As terminations are a conflict-prone area of employer-employee dealings, well-written termination clauses are key provisions in any employment contract to set out how contracts can legally come to an end with both sides treated fairly.
In Malaysia, termination-related provisions under the Employment Act 1955 apply to all employees irrespective of salary unless otherwise stated, and below we explain six termination clauses commonly found in Malaysian employment contracts.
Types of termination clauses
Collectively, these account for terminations initiated by employers, employees, or both parties.
Termination with cause
This clause allows an employer to terminate an employee without notice due to serious misconduct, breach of contract, or any act that justifies immediate dismissal, though Section 14 of the Employment Act 1955 requires due inquiry beforehand.
Some actions that justify termination with cause are described in the Employment Act 1955, such as Section 15(2) which states that employees are deemed to have breached the contract if absent from work for over two consecutive working days without prior leave or reasonable excuse and fail to inform or attempt to inform the employer.
Finally, in addition to the Act, employment contracts or handbooks often outline additional forms of misconduct that constitute “cause” for termination without notice based on the circumstances of the employer.
Sample
The Company may terminate your employment without notice or compensation in lieu of notice in the event of misconduct, breach of trust, gross negligence, or any act that warrants dismissal under applicable laws.
Termination without cause
Termination without cause refers to ending employment for reasons such as refusal to transfer to another work location, poor performance, redundancy, restructuring, or business closure.
This type of termination is governed by Section 12 of the Employment Act 1955 and requires a reasonable notice period or payment in lieu of notice and should be based on a valid reason.
Sample
Either party may terminate this Agreement by providing 30 days’ written notice or payment of salary in lieu thereof.
Early termination
This refers to situations where the employer or employee opts to end the employment contract before the notice period has fully expired, and the other party may choose one of two options:
- Payment in Lieu of Notice: Pay equivalent of employee’s salary that would have been earned during the remaining notice period, as per Section 13 of the Employment Act 1955.
- Waive the Notice Period: Release the other party immediately without requiring the notice period to be served, as per the proviso to Section 12(2) of the Employment Act 1955.
Sample
This Agreement may be terminated by either party prior to the expiry date by providing 60 days’ prior written notice to the other party or payment in lieu of notice. The Company may waive the required notice period at its discretion.
Fixed term
A fixed-term clause defines a set employment duration (e.g., 12 months) and specifies that the contract ends automatically upon expiry or completion of the specified project, as per Section 11 of the Employment Act 1955.
This automatic termination occurs unless the contract is renewed or otherwise terminated before the end of the term in accordance with the fixed-term contract’s provisions.
Sample
Your employment shall commence on [start date] and shall continue until [end date], unless terminated earlier in accordance with this Agreement.
Termination for convenience
This clause provides either party the flexibility to terminate the employment relationship without needing to establish cause. However, it often requires advance notice requirements.
Alternatively, termination without notice is also possible if the employer makes payment in lieu of notice, where the employee receives a sum equal to the pay they would have received during the remainder of their notice period.
Though this clause allows employees to resign without providing any reason, employers do not enjoy the same freedom in practical reality and should still provide a valid reason for termination to reduce the risk of an unjust dismissal claim.
Sample
Either party may terminate this Agreement for convenience by giving 30 days’ prior written notice or payment in lieu of notice.
Mutual termination
Mutual termination is when both employer and employee agree to part ways on mutually acceptable terms under a Voluntary Separation Scheme (VSS) or Mutual Separation Scheme (MSS).
Both offer a more amicable alternative to forced retrenchment as they involve employee consent. VSS and MSS are guided by the principle of mutual agreement and must be carried out fairly, transparently, and with proper documentation.
Voluntary Separation Scheme (VSS)
VSS – Typically initiated by the employer, offering employees a package to voluntarily resign, usually as part of cost-cutting or restructuring measures.
Mutual Separation Scheme (MSS)
MSS – An agreement reached between the employer and employee to mutually terminate the contract, often including negotiated compensation.
Termination notice periods
Under the Employment Act 1955, the minimum notice period is determined by the employee’s length of service as shown in the table below, with both employer and employee entitled to the same notice period.
| Length of Employment | Minimum Notice Period |
| Less than 2 years | 4 weeks |
| 2 years or more but less than 5 years | 6 weeks |
| Employed for 5 years or more | 8 weeks |
While these notice periods apply by default, they may be superseded if a different period is contractually agreed on.
Sample
Either party may terminate this contract by providing the other party with a notice period of not less than 30 days.
Where to include termination clauses
Most employment contracts include a dedicated section for termination terms, usually titled “Termination”, or under “Employment Duration” or “Employment Term”.
Avoid burying it in fine print or vague HR policies. A good rule of thumb: if someone has to squint or scroll endlessly to find it, it is probably in the wrong place.
What if an employment contract has no termination clause?
Where an employment contract lacks a termination clause, the Employment Act 1955 will apply by default.
While this provides a legal fallback, it creates uncertainty, especially for employers.
As the party responsible for issuing the contract, the employer bears the greater burden to ensure it is complete and legally compliant. In disputes, the lack of a proper clause will most likely work against the employer, not the employee.
It is like driving without insurance. Can you do it? Sure.
Would your lawyer advise you to? Definitely not.
So while we are not your lawyer, here are some free termination clause templates you can use!
Free termination clause sample
Click the link to access our library of free legal templates, and remember to tailor them to your specific requirements.
Meanwhile, those who wish to understand the termination procedure itself can see the steps involved in terminating an employee.
FAQs on employee termination clauses in Malaysia
1. What happens if an employment contract does not have a termination clause?
Then the notice period prescribed under Section 12(2) of the Employment Act 1955 will apply and the minimum notice period will be based on the employee’s length of service.
2. What is termination with cause, and when can it be enforced?
It refers to dismissal due to misconduct, negligence, or breach of contract and must be backed by due inquiry and justification.
3. Does termination without cause impact compensation?
Yes. The employer must provide notice or payment in lieu of notice, and in some cases, the employer may also be required to pay statutory termination or lay-off benefits.
4. What is the difference between early termination and termination without cause?
Early termination: Ending a fixed-term contract before its expiry or ending the employment relationship without completing the notice period.
Termination without cause: Ending a permanent role without any misconduct, usually for business reasons like redundancy.
In both cases, notice or payment in lieu is often required.
5. When can I use termination for convenience?
If the employment contract has such a clause, either party may terminate the employment relationship by providing the required notice or paying in lieu of notice.
However, if you are the employer initiating the termination, it is crucial to have a valid reason to reduce the risk of an unjust dismissal claim.
6. How long should a notice period be in a notice clause?
It usually ranges from 1 month to 6 months, depending on seniority and contract terms.
7. Are termination clauses required in an offer letter?
Yes, if the offer letter is intended to be a binding employment contract it is required to include such a clause to comply with section 10(2) of the Employment Act 1955.
