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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.

Read about EoR services

FAQ's

How does termination of employment work in Malaysia?

Termination of employment in Malaysia can happen through resignation, dismissal, redundancy, mutual separation or the expiry of a fixed-term contract. Employers also need a valid reason when they dismiss an employee.

For employees in Peninsular Malaysia and Labuan, the Employment Act 1955 sets rules on notice, payment instead of notice, misconduct and final wages. The Industrial Relations Act 1967 is also important because an employee who believes they were dismissed without just cause or excuse can challenge the dismissal. A claim under Section 20 must generally be filed within 60 days. The steps the employer takes should match the reason for termination. Poor performance, misconduct and redundancy should not all be handled in the same way.

Redundancies have an additional requirement. Employers must submit Borang PK to the Labour Department at least 30 days before a retrenchment, voluntary separation scheme, lay-off or pay cut. Sabah and Sarawak have their own labour ordinances, so employers should check the rules that apply to the employee’s work location. Both labour ordinances were substantially amended with effect from 1 May 2025.

What statutory notice periods apply when ending employment in Malaysia?

If an employment contract does not state a written notice period, the statutory notice period in Malaysia is four weeks for less than two years of service, six weeks for two to less than five years, and eight weeks for five years or more.

The notice period written into the employment contract generally applies where one has been agreed, and the same notice period should apply to both the employer and employee.

Either side can also end employment without working the notice period by making payment in lieu of notice, equal to the wages that would have been earned during that period.

There is an important rule for redundancy and certain business closures or changes. In these cases, the employer cannot use a contractual notice period that is shorter than the statutory four, six or eight weeks based on the employee’s length of service.

Notice should be given in writing, and the day it is given counts towards the notice period.

When are termination or lay-off benefits required in Malaysia?

Eligible employees who have completed at least 12 months of continuous service may receive statutory termination or lay-off benefits when their employment ends in circumstances covered by Malaysia’s Employment (Termination and Lay-Off Benefits) Regulations 1980. These statutory benefits do not generally apply to employees earning more than RM4,000 per month unless they fall within a category that remains covered under the First Schedule to the Employment Act, such as certain manual workers. More favourable contractual or collective-agreement benefits can still apply.

The statutory minimum severance pay in Malaysia is:

Less than 2 years’ service: 10 days’ wages for each year.

2 to less than 5 years: 15 days’ wages for each year.

5 years or more: 20 days’ wages for each year.

Part-years are calculated proportionately to the nearest completed month. The employer must also give the employee a written breakdown showing the amount and how it was calculated.

These benefits are not payable in every termination. The Regulations contain exceptions, including certain misconduct dismissals, voluntary resignation and situations where employment is immediately renewed on terms that are no less favourable. They can also be unavailable where the employer makes a qualifying offer of renewal or re-engagement at least seven days before termination and the employee unreasonably refuses it.

Where statutory termination benefits are payable, they must be paid within seven days after employment ends.

What fair procedure must employers follow before terminating employment in Malaysia?

Employers should tell the employee why termination is being considered, give them a fair opportunity to respond and keep evidence supporting the final decision. The exact steps will vary based on whether the issue is misconduct, poor performance or redundancy.

For misconduct, Section 14 of the Employment Act allows an employer to dismiss without notice after due inquiry. In practice, this may involve investigating the allegation, explaining it to the employee and giving them an opportunity to respond before a decision is made. Depending on the circumstances, the employer may suspend the employee from work for up to two weeks during the inquiry but must pay at least half the employee’s wages during that period. If the inquiry does not establish misconduct, the withheld wages must be restored.

Poor performance needs a different approach. Employers should be able to show what was expected, where the employee fell short and that they were given a reasonable opportunity to improve. Malaysian Industrial Court decisions have placed importance on warnings and opportunities to improve when assessing performance dismissals.

For redundancy, the employer should be able to show that the role is genuinely redundant and follow the required notification process, including submitting Borang PK at least 30 days beforehand. The employer should also use fair and objective selection criteria and comply with any applicable contractual, collective-agreement or industrial-relations requirements.

What final payments must employers make when employment ends in Malaysia?

Final pay in Malaysia can include outstanding salary, payment for unused statutory annual leave, payment in lieu of notice where applicable, and any termination benefits or other contractual amounts owed to the employee.

For a normal end of contract in Malaysia, including expiry of a fixed-term contract or termination by notice, outstanding wages must generally be paid no later than the employee’s final day. If the employer ends employment immediately and pays instead of notice, the outstanding wages and notice payment are also due by the termination date. If the employee terminates the contract without notice under Section 13 or leaves without notice in circumstances covered by Section 14(3), wages earned up to the day immediately before termination must generally be paid within three days after employment ends.

Unused statutory annual leave must generally be paid at the employee’s ordinary rate when employment ends, although the Employment Act has an exception for dismissal for misconduct under Section 14(1)(a).

Where statutory termination benefits apply, those can be paid within seven days after termination and must come with a written calculation. Payroll should also check any unpaid allowances, commissions or other amounts due under the employee’s contract before closing the employee’s final pay.

How do fixed-term contracts end in Malaysia?

A fixed-term contract in Malaysia normally ends automatically on the agreed expiry date or when the specific work covered by the contract is completed. The contract should clearly state the duration or work involved and explain how either side can end the employment earlier. Under the Employment Act, a fixed-term contract lasting more than one month must be in writing.

Employers should be careful when repeatedly renewing fixed-term contracts for a role that continues year after year. Malaysian courts look beyond the contract label when deciding whether employment is genuinely temporary, including the nature of the work and how the contracts have been renewed. If the arrangement is effectively permanent, allowing the latest contract to expire may still amount to a dismissal that requires just cause or excuse.

An expiring fixed-term contract also does not mean HR can simply close the employee record without checking final entitlements. Outstanding salary and unused statutory annual leave may still need to be paid, and termination benefits can apply in some cases after at least 12 months of continuous service. Immediate renewal on terms that are no less favourable is one of the situations where statutory termination benefits are not payable. The same may apply where a qualifying offer of renewal or re-engagement is made at least seven days before expiry and the employee unreasonably refuses it.

What is just cause and excuse in Malaysian dismissal law?

It means an employer needs a valid and supportable reason for dismissing an employee in Malaysia, rather than relying only on a contractual right to give notice.

Examples can include serious misconduct, continued poor performance after the employee has had an opportunity to improve, or a genuine redundancy. What the employer needs to show will be different for each situation.

This is an important part of Malaysian dismissal law because an employee who believes they were dismissed without just cause or excuse can make a representation under Section 20 of the Industrial Relations Act 1967. The claim must generally be filed within 60 days of dismissal and can be submitted through the Industrial Relations Department’s IRIS system. A representation may also be filed during a notice period, but no later than 60 days after the notice expires.

The Department first uses conciliation to try to resolve the dispute. If no settlement is reached, the case is referred by the Director General of Industrial Relations to the Industrial Court.

This protection also applies to probationary employees. A shorter contractual notice period does not by itself give an employer the right to dismiss a probationer without a valid reason. However, the remedies available to a probationer can differ from those available to a confirmed employee.

What post-employment restrictions can employers use in Malaysia?

Employers in Malaysia can continue to protect confidential information after an employee leaves, but post-employment non-compete clauses are generally void under Section 28 of the Contracts Act 1950.

This is an important difference from countries where a carefully limited non-compete can be enforceable. In Malaysia, simply making a restriction shorter or limiting it to a particular geographic area does not automatically make an employee non-compete valid.

Employers can instead focus employment contracts on protections that do not prevent a former employee from working altogether. Confidentiality clauses can protect trade secrets, business information, pricing, client information and other confidential material after employment ends.

These clauses should identify the information being protected with sufficient clarity and should not attempt to treat an employee’s general knowledge, skill and experience as confidential information.

Employers should be more cautious with non-solicitation and similar restrictions because their enforceability can be affected by Section 28 if they effectively restrain the former employee from carrying on their profession, trade or business.

For HR teams, the practical approach is to protect specific confidential information rather than rely on a broad clause preventing an employee from joining a competitor.

How do employers manage end-of-employment compliance in Malaysia?

Employers should manage the end of employment in Malaysia by first identifying why the employee is leaving, then applying the notice, procedure, final-pay and reporting requirements for that type of exit.

For a resignation, HR should check the contractual notice period and outstanding pay and leave. For misconduct or poor performance, the file should include the evidence, warnings or investigation records that support the decision. A fixed-term expiry requires a check of the contract end date and final entitlements.

Redundancy needs additional planning. Borang PK must be submitted to Malaysia’s Department of Labour at least 30 days before retrenchment, a voluntary separation scheme, lay-off or pay cut. Parts of the form also require follow-up submissions after the action is taken. The relevant post-action sections generally need to be submitted within 14 or 30 days, depending on the information being reported.

Before the employee leaves, payroll should calculate outstanding salary, unused annual leave, notice pay and any applicable termination benefits. Statutory termination benefits have their own seven-day payment deadline.

Foreign employees may also require immigration and work-pass cancellation or other exit steps, so HR should include these in the offboarding timetable. The employer should also complete any required tax-clearance process and withhold payments where Malaysian tax law requires it before releasing the final balance.

How does CXC reduce legal risks associated with employee terminations in Malaysia?

CXC helps businesses manage employee terminations in Malaysia by checking the local requirements, coordinating the termination process and making sure final pay and employment documentation are handled correctly for employees engaged through our service.

The support can include reviewing notice requirements, calculating outstanding salary and unused leave, checking whether termination benefits apply and preparing the employment documents needed when the employee leaves. For redundancy situations, local requirements such as the Borang PK notification also need to be considered.

CXC can also help coordinate the different steps involved when a foreign employee leaves, including employment and immigration-related administration where applicable.

With more than 30 years of workforce management experience, CXC supports international businesses managing employees across multiple markets while providing local support for Malaysian employment requirements.

Speak to our team to learn more about managing employee terminations in Malaysia with CXC.

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