Terminating Employment Contract Smoothly with Proper Notice

Efficiently managing your workforce involves not only the hiring process but also the art of gracefully concluding employment contracts. To handle this process with care, it is important for employers to understand a vital element – the “notice period.” This article will guide you through the notice requirements outlined in the Employment Act 1955 (the “Act”).

It is a legal requirement for employers and employees to provide written notice when terminating an employment relationship (Section 12(1) and Section 12(4) of the Act). Apart from the legal requirement, giving proper notice also grants both the employers and employees the necessary time to plan for their next steps.

According to Section 12(2) of the Act, the notice period must be the same for both employers and employees for employment termination. The duration of the notice period is specified in the employment contract or letter of offer.

However, if the employment contract or letter of offer is silent on the notice period requirements, the Act provides a default notice period for employment termination, as outlined below:

Length of EmploymentNotice Period
Less than 2 years4 weeks’ notice
2 years or more but less than 5 years6 weeks’ notice
5 years or more8 weeks’ notice

While notice period is a legal requirement, Section 13(1) of the Act allows for payment of salary as a substitute for the required notice period. To better understand this concept, let’s illustrate the options available to the employers with an example.

Imagine employer A intends to terminate employee B’s employment, the employment contract provides that 2 months’ notice or payment in lieu of notice is required. To comply with this requirement, employer A can choose any of the following options:

  • give a full 2 months’ notice to employee B;
  • give 1 month’s notice and 1 month’s salary to employee B; or
  • give 2 month’s salary to employee B.

If employer A fails to adhere to any of these options, employee B has the right to:

  • claim 2 months’ salary (if neither notice nor salary was provided); or
  • claim 1 month’s salary (if no notice but only 1 month’s salary was given),

against the employer through the Labour office.

Yes, section 12(2) of the Act provides that the party receiving the termination notice has the right to waive the notice period. For example, employee B tenders his resignation notice to employer A and wishes to leave his current job immediately, employer A (the party receiving the notice) will have discretion to decide whether to waive the notice period.

Yes, there are limited circumstances prescribed under the Act that allow for termination without notice, including:

  • payment in lieu of notice (as explained in section (c) above).
  • wilful breach of a condition of the employment contract.
  • summary dismissal by the employer due to employee’s misconduct after due inquiry.

It is important to note that the Act does not define “wilful breach”. However, section 15 of the Act does outline instances when an employment contract is deemed to be broken. These instances include:

  • when an employer fails to pay salary in accordance with the Act; and
  • when an employee is continuously absent from work for more than 2 consecutive working days without leave, fails to inform the employer, and without a reasonable excuse for such absence.

The Act also does not define “misconduct” or specify what behaviours constitute misconduct. Usually, a list of minor and major misconducts will be provided in the employee handbook. This list may vary depending on the company and include offenses like theft, assault on a colleague, or insubordination. It is important to note that dismissal due to misconduct should only occur following a proper inquiry to avoid wrongful termination.

Considering the above, terminating an employment contract without notice carries some risk to the employers if not done with great care. If employers intend to summarily dismiss employees, they must carefully assess the situation and have valid grounds for summary dismissal. In a summary dismissal case, it is crucial for employers to present compelling evidence demonstrating that the employees indeed committed the alleged offence or offences that led to their termination. This legal principle was affirmed in the case of Ireka Construction Berhad v. Chantiravathan Subramaniam James [1995] 1 MELR 373.

Understanding the concept of notice period is essential for employers. The notice period requirement ensures a fair and smooth transition when ending an employment contract. Failing to provide adequate notice can potentially lead to legal troubles and financial consequences!

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