Employment Act 1955

In Malaysia, the primary legislation governing employment matters is the Employment Act 1955. This act sets out the rights and obligations of employers and employees in various aspects of employment, including terms and conditions of employment, wages, working hours, rest days, holidays, termination of employment, and other related matters.

The Employment Act 1955 applies to most employees, with some exceptions for certain categories of workers, such as independent contractor, and domestic servants. It provides a framework for regulating employment relationships and ensuring fair treatment of employees in the workplace

The Employment Contract: A Blueprint for Workplace Relations

An employment contract serves as a blueprint for the employment relationship, setting forth terms and conditions agreed upon by the employer and the employee. While not always required by law, a written employment contract provides clarity and protection for both parties. However, according to the act, if there is no employment contract, it will be deemed governed by the act.

Here’s what it typically includes:

1. Job Details: This section outlines the employee’s position, duties, and responsibilities within the organization.
2. Salary and Benefits: The contract specifies the employee’s salary, benefits, bonuses, and any other compensation agreed upon.
3. Working Hours: It defines the employee’s working hours, including regular hours, overtime, and any applicable rest periods.
4. Leave Entitlements: The contract outlines the employee’s entitlement to annual leave, sick leave, public holidays, and other types of leave.
5. Termination Clause: This crucial section details the conditions under which either party can terminate the employment relationship, including notice periods and grounds for termination.
6. Confidentiality and Non-compete Clauses: These clauses protect the employer’s confidential information and prevent employees from engaging in competing activities during and after employment.
7. Dispute Resolution Mechanisms: The contract may include procedures for resolving disputes between the employer and the employee, such as mediation or arbitration.

Termination of Employment: Rights and Procedures

In Malaysia, the termination of employment is governed by both statutory provisions and the terms of the employment contract. Employers must adhere to fair and lawful procedures when terminating employees. Here’s an overview of the termination process:

1. Notice Period: Unless otherwise specified in the employment contract, employers are required to provide notice or payment in lieu of notice to terminate an employee’s services. The length of the notice period depends on various factors, including the employee’s length of service.
2. Grounds for Termination: Employers can terminate employees on grounds such as misconduct, poor performance, redundancy, or retrenchment. However, termination must be justified and based on valid reasons supported by evidence.
3. Dismissal Procedures: Employers must follow fair procedures when dismissing employees, including conducting investigations, providing opportunities for the employee to be heard, and issuing warnings or counseling where appropriate.
4. Retrenchment and Redundancy: In cases of retrenchment or redundancy, employers must comply with specific legal requirements, such as consulting with affected employees and providing reasonable compensation.
5. Payment of Final Dues: Upon termination, employers are required to settle any outstanding wages, benefits, or entitlements owed to the employee, including accrued leave and gratuity payments.

Termination with Just Cause and Excuse

One fundamental principle enshrined within this act is that of termination with just cause and excuse.

What Does “Just Cause and Excuse” Mean?

Simply put, “just cause and excuse” implies that an employer must have valid and lawful reasons, supported by evidence, for terminating an employee’s services. This principle ensures that termination decisions are fair, reasonable, and not arbitrary.

Examples of Just Cause and Excuse

Valid reasons for termination under the Employment Act 1955 may include:

1. Misconduct: Instances of serious misconduct, such as theft, dishonesty, insubordination, or harassment, may justify termination.
2. Poor Performance: Persistent failure to meet job expectations despite warnings and opportunities for improvement can be grounds for termination.
3. Redundancy or Restructuring: Economic reasons, organizational restructuring, or technological advancements may necessitate downsizing or retrenchment, leading to termination.
4. Breach of Contract: Violation of terms and conditions outlined in the employment contract, such as confidentiality agreements or non-compete clauses, may warrant termination.

Ensuring Due Process

Termination with just cause and excuse also requires adherence to fair procedures. Employers must provide employees with an opportunity to be heard, conduct thorough investigations, and issue warnings or corrective actions where appropriate before resorting to termination.

Restrain of Trade

Section 28 of the Malaysian Contract Act 1950 addresses the restraint of trade clause in contracts. Essentially, this section renders any agreement that restrains a person from exercising a lawful profession, trade, or business void to the extent that it’s considered to be restraining trade.

This means that any clause in a contract that seeks to prevent a person from engaging in a lawful profession, trade, or business will not be enforceable under Malaysian law. The rationale behind this provision is to safeguard the freedom of individuals to pursue their livelihoods without undue restrictions.

For instance, if an employee signs a contract with a non-compete clause preventing them from working for a competitor for a certain period after leaving the company, the clause would be unenforceable if it excessively restricts the employee’s ability to find alternative employment.

However, there are exceptions to this rule. Restraints that are reasonable and necessary for the protection of a legitimate interest, such as trade secrets or goodwill of a business, may still be enforceable. The key is that such restraints must not go beyond what is reasonably necessary to protect the legitimate interest.

In conclusion, employment contracts and termination procedures play a crucial role in shaping the employment relationship in Malaysia. By understanding the terms of the employment contract and adhering to fair and lawful termination procedures, employers can foster positive workplace relations and mitigate the risk of disputes or legal challenges. Effective communication, transparency, and compliance with legal requirements are key to navigating the complexities of employment contracts and termination in Malaysia.

Regardless of whether the employee’s monthly salary is lower than MYR 2000, retrenchment is still subject to the Labour Law Practice.
In the eyes of the law, the employer must have a legitimate reason and dismiss the employee with due process (dismissal with just cause and excuse).

In the event that the employee reports to the Labour Department and the employer loses the lawsuit,
The employee must be compensated for up to 24 months’ monthly salary (backwages),
and responsible for the employee’s loss of future earnings according to the Industrial Relation Act 1967.

What are Retrenchment?

Basically, retrenchment is one type of termination of contract of service under Section 12 of the Labor Law,
Retrenchment have their own set of legal principles and legal requirements to comply with.

The definition of retrenchment is job surplus (redundancy),
It can be happened due to economic recession, which leads to business closure or consolidation, and lower profits ,
and/or even the business has stopped operation.
The employer must be able to prove that the employee’s job position is no longer required by the company (lay-off).
it’s not employee’s poor performance nor the employee violates the employment contract.
The employer cannot simply retrench without proper justification.

The Retrenchment process

If the employer is aware of the plan to lay off workers,
it must report to the nearest labor department within 30 days ,
submit Form PK and report the company’s next measures and the list of employees involved.

Violation of the above regulations can lead to employers being prosecuted under Section 63 of the Employment Act,
and fines not exceeding RM 10,000.00

The decision to lay off employees must be progressive, for example, by letting employees to participate voluntary separation scheme,
temporary suspension of work, or salary reduction plan.

In the Code of Industrial Harmony (Code of Industrial Harmony), the Ministry of Human Resources of Malaysia encourages employers to implement the following measures to prevent employers from making the worst plan for layoffs.

1. Stop hiring;
2. Reduce overtime work;
3. Reduce holidays;
4. Reduce working days or shifts;
5. Reduce working hours;
6. Provide training;
7. Transfer to another department or branch;
8. Reduce expenses;
9. Reduce Salary;
10. Help employees find career vacancies.

* Any salary reduction or transfer must have an separate written contract.

If the above measures have been implemented and did not bring positive results,
employers can consider retrechment to lay off employees.

Principles in Retrenchment practice

1. 1st priority -lay off foreign workers (FWCO) (Foreign Worker-First Out);
2. 2nd priority- lay off foreign workers (LIFO) (Last-in First Out) ;
3. 3rd priority- layoff of employees who do not have important skills;
4. Retain technical personnel who have important skills and are irreplaceable.
   

Notice of Retrenchement

Once the employer determines that the Retrenchment is inevitable,
The employer must give a notice of dismissal in accordance with the Employment Act  ( Notice of Termination):-

If the employee is subject to the Employment Act of 1955 (monthly salary less than two thousand ringgit),

1. If the employment is less than two years, the employee must be given 4 weeks’ notice;
2. If the employment is more than two years and less than five years, the employee must be 6 Weekly notice;
3. If you have been employed for more than five years, you must give the employee 8 weeks’ notice.

If not subject to the Employment Act of 1955 (monthly salary exceeding MYR 2,000),
employers must give appropriate layoff notices in accordance with the original employment contract.

Employee severance payment

According to the 1980 Employment (Dismissal and Severance) Regulations,
All employees have a monthly salary of MYR 2 Below 1,000 will enjoy the following severance payment:-

1. If the employee has been employed for less than two years, the employee must be compensated for 10 days’ daily salary
2. If the employee has been employed for more than two years and less than five years, he must be given 15 days’ salary Daily salary compensation
3. If the employee has been employed for more than five years, the employee must be compensated for 20 days of daily salary.

If the employee’s monthly salary exceeds two thousand ringgits, the employee can be compensated according to the employment contract signed at that time.