Published January 11, 2017 · Updated October 11, 2026
An employer in Malaysia who cannot prove a valid reason for dismissal may face an Industrial Court award of up to 24 months of back wages and compensation in lieu of reinstatement. Under Section 20 of the Industrial Relations Act 1967, the burden of proving fairness rests entirely on the employer.
In this blog, we discuss what counts as unfair dismissal in Malaysia and the correct process for misconduct, poor performance, retrenchment and resignation. We also explain the documentation that can decide an Industrial Court claim in 2026.
What Counts as Unfair Dismissal in Malaysia?
A dismissal is unfair when the employer cannot prove, before the Industrial Court, a lawful reason and a fair process for ending the employment.
Under the Industrial Relations Act 1967 (IRA), a dismissed employee may file a written representation under Section 20 for reinstatement. According to the Department of Industrial Relations Malaysia (JPPM), the employee must file within 60 days of dismissal; where dismissed with notice, the employee may file during the notice period or within 60 days after it expires.
The claim is first routed to the Industrial Relations Department for conciliation. If no settlement is reached, the case is referred to the Industrial Court, which asks one question: did the employer have just cause or excuse?
Critically, the burden of proof sits with the employer. The company must prove both a valid reason and a fair process. A failure on either ground can make a dismissal unfair and without just cause. Since 1 January 2021, unresolved Section 20 representations are referred by the Director General of Industrial Relations to the Industrial Court.
Constructive dismissal is also covered. It arises when an employee resigns after a fundamental breach by the employer. Examples include a unilateral pay cut or forced demotion.
How Should Employers Dismiss for Misconduct Fairly?
A misconduct dismissal is more defensible where the employer investigates, gives the employee a fair opportunity to respond and keeps proper records; the Industrial Court may still determine the merits afresh even if no domestic inquiry was held.
- Employers should investigate promptly and in writing.
- Employers should issue a show-cause letter.
- Employers should hold a proper domestic inquiry.
- Employers should keep every record of the process.
Section 14 of the Employment Act 1955 permits dismissal without notice for misconduct, but only after a due inquiry. Section 14 requires due inquiry for dismissal without notice on grounds of misconduct, but a procedural defect does not automatically invalidate the dismissal if the employer establishes just cause before the Industrial Court.
Step 1: Investigate and Issue a Show-Cause Letter
Where suspension is necessary pending inquiry, Section 14 permits up to two weeks on at least half wages. State the allegations, dates and policy breaches in a show-cause letter, then give a clear deadline for a written response. If the inquiry finds no misconduct, restore any wages withheld.
Step 2: Hold a Domestic Inquiry
Convene a panel that has had no prior involvement in the incident. Explain the allegations, let the employee answer fully, call witnesses where relevant, and record the minutes.
Step 3: Preserve Evidence and Consultation Records
Keep warning letters, inquiry minutes, CCTV or system logs and notes of every consultation on file. The Industrial Court may consider both documentary and oral evidence, and gaps in the records are still read against the employer.
Step 4: Decide on a Proportionate Penalty
Match the penalty to the proven offence. A minor first breach may merit a written warning, while serious proven misconduct may justify dismissal.
Termination Routes at a Glance for Employers
| Termination Route | Required Process | Key Risk | Recommended Documentation |
|---|---|---|---|
| Misconduct dismissal | Investigation, show-cause letter, domestic inquiry under Section 14 | Process defects do not automatically nullify an otherwise valid reason | Inquiry minutes, warning letters, evidence file |
| Poor performance | Documented targets, written warnings, improvement plan | No evidence of feedback or a chance to improve | Appraisals, improvement-plan records, final review notes |
| Retrenchment | Genuine redundancy, consultation, 30-day notice to the authorities | Unfair selection or a sham redundancy | Board minutes, selection criteria, payment records |
| Resignation | Written notice per contract or statute | Forced resignation becomes constructive dismissal | Resignation letter, notice acknowledgment, final-pay records |
Can You Dismiss an Employee for Poor Performance?
Yes, but the Industrial Court expects documented warnings and a genuine opportunity to improve before any dismissal decision.
According to the Industrial Court, the same just-cause test applies to capability dismissals. A performance dismissal is hard to defend without feedback records. It is also hard to defend without a genuine opportunity to improve. A defensible process looks like this:
- Set measurable targets in writing at the start of each review cycle
- Record appraisals and informal feedback consistently
- Give clear written warnings that identify the performance gap and required improvement
- Run an improvement plan with a defined timeline
- Hold a final documented review before deciding
Follow this sequence to show a genuine capability decision rather than a shortcut. Skipping it can make a dismissal unfair and invite a claim.
What Are the Rules on Retrenchment in Malaysia?
Retrenchment is lawful when the position is genuinely redundant — and only when the employer consults, notifies the authorities and pays the correct benefits.
Redundancy arises from restructuring, automation or closure, and is common among multinational companies in Malaysia consolidating regional operations. The law does not second-guess the commercial decision. What it tests is the honesty and fairness of the implementation.
1. Confirm a Genuine Redundancy
Be able to show that the role, not merely the person, has disappeared. Keep board minutes, organisation charts and business plans that evidence the decision.
2. Consult and Select Fairly
Hold genuine consultations with affected staff. Where several employees hold similar roles, apply objective selection criteria and record why each person was chosen.
3. Notify the Authorities and Pay Benefits
For employees covered by the Employment (Termination and Lay-Off Benefits) Regulations 1980, give written notice of the retrenchment to the nearest Labour Department office at least 30 days before the exercise. Pay all wages, notice pay and statutory retrenchment benefits on time; employees outside the regulations may still have contractual or collective-agreement rights, so confirm the applicable coverage and any exceptions before the exercise. The statutory rates below apply to employees with at least 12 months' continuous service (Regulation 3 of the 1980 Regulations); since the Employment (Amendment of First Schedule) Order 2022, employees earning more than RM4,000 a month are excluded from these termination benefits unless they fall in a First Schedule group such as manual labour, drivers or domestic employees. Retrenched employees can also draw income support from the Employment Insurance System (EIS) administered by PERKESO, the Social Security Organisation.
Statutory Retrenchment Benefits
| Years of Completed Service | Statutory Benefit |
|---|---|
| Under 2 years | 10 days' wages per year of service |
| 2 years to under 5 years | 15 days' wages per year of service |
| 5 years or more | 20 days' wages per year of service |
How Does Resignation Work Under the Employment Act 1955?
Resignation ends the contract on the employee's initiative: the employee gives contractual notice, or pays an indemnity in lieu of the unserved portion.
Section 12 of the Employment Act 1955 requires termination notice to be given in writing and sets minimum periods by length of service. Where the contract is silent, these statutory minimums apply. The table below summarises the current minimums.
An employee who leaves without serving notice owes the employer an indemnity equal to the wages for the unserved period. Employers should resist pressuring an employee to resign — coercion can convert a resignation into a constructive dismissal claim. Settle final wages, accrued leave and statutory contributions promptly to close the file cleanly.
Statutory Notice Periods in Malaysia
| Length of Service | Minimum Written Notice |
|---|---|
| Less than 2 years | 4 weeks |
| 2 years to under 5 years | 6 weeks |
| 5 years or more | 8 weeks |
Do Probationers and Expatriate Employees Have the Same Protection?
Probationers and expatriate employees may file a Section 20 representation, although their contractual and immigration circumstances still matter.
Probationers may bring Section 20 representations. Employers should document performance concerns, give a fair opportunity to respond and decide confirmation or termination before the confirmation date.
Nationality or pass type does not remove an employee's right to file a Section 20 representation. This can include an expatriate who also serves as a nominee director in Malaysia, provided the underlying engagement is genuinely one of employment.
A dismissal may also affect immigration status. The employer should complete required Employment Pass cancellation steps with the immigration authorities. Before settlement, review any notice pay or termination benefits for personal income tax treatment so the departing employee's final tax position is correct.
What Remedies Can the Industrial Court Award?
The primary remedy is reinstatement; where that is inappropriate, the Court may award compensation in lieu and back wages. Back wages are generally capped at 24 months, or 12 months for a probationer.
Conciliation comes first, and most cases that settle do so at that stage. Since the 2021 amendments, the Director General of Industrial Relations refers unresolved cases directly to the Industrial Court, shortening timelines considerably.
The key monetary remedies are set out in the table below. Where reinstatement is not ordered, the employee also receives compensation in lieu calculated at one month's wages for each completed year of service. Costs are rarely awarded, so a compliant process is far cheaper than defending a claim.
Industrial Court Remedies and Limits
| Remedy | What It Covers | Current Limit |
|---|---|---|
| Reinstatement | Return to the same or a comparable role | Primary remedy under the Industrial Relations Act 1967 |
| Back wages | Pay lost between dismissal and the award | Maximum 24 months; 12 months for a probationer |
| Compensation in lieu | One month's wages per completed year of service | Awarded where reinstatement is not appropriate |
Conclusion
Unfair dismissal in Malaysia is ultimately a question of proof and process. The law does not forbid termination — it requires a valid reason, a fair procedure and a documentary trail the employer can actually produce. Each route we covered, from misconduct and performance to retrenchment and resignation, carries its own process and paperwork.
The practical lessons are consistent: investigate before deciding. Hold a genuine domestic inquiry, give written warnings where they are due, and honour the statutory notice and benefit rules. A single skipped step can turn a justified dismissal into a costly award.
This article is general educational guidance and does not constitute legal advice; specific disputes should be reviewed with qualified counsel. As a Corporate Services Provider, we help clients across Malaysia manage employment documentation, HR administration and payroll compliance, so they handle terminations correctly the first time.
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Frequently Asked Questions
No. Under Section 14 of the Employment Act 1955, an employer may dismiss without notice for misconduct after a due inquiry. Wages earned up to the last day of service must still be paid, but the payment for untaken annual leave under Section 60E(3A) does not apply to an employee dismissed for misconduct under Section 14(1)(a).
Yes. A probationer is an employee under the Industrial Relations Act 1967 and can file a Section 20 representation within 60 days, on the same terms as a confirmed employee.
For eligible employees, the Employment (Termination and Lay-Off Benefits) Regulations 1980 set minimum benefits of 10, 15 or 20 days' wages per year of service. Contractual or collective-agreement terms may provide more.
Sixty days from the dismissal date, by written representation under Section 20 of the Industrial Relations Act 1967. The claim goes first to the Industrial Relations Department for conciliation and, if unresolved, to the Industrial Court.
Yes. Nationality or pass type does not remove an employee's right to file a Section 20 representation. The employer must also complete relevant Employment Pass cancellation steps with the immigration authorities.
Abigail Yu
Director
Abigail Yu oversees executive leadership at 3E Accounting Group, leading operations, IT solutions, public relations, and digital marketing to drive business success. She holds an honors degree in Communication and New Media from the National University of Singapore and is highly skilled in crisis management, financial communication, and corporate communications.
