Published: 14 December 2013
Last Updated: 24.10.2017
Termination means cessation of service due to company closure and workers redundancy. Redundancy situation can arise due to several reasons such as corporate restructuring, decrease in production, mergers, changes in technology, acquisitions and others. This does not include termination of service due to disciplinary action and dismissal of employees.
When a redundancy situation arises, the employer must first take the necessary measures to avoid workers termination as proposed by the Procedure for Industrial Harmony, namely: -
2.1 freeze new recruitment except for critical areas;
2.2 limit overtime;
2.3 limit work on weekly rest day and public holidays;
2.4 reduce weekly working days or reduce the number of shift job;
2.5 reduce daily working hours;
2.6 conduct retraining programmes for workers;
2.7 identify alternative work and transfer to other division/workwithin the same company;
2.8 implement temporary layoff, for example in the form of temporary shutdown by offering a reasonable salary and help workers obtain temporary work elsewhere until operations can be resumed. If employers implement temporary layoffs, the information regarding the period of layoff must be reported to the Labour Department Peninsular Malaysia (JTKSM) for the purpose of monitoring whether the employee is reinstated or offered Voluntary Separation Scheme (VSS) or permanentlyterminatedin future; and
2.9 reduce employee's wages (Pay-Cut) which is made fairly at all levels can also be implemented as a last resort, after other cost saving measures have been implemented.
Steps 2.7, 2.8 and 2.9 must be taken by written consent of the employees or the trade unions that represents them.
If workers termination need to done despite measures in paragraph 3 have been taken, the employer must endeavour to implement the following measures to reduce the negative impact on the affected workers: -
3.1 inform and hold discussions with the employees or trade union representing them as soon as possible regarding the impending termination;
3.2 offers voluntary separation/retirement scheme with best possible compensation rate;
3.3 pay compensation or termination benefits to eligible employees;
3.4 retire workers over the age of normal retirement age;
3.5 give notice of termination of service as stipulated in the employment contract. In the absence of such provision in the employment contract, the employer must give notice as specified under Employment Act 1955 as follows;
a) 4 weeks’ notice if the employee has been employed for less than 2 years;
b) 6 weeks’ notice if the employee has been employed for 2 years but less than 5 years; or
c) 8 weeks’ notice if the employee has been employed for more than 5 years
3.6 help employees find work at other places before termination is made in collaboration with JTKSM under the Ministry of Human Resources;
3.7 implement phased termination over a longer period;
3.8 implement the principle of 'FWFO' (Foreign Worker - First Out)within the same job category during termination i.e.foreign workers are terminated first before local workers, and
3.9 implement the principle of ‘LIFO’ (Last - In - First - Out) if termination involves local workers and within the same job category. However, employers can also implement termination based on certain criteria after consultation and with consent of the employee or trade union that represents them.
Employees who are terminated are entitled to minimum termination benefits if they are covered under the Employment Act 1955 or the Collective Agreement.
5.1Employment Act 1955
Generally, employees who are covered under the Employment Act 1955 and involved in termination are eligible to claim statutory benefits as follows:
5.1.1 Salary in lieu of notice
Employees who are terminated without adequate notice of termination, can claim notice compensation pay(indemnity). Notice compensation pay must be paid latest by the last day the contract of service is terminated.
5.1.2 Termination Benefits
Payment of termination benefits must be in accordance with the service contract, but not less than the rate prescribed under the Employment(Termination and Layoff Benefits) Regulations 1980 of the Employment Act 1955, namely: -
a) 10 days wages for each year of service if the employee has worked less than 2 years;
b) 15 days salary for each year of service if the employee has worked for 2 years but less than 5 years;
c) 20 days salary for each year of service if the employee has worked5 years or more.and calculated pro-rata for period less than a year, according to the nearest whole month.
The formula prescribed under the Employment (Termination and Layoff Benefits) Regulations 1980:
|12 months wage
(No. of Years in service)
(10/15/20 Days per year)
5.1.3 Employees are entitled to written particulars of the amount of the termination benefits and how calculations are made.
Termination benefits must be paid not later than 7 days from the date the employee is terminated.
5.1.4 Payment in lieu of annual leave balance, if any.
5.1.5 Balance of public holidays
5.1.6 Balance of salaries
5.1.7 Employees who are affected by termination can refer to the nearest Labour Department for more information.
5.2 Industrial Relations Act 1967
5.2.1 If the employees affected by the termination are a member of a trade union and had signed a Collective Agreement, the employeesare entitled to the following;
i) Compensation as specified in the Collective Agreement, or
ii) Work Restoration under section 20 of the Industrial Relations Act 1967, if the employee is not satisfied with the termination done by the employer.
5.2.2 For employees who are not covered under the Employment Act 1955 or the Labour Ordinance (Sabah chapter 67) or the Labour Ordinance (Sarawak chapter 76) or the Collective Agreement, they are subject to the terms and conditions under the service contract or at the discretion of the employer in relation to the amount of compensation.
5.2.3 Employees may get further advice from the Department of Industrial Relations nearest to workplace.
Steps to be taken by terminated employees are:
i. Report the Termination proposal or action that will be or has been taken by their employer to the Labour Office.
ii. Register with the nearest Labour Office either in person by bringing together identity cards, certificates and other related documents or through online using the job portal of the Department of Labour www.jobsmalaysia.gov.my
iii. Ensure payment of compensation or termination benefits have been received (if eligible).
iv. Report to the Labour Office if employed in a new job.
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