Termination of employment is one of the most sensitive tasks for any employer. Whether due to poor performance, misconduct, or redundancy, handling termination correctly is crucial to avoid legal disputes and protect your company’s reputation.
This guide explains what Malaysian employers must know about lawful termination, notice periods, and employee rights under the Employment Act 1955.
What Is Termination of Employment?
Termination of employment occurs when the working relationship between an employer and employee officially ends.
This may happen through:
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Resignation — the employee voluntarily leaves.
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Retirement — the employee ends service after reaching the agreed retirement age.
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Contract expiry — for fixed-term employment contracts.
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Dismissal or termination by employer — due to misconduct, redundancy, or performance issues.
When termination is employer-initiated, the process must strictly comply with Malaysia’s labour laws to ensure fairness and legality.
Legal Grounds for Termination in Malaysia
An employer can terminate an employee’s contract under these lawful grounds:
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Misconduct
Examples include theft, fraud, insubordination, or breach of company policy.
⚠️ Employers must conduct a proper domestic inquiry before dismissal. -
Poor Performance
The employer must provide warnings, performance reviews, and opportunities for improvement before taking termination action. -
Redundancy or Retrenchment
This occurs when the job position is no longer required due to business restructuring, financial difficulties, or automation.
Employers must follow “Last In, First Out (LIFO)” principles unless justified otherwise. -
Mutual Agreement
Both parties agree to end the contract on specific terms.
Notice Period for Termination
Under the Employment Act 1955, Section 12(2), the minimum notice periods are:
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Employment < 2 years → 4 weeks’ notice
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Employment 2–5 years → 6 weeks’ notice
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Employment > 5 years → 8 weeks’ notice
👉 However, the employment contract may specify a different notice period. Employers may also pay salary in lieu of notice instead of requiring the employee to serve the full notice.
Termination Without Notice
An employer may dismiss an employee without notice only under Section 14(1)(a) of the Employment Act — for serious misconduct, after conducting a domestic inquiry.
Examples of serious misconduct include:
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Theft or fraud
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Fighting or physical assault at work
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Intentional damage to company property
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Breach of confidentiality
If termination happens without valid reason or due process, the employee may lodge a complaint with the Industrial Relations Department (Jabatan Perhubungan Perusahaan) and seek reinstatement.
Employer’s Obligations After Termination
After termination, employers must:
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Settle final salary — including unpaid wages, overtime, or unclaimed leave.
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Pay salary in lieu of notice, if applicable.
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Issue EA Form for tax purposes.
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Submit CP22A form to LHDN (for tax clearance).
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Update EPF, SOCSO, and EIS contributions until the employee’s final working day.
📌 Tip: Always document all termination communications, including warning letters, inquiry records, and final settlement details.
Best Practices for Handling Termination Professionally
- Document everything
Keep clear records of performance reviews, warnings, and meetings. - Follow due process
Always hold a domestic inquiry before dismissal for misconduct cases. - Communicate with empathy
Handle termination meetings respectfully and privately. - Ensure timely final payment
Pay all dues promptly to maintain professionalism and prevent disputes. - Use a reliable HR system
Managing terminations manually can lead to payroll errors and missing documentation.
How Pandahrms Helps Employers Manage Termination Smoothly
With Pandahrms, employers can simplify the entire termination process:
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Track employee service records and notice periods automatically
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Auto-calculate final salary, unused leave, and statutory deductions
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Generate CP22A and EA forms easily
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Maintain transparent, well-documented termination records
By using an integrated HRMS like Pandahrms, you reduce human error, maintain compliance with the Employment Act, and ensure fair and accurate payroll processing during employee exits.
Key Takeaway
Termination of employment in Malaysia must always be handled fairly, lawfully, and professionally.
Whether the reason is misconduct, redundancy, or performance issues — employers must ensure due process and compliance with the Employment Act 1955.
By combining proper HR practices with digital tools like Pandahrms, your company can manage employee exits with confidence, consistency, and full legal compliance.
