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Understanding Termination Clauses and Notice Periods Under the Employment Act 1955

The end of an employment relationship, whether initiated by the employee or the employer, is a critical and legally sensitive process. At the heart of this process lies the termination clause, a contractual term that dictates how the separation should occur. In Malaysia, this is governed by a cornerstone of labour law: the Employment Act 1955.

Understanding your rights and obligations regarding notice periods is not just good practice, it’s a legal requirement. This guide will serve as a definitive resource for both employees and HR managers, breaking down the specific rules for termination notices as stipulated by the Employment Act 1955.

The Foundation: Termination Clauses and the Employment Act 1955

Before diving into the specifics of notice periods, it’s crucial to understand who the law applies to and the hierarchy of rules.

First, Who is Covered by the Employment Act 1955?

This is the most important starting point. The Employment Act 1955 does not cover all employees in Malaysia. It primarily applies to:

• All employees in West Malaysia with a monthly salary of RM4,000 and below.
• All employees, regardless of their salary, who are engaged in manual labour, operate machinery, or supervise such employees.
  Employees who fall outside this scope (“non-EA employees”) are governed by the terms of their employment contract. However, the principles of the Act are often seen as a benchmark for fair practice.

What is a Termination Clause?

A termination clause is a section in your employment contract that specifies how the employment relationship can be ended. It will outline the length of the notice period that either the employee or the employer must give to the other party before the employment ends.

The Golden Rule: Contract vs. The Act – Which is Followed?

This is a common point of confusion. The rule is simple:

• If your employment contract provides a notice period that is longer than the minimum required by the Act, the contractual period is followed.
• If your contract provides a notice period that is shorter than the minimum, or if it has no notice clause at all, the minimum period required by the Act is followed.
  The law always provides the minimum safety net; a contract can be more favourable, but never less.

Statutory Minimum Notice Periods: What the Law Requires

For employees covered by the Act, Section 12 dictates the minimum notice periods required for termination simpliciter (termination without a specific cause).

If Your Contract Does Not Specify a Notice Period

If your contract is silent on the notice period, the law automatically applies. The length of notice required is determined by your continuous length of service with that employer.

Notice Period Based on Length of Service:

The minimum notice periods are as follows:

• Less than 2 years of service: You must give or be given four weeks’ notice.
• 2 years or more, but less than 5 years: You must give or be given six weeks’ notice.
• 5 years or more of service: You must give or be given eight weeks’ notice.
  This applies equally to both the employer and the employee.

Ending Employment Without Notice: Rights and Obligations

In certain situations, the employment relationship can end immediately, but this is strictly governed by specific rules and obligations.

For Both Parties: Payment in Lieu of Notice

Either the employer or the employee can choose to end the contract without serving the notice period. To do this, they must pay the other party a sum of money equal to the amount of wages they would have earned during that notice period. This is known as “payment in lieu of notice.”

For Employees: The Consequences of Resigning Without Notice

If you resign and leave immediately without serving your notice period or making the payment in lieu, you are in breach of your contract. Your employer has the right to claim from you a sum equal to the wages for your notice period. This is often deducted from any final salary payments owed to you.

For Employers: Termination Due to Serious Misconduct

An employer can terminate an employee without notice if the employee has committed serious misconduct. Examples include theft, fraud, insubordination, or assault. However, before such a dismissal, the employer must conduct a proper “domestic inquiry” to prove the misconduct. Firing an employee for misconduct without a fair investigation can lead to a claim of unfair dismissal.

Special Case: Notice Periods for Employees on Probation

The statutory notice periods mentioned above do not apply to employees on probation. The notice period for a probationer is typically specified in their employment contract. If the contract is silent, the standard practice is often 24 hours’ or one week’s notice, but this can vary.

Best Practices for Serving and Receiving Notice

How you communicate the end of employment is just as important as the notice period itself.

Why You Must Always Give Notice in Writing

A verbal resignation or termination can lead to disputes about when the notice was given and when the notice period officially starts. A written letter provides a clear, dated record that protects both parties.

What to Include in a Termination or Resignation Letter

A proper notice letter should be professional and concise. It should include:

• A clear statement of your intention to resign or terminate employment.
• The date the letter is written.
• Your last day of employment, calculated based on the required notice period.

The Importance of Acknowledging Receipt

When an employee resigns, HR should formally acknowledge receipt of the resignation letter in writing. This confirms the employee’s last day and initiates the offboarding process, ensuring a smooth transition. This is a key step in any effective offboarding process.

For HR Managers: Ensuring Compliance in the Offboarding Process

For HR departments, managing terminations correctly is a critical compliance function.

The Challenge of Tracking Diverse Notice Periods

In a growing company, employees will have different start dates, different contractual terms, and therefore, different notice period obligations. Manually tracking these for every employee is inefficient and prone to error, which can lead to legal risks.

How Worksy HRMS Automates and Simplifies Termination Procedures

A smooth and compliant offboarding process involves more than just calculating the last day of employment. It requires a series of coordinated steps, from asset recovery to final payroll calculations and exit interviews. Manually tracking these tasks for every departing employee is inefficient and risks letting critical steps fall through the cracks, which can lead to compliance issues or a poor final impression.

This is where a robust HR system provides immense value. Worksy HRMS simplifies the entire termination procedure with its customizable offboarding checklist. When an employee’s resignation is logged, the system can automatically trigger a pre-configured workflow, assigning tasks to different departments:

• IT Department: Notified to retrieve company assets like laptops and phones.
• Finance Department: Alerted to process the final payroll, including any payment in lieu of notice and unused leave.
• HR Department: Reminded to schedule an exit interview and manage final documentation.

By automating and centralizing the offboarding checklist, Worksy HRMS ensures that every step is completed consistently and on time, guaranteeing a professional, secure, and fully compliant separation process for every employee.

Conclusion: Clarity and Compliance are Key to a Fair Separation

Termination clauses and notice periods are not just administrative details; they are legally mandated components of a fair employment relationship. For employees, understanding these rules empowers you to know your rights and obligations when you decide to leave a job. For employers, strict adherence to these rules is your best defense against claims of unfair dismissal.

By ensuring every termination process is handled with clarity, professionalism, and full compliance with the Employment Act 1955, both parties can achieve a clean and respectful separation.