What Is Unfair Dismissal in Malaysia? Employee & Employer Guide

Unfair dismissal in Malaysia means being terminated without just cause or excuse under the law.

Regardless if you’re a business owner navigating retrenchment, or an employee handed a sudden termination letter, Malaysia’s labour laws offer protections but also responsibilities, for both sides.

This guide breaks down what unfair dismissal actually means under the Employment Act 1955, how to handle it legally, and what steps both parties should take to avoid costly disputes at the Industrial Court.

What Is Considered Unfair Dismissal in Malaysia?

Unfair dismissal happens when an employee is terminated without just cause or excuse, breaching the protections of Malaysia’s labour law.

Under Section 20 of the Industrial Relations Act 1967, employees who believe they’ve been unfairly terminated have the right to lodge a formal complaint with the Director General of Industrial Relations (Jabatan Perhubungan Perusahaan) within 60 days of dismissal.

Common Situations That May Be Deemed “Unfair”:

• No domestic inquiry or investigation: The employer failed to investigate alleged misconduct or poor performance.
  
• Lack of communication: The employee was not told why they were being dismissed.
  
• No opportunity to respond: The employee wasn’t given a chance to explain or defend their side.
  
• Discrimination or retaliation: Termination was linked to whistleblowing, pregnancy, union activity, or age bias.
  
• Unjustified termination: Sudden firing without documented warnings or performance reviews.

Example: A Malaysian admin assistant was dismissed after complaining about unpaid OT to her HR manager. She wasn’t given a chance to respond and no inquiry was held. The Industrial Court later ruled this as constructive dismissal.

Why It Matters:

In Malaysia, termination must be both substantively justified and procedurally fair. That means even if an employee made a mistake, an employer must still follow due process, including a proper inquiry, before firing them. 

Failing this, the court may order reinstatement or compensation, even if the reason for dismissal was valid.

“For employees, if your employer tells you “we’re letting you go because we’re not happy with your performance” without any documented record, you may have a strong case for unfair dismissal.”

What Rights Do Employees Have If They’re Terminated?

Employees have the right to challenge terminations they believe are unfair, whether abrupt, discriminatory, or without due process. Here are the rights employees should know:

60-day deadline

File a representation to the DGIR within 60 days of the dismissal date.

If the dismissal is ruled unfair, the Industrial Court may order:

• Reinstatement: You return to your former role; or
• Compensation in lieu of reinstatement (CIR): Typically 1 month of salary per completed year of service (court practice).

Backwages

• Capped at 24 months (or 12 months for probationers).
• Subject to deductions for any income earned after dismissal.

Note: CIR and backwages are separate remedies. Depending on the case, the Court may award one or both.

Compensation Capped at 24 Months’ Salary

For confirmed (permanent) employees, the court may award:

• Backwages (up to 24 months)
• Compensation in lieu of reinstatement (usually 1 month per year of service)

Source: Ministry of Human Resources Malaysia

What Must Employers Do Before Terminating an Employee?

In Malaysia, termination isn’t just about having a good reason, it must also be procedurally fair. The Industrial Court looks at both substantive (the reason) and procedural (the process) fairness.

Standard Procedure Before Termination:

• Issue a Show-Cause Letter: Set out alleged misconduct or performance issues and seek a written explanation.
• Conduct Due Inquiry: For employees covered by the Employment Act, the law requires due inquiry before dismissal for misconduct. A Domestic Inquiry (DI) is strongly recommended, but the absence of a formal DI is not automatically fatal if the employer can prove just cause at the Industrial Court.
• Document Everything:Keep dated records of warnings, reviews, and correspondence.
• Allow the Employee to Respond: Denying a fair chance to be heard typically leads to an adverse finding.

For Retrenchment:

• Apply objective selection criteria (skills, performance, length of service). LIFO can be used where appropriate but is a guideline, not a strict rule.
• Notify the Labour Department (JTKSM) by submitting Form PK at least 30 days before the retrenchment.

Source: [Employment Retrenchment Notification Guidelines, JTKSM]

“If you skip any of the above steps, even with good cause, you may still be found in violation of the Industrial Relations Act.”

What If You’re on Probation? Do You Still Have Rights?

Being on probation doesn’t mean your employer can fire you without reason. Employers should set clear expectations, give feedback and time to improve, and ensure procedural fairness. 

A show-cause (and, where appropriate, a DI) is good practice, but a formal DI is not invariably mandatory.

Right to Due Inquiry

Even during probation, employers must issue a show-cause letter and hold a domestic inquiry before termination, especially for misconduct or performance issues.

Right to Proper Evaluation

Probationers must be given clear expectations, training or feedback, and a reasonable opportunity to improve before being dismissed.

Right to Challenge Unfair Dismissal

You can still file a Section 20 claim for unfair dismissal, though the Industrial Court may apply stricter thresholds (performance reviews, training logs).

Common Employer Mistakes with Probationers

• No written warning or feedback
• Vague performance criteria
• Sudden termination with no documentation

Types of Dismissals in Malaysia 

In Short:

• Constructive = You resigned, but the law may treat it as you were fired.
• Unfair = You were dismissed, but not lawfully or fairly.
• Retrenchment = You’re let go for business, not personal, reasons.
• Misconduct = Employer must prove wrongdoing and follow due inquiry

These terms often overlap in practice, but the two most commonly confused are unfair dismissal and constructive dismissal. So, we’re going to dedicate a section to it.

What Is the Difference Between Unfair Dismissal and Constructive Dismissal?

Unfair dismissal is when an employer terminates you unlawfully. Constructive dismissal is when you resign, but the law treats it as if you were dismissed.

If an employee is fired suddenly, it’s unfair dismissal. If an employee resigns because of unbearable conditions, it’s constructive dismissal.

How Do Industrial Court Proceedings Work in Malaysia?

The Industrial Court decides whether a dismissal is fair or unfair by examining facts, procedure, and established case law.

The process isn’t automatic, it begins when an employee believes they were dismissed “without just cause or excuse” under Section 20 of the Industrial Relations Act 1967.

Step 1: Representation Filed (Section 20 IRA)

• The employee must lodge a complaint to the DGIR within 60 days of dismissal.
• This is called a “representation for reinstatement”.

Source: Industrial Relations Act 1967, Section 20

Step 2: Conciliation Meeting (Attempt to Settle)

• JPP officers will invite both employer and employee for a conciliation session.
• If a settlement is reached (compensation), the case ends here.
• If not, the case will escalate to the court room.

Step 3: Minister’s Referral to Industrial Court

If settlement is unlikely, the DGIR shall refer the case to the Industrial Court.

Once referred, the court is legally bound to hear it.

Step 4: Hearing Before the Industrial Court

This is similar to a trial: both sides can present witnesses, documents, and evidence.

• In the Industrial Court, parties may self-represent or be represented by an advocate with the Court’s permission.
• The employer carries the burden of proof to show the dismissal was with “just cause or excuse.”

Step 5: Award Issued: Reinstatement or Compensation

If the dismissal is unfair, the court may order:

• Reinstatement (employee returns to their job), or
• Compensation in lieu of reinstatement (usually 1 month’s salary per year of service, capped at 24 months).

Backwages may also be ordered for the period between dismissal and judgment (also capped at 24 months).

Notable Case: Goon Kwee Phoy v J & P Coats (M) Bhd [1981]

This landmark case is often cited in unfair dismissal claims, so let’s consider this case study.

Background: 

Mr. Goon was dismissed by his employer, J & P Coats, allegedly for poor performance. He challenged the dismissal as unfair.

Court’s Decision:

The Federal Court of Malaysia ruled that the burden of proof lies with the employer. It is not enough for an employer to simply claim “poor performance” or “misconduct.” The employer must prove with evidence that:

1. The dismissal was based on just cause or excuse; and
2. The proper procedure (domestic inquiry, warnings) was followed.

Impact:

This case set the precedent that employees don’t have to prove innocence, the employer must prove guilt. If the employer fails, the dismissal is automatically deemed unfair.

Conclusion: Know Your Rights, Protect Your Workplace

Unfair dismissal in Malaysia affects both employee well-being and company reputation. Employees deserve clear procedures and fair treatment and employers must follow the right steps or risk Industrial Court action. 

 For businesses, especially during sensitive situations like retrenchment or disputed dismissals, communication matters just as much as compliance.

That’s where a PR agency like Press can help. By crafting clear internal messaging, handling media relations, and supporting leadership communications, a PR partner ensures your company manages employee exits with dignity while protecting brand reputation in the public eye.

Don’t leave reputation to chance. Let Press help you manage difficult transitions the right way, legally sound, empathetically delivered, and brand-safe.

Disclaimer: This article provides general information on Malaysian employment law and is not legal advice. It does not create an advocate-and-solicitor relationship. Press is not a law firm, any services offered relate to PR and communications, not legal representation.