While termination without cause is a standard inclusion in Malaysian employment contracts, it can be, and has been, challenged under the Industrial Relations Act 1967 when no reasons are provided.
And as we’ll see below, these disputes rarely turn out well for the employer.
In this guide, we explain what “termination without cause” really means for employers, the risks, and how to structure your approach lawfully.
Let’s begin.
The meaning of termination without cause
Termination without cause means ending an employment contract by giving notice, without having to prove any wrongdoing or breach of the contract.
Let’s say you have a contract with a clause that states:
“Either party may terminate with 30 days’ notice or payment in lieu,”
If we applied this clause literally, both employers and employees would be free to terminate the contract for whatever reason as long as notice was given.
Thankfully, in practice neither party can act quite so arbitrarily.
You can follow what a contract states, but if the contract doesn’t comply with employment law, it can be challenged in court.
And a court will always evaluate a dismissal by asking if it:
- was justified, and
- had just cause and excuse
If no justification is found, the dismissal can be disputed, usually in favour of the employee.
No matter how the termination without cause is worded, giving notice is no free pass and employers must always provide a valid reason for termination, even for probationary employees as was found in Bennet Subash Peter v. Bon Ton Sdn Bhd.
Bennett Subash Peter v. Bon Ton Sdn Bhd (Bon Ton Resort Langkawi) [2019]
In this Court of Appeal case, the court held that whether the employee is permanent or on probation,
industrial jurisprudence does not permit arbitrary dismissal.
The reasons for dismissal must be bona fide, though this need not be judged objectively — it depends on the facts and context.
A mutual agreement or an honest reason might suffice, but if there’s a lack of genuine intent,
it may still not constitute just cause and excuse.
The court also acknowledged a general bias in industrial law that leans toward protecting the employee,
due to the typical imbalance in bargaining power between employer and employee.
Why giving notice is insufficient
Short answer: Because notice is not a valid reason, whatever the contract states.
Full answer: Because notice is not a valid reason and under Section 20 of the Industrial Relations Act 1967, an employee who believes they were dismissed without just cause or excuse can still file a claim for unfair dismissal, whatever the contract says.
This principle has been reinforced by the courts time and time again in the following cases:
Omar Othman v. Kulim Advanced Technologies Sdn Bhd [2019] 7 CLJ 18
In this case, the court reaffirmed that the common law concept of “termination simpliciter” is not part of Malaysia’s industrial jurisprudence under section 20 of the Industrial Relations Act 1967 (IRA 1967). While the concept may still apply in limited circumstances under the Employment Act 1955, it has no bearing in unfair dismissal claims governed by the IRA. This distinction clarifies the broader protections employees have under industrial law in Malaysia.
Dr A Dutt v. Assunta Hospital [1981] 1 LNS 5
The court held that the notion of “termination simpliciter”—a termination by contractual notice without providing any reason—will not shield the employer if the dismissal is not grounded on just cause or excuse. Even when notice requirements are fulfilled, an unsubstantiated termination can still be considered a dismissal without just cause or excuse under Malaysian industrial law.
Goon Kwee Phoy v. J&P Coats (M) Sdn Bhd [1981] 1 LNS 30
In this landmark case, the court clarified the role of the Industrial Court when representations of unfair dismissal are referred to it. The court has a duty to determine whether the termination or dismissal was with or without just cause or excuse. If an employer provides a reason for the dismissal, the Industrial Court must examine whether that reason is substantiated. If the court finds that the reason has not been proven, the conclusion must be that the dismissal was without just cause or excuse.
An employer may follow a contract to the letter, but while notice ends the contract; a justified reason protects the employer thereafter.
What if an employer fails to give reason?
No reason means no defence when it matters most: Defending against a wrongful dismissal claim.
If the dismissal is challenged, the employer must prove it was justified.
Without a reason stated at the time of termination, they walk into the Industrial Court relying solely on the clause, which leads to a high probability of:
- a finding of unfair dismissal or unlawful termination
- compensation or reinstatement in lieu of compensation
This is on top of damage to team morale and reputation which have lasting effects.
Where to state reasons for termination
Put it in writing in the termination letter so that it is clear, dated, and on record.
If the matter goes to court, only reasons stated in the letter will be considered – this was confirmed by the Court of Appeal in Melipoly Enterprise v Ong Hong Yeok.
That is why we always remind our clients that a termination letter is no trivial administrative task but their legal position in writing.
What are valid reasons for termination without cause?
These reasons, if genuine, may justify the dismissal:
- poor performance (properly documented)
- redundancy
- business closure
- business restructuring
- refusal to accept a transfer (if not justifiable by the employee).
In addition to a valid reason, the law also expects proper notice, clear documentation, and procedural fairness.
Under Section 12 of the Employment Act 1955, termination must be supported by reasonable notice or payment in lieu – this only governs the process, but the validity of the reason matters just as much.
What if the employer makes payment in lieu of notice?
A valid reason should still be given, as payment in lieu alone does not validate a dismissal or waive the employee’s right to file a claim.
This is only unless backed by a clear separation agreement as covered in our overview on employment termination clauses.
Termination without cause checklist
To reduce legal risk, and improve process clarity:
- use termination clauses with care
- keep internal records and documentation
- clearly state the termination reason in the letter
- consider separation agreements
- observe the contractual notice period, and
- apply fair process
While employers can’t stop a dismissed employee from filing a claim, they can take steps to ensure the termination is fair, well-documented, and legally sound.
Wrapping up
In evaluating a termination, Malaysia’s Industrial Court doesn’t just look at what the contract says, but whether it is fair and just.
As giving notice may end the contract but does not automatically make the termination lawful, valid reasons for termination are essential.
Whether it is refining your employment contracts or navigating a termination, we are here to help you move with clarity and confidence.
Lim Min (also known as Zi Han) is a Trainee Lawyer at Edwin Lee & Partners. She was called to the Bar of England and Wales (Middle Temple) in 2024, ranking 5th in her cohort and receiving the Top Advocate Prize for the Bar Training Course at Cardiff University. Zi Han has hands-on experience in corporate and commercial law, focusing on drafting and reviewing contracts, compliance matters, and legal research. She approaches each task with an analytical mindset and strong attention to detail. She also enjoys the company of people with a good sense of humour.
