly disclaim all liability in respect to actions taken or not taken based on any or all of the contents of this website. Use of the information on this site does not create an attorney-client, tax advisor-client, or any other professional-client relationship between the user and the website or its authors.
Australia/New Zealand Head Office
Asia Head Office
EMEA Head Office
North America Head Office
Latin America Head Office
Level 3, 99 Walker Street
North Sydney, NSW 2060 Australia
