24/11/2022

Unit 5 & Unit 6 –

Termination of Contract

Termination of Contract

 “Either part to a contract of service may

at any time give to the other party
notice of his intention to terminate such
contract of service” – EA 1955 (Section
12).
 No difficulty for employee to give notice
of intention to resign.
 Employer not given same freedom as
employee to dismiss without just cause
or excuse.

Termination of contract
 Termination maybe for any number of reasons.
 A dismissal maybe either lawful or unlawful.
 Lawful dismissal occurs where employer
terminates contract according to requirements of
contract or statute.
 Employee may challenge dismissal under the
statutory unfair dismissal provisions
 Termination simpliciter – dismissing an employee
without a proper reason not acceptable in Malaysia
 Security of employment an important social principle

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Termination of contract
 Wrongful dismissal occurs where employer
terminated the contract without fulfilling contract
or statutory requirements.
 Termination that is lawful at common law maybe
found to be without just cause or excuse
(Industrial Relations Act, 1967).
 Termination may occur where:
 Contract has been performed by virtue of a
term in the contract e.g. upon completion of
specific work
 At expiry of a specified period of time
 Contract is subject to a particular contingency

Provisions for termination

 In every written contract of service a
clause shall be included setting out
the manner in which such contract
may be terminated by either party.
 A contract of service for an
unspecified period of time shall
continue in force until terminated
(EA, 1955 Sec. 11(2))

Notice of termination
 Length of notice of termination shall be the same
for both employer and employee
 Determined by provision made in writing in contract
of service
 If no provision in writing then notice shall not be
less than…………

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Termination, Layoff and

Retirement Benefits
 Provided under 60J, the minister may provide
for the retirement benefit, lay off benefit,
termination benefit.
 Entitlement of lay –off and termination Benefit.
 The employer shall be liable to pay the layoff
and termination benefit if:-
 the contract of service is terminated
 the employee is laid off within the meaning of Reg. 5
 provided that the employment is not less than 12
months of continuous service.

When are benefits not payable?

 Where the employee attains the age of retirement as
stipulated in the contract of service.
 Where the employee commits misconduct inconsistent
with the fulfilment of the expression or implied condition of
his service after due enquiry.
 Voluntary termination by the employee.
 If the employee's contract of service is renewed or is re-
engaged by the same employer under a new contract of
service on terms and conditions which are not less
favourable and where the renewal or re-engagement
takes effect immediately at the ending of his employment
under the previous contract.

Payment of benefits

 Any termination or lay-off benefits

payment should be paid by the
employer to the employee not later
than 7 days after the relevant date.
 Any employer who fails to comply
shall be guilty of an offence.

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Amount of benefits
 An employee is entitled to termination or lay-off benefits
payment as follows:-
 Not less than -
 10 days for every year of service (less than 2 years)
 15 days for every year of service (2-5 years)
 20 days for every year of service (more than 5 years)

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Probation periods
•When employee first offered a job:-

• Common practice to place him on probation

• Requirement will be stated in offer of
employment
• Intended to allow both employer and
employee to give each other a trial period
• Employer want to monitor employee’s work
• To see capability
• Adaptability into organization culture

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• In selecting job applicants, employers make mistakes

• During trial period, services can easily be terminated
• Employees also apply for jobs without knowing
• Whether can cope with work assigned
• Whether comfortable with social environment at work
place
• Employees also want to be able to easily leave a job for
which they are not suited
• Norm for notice period prior to termination
• Brief
• Sometimes 24 hours is all that is required

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Probationers' rights
• Probationer is also an employee.
• Should not be dismissed during probationary
period except for misconduct or on grounds of
redundancy. A proper procedures should be
followed.
• Probationer should be given suitable training,
coaching and guidance.
• Performance should be monitored and appraised
by immediate superiors
• Written, documentary evidence should be kept to prove
that appraisal has been conducted
• If performance is not satisfactory
• Should be given one or more warnings
• Preferably in writing

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•If warnings have been given to employee prior to

expiry of probationary period
 Performance have not improved and satisfactory
standards of performance have not been reached
 Services may be terminated at end of probationary period
 If no prior warnings given, employer may need to extend
probationary period
Issue letter to employee stating why appointment can’t be
confirmed at that time

•If at end of probationary period employee remains in

service and receives no letter of confirmation
• Considered still a probationer
• Remain a probationer until either confirmed or services
terminated

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•If probationer’s contract makes it clear that

certain benefits and privileges only given to
employee once he is confirmed.
 But employee receives these benefits during
probationary period
 Employee deemed confirmed if dispute over issue
comes before the courts

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Circumstances that Cause Frustration

• Events beyond the control of both employer and employee
• Prevents one party carrying out obligations to another
• Cause frustration of contract

•Situations that may make it impossible for employee to

carry out his work
• Employee may be detained by authorities for significant
period of time e.g. sent to jail, sent to drug rehabilitation
centre and etc.

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Sathiaval Maruthamuthu vs. Shell Malaysia

Trading Sdn Bhd [1998] 1 CLJ Supp 65

• Handyman working for Shell Malaysia

• Arrested by police and detained at Pulau Jerejak under
Emergency (Public Order and Prevention of Crimes)
Ordinance, 1969
• Detained for two years
• 6 months into detention, received letter from employer
terminating services on grounds of frustration of contract
• Upon release from detention applied to High Court for
wrongful termination
• High Court decision
• Not availability for 2 years led to frustration of contract
• Release employer from obligations under contract
• Contract of employment came to an end
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Circumstances that Cause Frustration

• In cases where employee requires a license in
order to be able to do his work and for some
reason the issuing authority withdraws this
license.
• If driver has license suspended or withdrawn entirely
• Not able to continue as driver
• Employer not required by law to provide him with
other work
• Contract of employment will come to an end by virtue
of it being frustrated

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Circumstances that Cause Frustration

• Medical problems can lead to frustration of
contract
• When employee has bad accident and unable to
work as a result of injuries received in accident
• Contract considered frustrated and comes to an end
•If employee develops a serious illness which
prevents him from working and illness is unlikely to
be cured
• Employment contract considered frustrated and
comes to an end
• Frustration due to illness does not operate until all
rights of employee to sick leave, annual leave and
other leave entitlements due have been exhausted

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Termination of a Fixed-Term Contract

• Many employers hire workers on temporary or fixed term contracts.

• When fixed term contract expires

• Employment contract automatically comes to an end unless employer
extends contract period

• Alternatively employer ,au offer a new contract either on the same or

different terms

• Up to employee to accept or not

• If employee not offered a new contract or fixed term contract

terminated before expiry
• Employee may file claim for reinstatement

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•Industrial court will examine reason why

employer chose not to offer further employment
or why contract prematurely terminated

•In many cases, Courts decided temporary

contracts are not genuine
 Employer labeled contract as temporary but in
reality work was on-going
 Employer used temporary employment as control
mechanism to ensure workers behave in
acceptable ways
 Unfair labour practice – courts awarded
compensation to employees in these cases

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•When employer prematurely terminates fixed term

contract
 Must have a good reason or Court will find for
employee. Examples
If employee commits misconduct and proper
procedure has been followed prior to dismissal
If employer faced with redundancy situation

•If Courts should find employee on fixed term contract

dismissed without just cause or excuse
 Employer usually ordered to pay employee amount
equivalent to wages he would have earned up to end
of contract period

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Termination of Contract for

Misconduct
• Disciplinary action can be taken for:-
Breach of organizational rules
Unsatisfactory performance

•“Improper behavior, intentional wrong doing or

deliberate violation of a rule or standard of
behavior – any behavior inconsistent with faithful
discharge of duties” – Industrial Relations Act,
1967.

• Misconduct – minor or major

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Procedures for Contract Termination

(Misconduct)
• The right to hire and fire
• Right of employer to hire and fire becomes increasingly
restricted
• Industrial Courts are clear on summary dismissal
• Dismissed without inquiry
• An offence
• Investigation
• Domestic inquiry – an internal trial fitting internal procedure
•Penalties – punishment appropriate with seriousness of
misconduct
• Internal appeal procedures
 employee has right to appeal against any punishment

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Procedures for Contract Termination

(Poor Performance)
• Issue written warning to employee
• List of weakness/problems with employee’s performance
• Statement that if employee does not improve, he may be dismissed
• Time frame given to employee to improve

•Provide employee with appropriate training, retraining, coaching

or counseling
• Monitor closely

• Reappraise employee’s performance at end of time frame

• Decide whether to give further time to improve or dismiss

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Resignation
• Resignation is termination by an employee.
• Employee may resign by giving requisite
termination notice as in employment contract.
• An employee may if the contract provides pay
salary in lieu of notice - Employment Act, 1955
Section 13(1).

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Forced resignation
• Resignation under compulsion is not a resignation at law
Considered a dismissal

•If a claimant is induced to resign by the offer of benefits

and threat of retrenchment
• Forced resignation

•Burden of proof that resignation is not voluntary on

employee

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