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Misconceptions in Malaysian Employment Law

In 2018 alone, a staggering sum of RM34 million was awarded by the Industrial Court

Let us consider some statistics: - in 2018 alone, a staggering sum of RM34 million was awarded by the Industrial Court against errant employers for unlawfully dismissing their former employees*.

It was further reported that between January to December 2018, the number of unlawful dismissals claims brought before the Industrial Court totalled to 2,935. This works out to approximately 245 new claims per month, or an average of 9.4 claims per day.

This trend seemingly continues upwards, with the latest data revealing that between January 2019 to March 2019, 948 unlawful dismissals claims were brought before the Industrial Court, and the sum of RM12.3 million was awarded against errant employers for unlawful dismissal. Even without whipping out the calculator, astute readers can readily see that the average for the 2019 period ranks higher than 2018. This is despite this data so far only reflecting the first financial quarter of 2019.

[Source: Statistik Pekerjaan dan Perburuhan, Siri 19 Bil 1/2019, published by the Ministry of Human Resources (Kementerian Sumber Manusia) of Malaysia]

Suffice to say, these are not small figures and point to a worrying trend! The question then is, why is this so? The simplest explanation is that employers do not often comply with the relevant law and procedure when dismissing employees; otherwise, the Industrial Court would not be awarding such sums against employers. While that may be the simplest explanation, the deeper reason may perhaps lie in the underlying mentality of employers when dismissing their employees.

Generally, in the eyes of an employer, the dismissal of employees for whatever reasons (i.e., misconduct, poor performance, retrenchment) is perceived as an exercise of rights. To the employee however, the experience of being dismissed can be extremely personal even if the purported reason(s) behind the dismissal is “not personal” but for “business reasons”. I wish to point out that the relevant law, being section 20 of the Industrial Relations Act 1967, gives the right to a former employee who considers that s/he was dismissed without just cause or excuse to commence legal action against his/her former employer on grounds of unlawful dismissal. The key word is “considers”, as it means a former employee can bring legal action so long as they subjectively considers themselves to have been dismissed without just cause or excuse and that it is the employer, rather than the employee, who must demonstrate to the satisfaction of the Industrial Court that there was indeed just cause or excuse in dismissing.

Below are some issues commonly encountered by employers facing unlawful dismissal claims: -

  • Lack of knowledge of the law. Employers are not fully aware of Malaysian laws governing the employer-employee relationship. They assume or wrongly assume they possess all rights to dismiss, much like the American-style of hire-and-fire-at will; or

  • Having knowledge of the law, but disregarding and/or underestimating the relevant law nonetheless. Such employers may mistakenly assume that the matter can be “settled” by negotiations with a litigious employee; or

  • Impatience in dealing with employees who commit misconduct / are poor performers by not following the necessary procedure, lacking sufficient evidence; or

  • Bloody-mindedness. The employer has already concluded that a certain employee is to be dismissed and in doing so, dispenses with the law and procedure in dismissing the former employee.

In that regard therefore, let us debunk some common misconceptions surrounding the law relating to dismissal of employees in Malaysia.

“I as an employer can solely rely on the notice provision in the employment contract. As long as I abide by the terms, I can dismiss.”

A typical termination clause is along the lines of “Either party … may terminate the employment contract by giving X months’ notice or by paying to the other party X months’ wages in lieu of notice.”

An employer cannot merely rely on the termination clause in the employment contract. In a claim for unlawful dismissal under section 20 of the Industrial Relations Act 1967, if the employer is the party exercising its right to dismiss as per the termination clause, then the employer must be able to demonstrate that there is just cause or excuse in doing so. If the employer fails to demonstrate to the satisfaction of the Industrial Court that the dismissal was with just cause or excuse, irrespective of the presence of a termination clause, the employer may be found liable and will have to cough up compensation up to 24 months of back wages, and further compensation in lieu of reinstatement typically in the region of 1 month per year of service.

"I as an employer can sack an employee if s/he has committed misconduct / is a poor performer”

An employer has the right to dismiss an employee for serious misconduct or for poor performance. What needs to be borne in mind is that certain steps need to be taken before dismissal is carried out and such steps need to be well-documented. It is worth bearing in mind that the relevant steps to be taken differ between dismissal for misconduct vs dismissal for poor performance.

In any event, the burden remains firmly on the employer to demonstrate that the employee has committed serious misconduct or is a poor performer.

“In Singapore/Hong Kong/America/any other countries, I can sack easily therefore this is universal law”

Malaysian employment law is unique and stands apart from the employment laws of Singapore/Hong Kong/America/any other countries by being generally pro-employee. Companies doing business in Malaysia are advised to obtain the services of a specialist in Malaysian employment law to ensure compliance to the local laws and to minimize legal risk(s).

“This was the template used by my predecessor/superior/etc”

The Industrial Court is unlikely to accept the above explanation. It is prudent to obtain the services of specialist in Malaysian employment law to peruse the contract and to identify any potential issues that may arise.


To conclude, the laws of Malaysia tend to be pro-employee. Care must be taken to ensure that companies are operating within the boundaries of the relevant laws. Failure to abide by the law can lead to very expensive yet totally avoidable consequences.


Legal Disclaimer

We trust that you have gained some information from this article. If you have any specific questions related to this article, please contact us at

This article is posted for general information purposes only and should not be construed as legal advice. Facts and circumstances differ from case-to-case. Please consult your lawyer for specific legal advice and action to be taken.

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