Friday, 21 August 2026
The starting point most employers get wrong
Most employers start a termination discussion with the contract.
Can the company terminate with notice? Can it pay salary in lieu of notice? Has the company complied with the termination clause?
These are sensible questions. But in Malaysian employment law, they are not enough.
The reason is simple. Employment is not treated like an ordinary commercial contract.
Once that is understood, much of the law on dismissal starts to make more sense.
A termination can be contractually valid and still be unfair
In ordinary contract law, the position is relatively straightforward.
If a contract allows one party to terminate by giving notice, and proper notice is given, the contract comes to an end. The law will usually not ask why the party chose to terminate.
Employment law is different.
Section 20 of the Industrial Relations Act 1967 allows an employee to challenge a dismissal on the basis that it was without just cause or excuse.
That can happen even where the employment contract allows termination with notice, the employer gives the required notice or pays in lieu, and there is no obvious breach of the contract itself.
This is one of the most important concepts for HR practitioners to understand: a dismissal can comply with the employment contract and still be legally vulnerable.
At first glance, that may seem strange. It is not. It reflects the fact that employment is not treated as an ordinary commercial exchange.
Employment is not just another contract
A commercial contract usually involves an exchange between two parties pursuing commercial interests. Employment is different.
For most employees, employment provides far more than income. It provides livelihood.
It affects financial security, family commitments, professional identity, confidence and future career prospects.
That is why termination has very different consequences for the two parties.
A company losing an employee may need to recruit a replacement. An employee losing a job may lose their principal source of income overnight.
The consequences are not equal. Neither is the power within the relationship.
The employer controls the organisation. It determines roles, structures, reporting lines, standards, remuneration and, ultimately, whether employment continues.
The employee is dependent on that relationship for work and income.
The law recognises this imbalance. That is why the employer’s contractual power to terminate is not treated as absolute.
The real question becomes: was it fair for the employer to exercise that power in the way it did?
The law is not based on the assumption that employers are bad actors
Employment protection does not exist because the law assumes employers act unfairly.
Most employers do not wake up wanting to dismiss people unfairly.
The protection exists because employers hold greater organisational power and dismissal is usually a unilateral decision with serious consequences for the employee.
The law therefore places limits around the exercise of that power.
It asks whether there was a proper reason. Whether the evidence supports that reason. Whether the response was proportionate. Whether the employee was treated fairly. And whether the employer can justify what it did.
That last question is often where the real difficulty begins.
Why “just cause or excuse” is deliberately broad
The Industrial Relations Act does not provide a neat checklist explaining exactly what amounts to just cause or excuse.
That sometimes frustrates employers. But the flexibility is intentional.
Workplaces are messy. People are different. Performance problems vary enormously. Misconduct occurs in different circumstances. Businesses restructure for different reasons.
A rigid rulebook could never capture every situation.
The law therefore leaves room for judgment. That allows the Industrial Court to look beyond technical compliance and consider the real circumstances surrounding the dismissal.
Was the employer’s reason genuine? Was the conclusion reasonable? Was the response proportionate? Was the employee treated fairly? Could something less drastic have been done?
These are not mathematical questions. They require judgment.
Strong employment law advice therefore requires more than knowledge of legislation and case law. It requires an understanding of people, workplaces, evidence, context and how a decision will appear to someone outside the organisation.
Notice solves only one part of the problem
Another common misconception is that payment of notice somehow neutralises dismissal risk.
It does not.
Notice compensates the employee for the contractual notice period. It does not answer the fairness question.
It does not explain why the employee had to leave. It does not address whether allegations were properly investigated. It does not establish that poor performance actually existed. It does not prove that a retrenchment was genuine. And it does not show that dismissal was proportionate.
That is why the statement, “The contract allows us to terminate by giving three months’ notice,” should never be the end of the discussion.
In many cases, it is only the beginning.
The question is not simply whether you can terminate
The contractual right to terminate matters. But it is only one part of the analysis.
The harder question is whether the employer can justify why it was fair to exercise that right in those particular circumstances.
That changes the way HR should think about termination.
The discussion should not end with: “Can we terminate?”
It should move quickly to: “If this decision is challenged, can we explain clearly why it was fair?”
That is where the real work begins.
In Part 2
In Part 2, I will move from the principle to the practical question: what should HR actually be thinking about before a termination decision is made?
I will look at why termination risk is often controlled by the explanation rather than the decision itself, why evidence and witnesses matter, and the question HR should ask before every dismissal.
Want to explore this further?
Dharmen will be discussing these issues and more at the *MECA IR Convention 2026*, alongside leading voices in Industrial Relations, Employment Law and workplace management.
7–8 October 2026 | Bangsar South
Discover the MECA IR Convention 2026 →(https://convention.meca.com.my/meca)
