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Before You Retrench or Terminate Your Employees, There Are Guidelines to Follow

Guide to Terminating or Retrenching Employees in Malaysia Malaysia has a set of guidelines and principles in place when it comes to terminating or retrenching employees in Malaysia. This is something prospective employers need to think about before starting a business in Malaysia.


Who Can Be Retrenched?

In Malaysia, employees cannot be terminated on a whim. There must be well-documented objectives and selection criteria. In other words, you must be able to explain why you no longer require the services of this employee. The same principles apply if you want to retain an employee too.

The selection criteria are set out in the Code of Conduct for Industrial Harmony. This is an agreement between Malaysia’s Ministry of Human Resources, the Malaysian Trades Union Congress, and the Malaysian Council of Employers’ Organisations. The guideline set forth is comprehensive and something all employers will need to consider.


The “Last In, First Out” Principle

One principle that is commonly applied in Malaysia is the “last in, first out” principle. This means that the employee who is the most junior in the team based on length of service will likely be retrenched first. Those who have served the company for longer will be kept first before the junior.


Giving Notice

Once you have decided to terminate or retrench your employee, you must give them a Notice of Retrenchment. The length of notice would depend on your company policy or collective agreement.

Per the Employment Act, 1955, an employee earning no more than RM2,000 monthly is given notice based on their length of employment. The same rule applies to manual workers regardless of the income or monthly salary.

If an employee has served the company for less than two years, they are generally given no less than four weeks’ notice. If they have served more than two years but less than five years, it is no less than six weeks’ notice. If they have served the company for more than five years, it’s no less than eight weeks’ notice.


Reporting the Retrenchment to The Relevant Authorities

Once you have terminated or retrenched your employee, you are required to report it to the relevant authorities. This is per the Employment Retrenchment Notification 2004. You will be required to complete the Employment Notification Retrenchment Form (Borang PK). There are several parts to this form. Each part must be lodged in stages with your nearest Labour Office.

Failure to report your retrenchment process is an offence. This offence falls under Section 99A of the Employment Act. The punishable fine is RM10,000.


Administrative Considerations

The additional administrative considerations are retrenchment benefits. These are the benefits paid out to employees affected or terminated. If an employee falls within the Employment Act, Employment (Termination and Lay-off Benefits) Regulations 1990 states they are entitled to lay-off benefits. This is applicable if they are employed under the continuous contract of employment for a minimum of 12 months before retrenchment began.

Guide to Terminating or Retrenching Employees in Malaysia