Contractual Termination

TOPIC: CONTRACTUAL TERMINATION

Contractual termination is terminating of an employment contract by executing the Termination Notice clause in an employment contract. In industrial relations contractual termination is also known as Termination Simpliciter.

We may find in every employment contract there is a Termination Notice clause which reads more or less that the termination notice is certain period or pay salary in lieu of termination notice.

An employee can execute the clause to resign from his employment. The question is Can an employer execute the clause to terminate the service of an employee? This is what we going to look at today

You can also see in certain employment contract that the employer can terminate the service of an employee by giving the contractual notice or pay salary in lieu of the notice without assigning any reason whatsoever

Can this be done by the employer?

If we look at Section 12(1) of Employment Act 1955, it reads: "Either party to a contract of service may at any time give to the other party notice of his intention to terminate such contract of service."

If we look at Section 13(1) of Employment Act 1955, it reads: Termination of Contract without Notice Either party to a contract of service may terminate such contract of service without notice or, if notice already been given in accordance with section 12, without waiting for the expiry of that notice, by paying indemnity of a sum equal to the amount of wages which would have accrued to the employee during the term of such notice or during the unexpired term of such notice.

Whether an employer can execute the Termination Notice clause in employment contract or exercise his rights as per the provision of Section 12(1) and 13(1) of Employment Act 1955?

The Federal Court in Maritime Intelligence Sdn Bhd v Tan Ah Gek [2021] 10 CLJ 663: stated that the right to livelihood in the context of employment is a fundamental right guaranteed under Article 5(1) of the Federal Constitution. Section 20(1) of Industrial Relations Act 1967 exemplifies this very right. The Federal Court also emphasised the importance of giving clear reasons when terminating an employee as these will be closely scrutinised by the IC. Employment law in essence is a social legislation which is intended to protect employees but it allows employers to terminate employees if they have valid reasons. It puts in place, checks and balances on the employer to justify the reasons for termination. In Court of Appeal case of Omar Bin Othman v. Kulim Advanced Technologies Sdn. Bhd. [2019] 7 CLJ 18 where his lordship Justice Hamid Sultan Abu Backer JCA delivering the judgment stated the following:- "It is now well-established that 'termination simpliciter' a concept of common law is not part of industrial jurisprudence of Malaysia - under the s. 20 of the Industrial Relations Act 1967 (IRA 1967). The concept may be relevant in limited circumstances under the Employment Act 1955.

Conclusion The employer must have just cause or excuse to terminate the services of an employee eg misconduct, poor performance, medical board out, frustration of contract, redundancy etc. Simply exercising contractual termination is illegal and it is an unfair dismissal in industrial relations law.