MaxineKhoo

In many Malaysian companies, especially family businesses and start-ups, not all shareholders enjoy equal power. Majority shareholders often control key decisions, while minority shareholders may feel sidelined. To address this imbalance, the Companies Act 2016 and established principles of company law provide certain protections to minority shareholders. These protections are crucial in ensuring fairness, accountability, and transparency within the company.
One of the most fundamental safeguards is the right to be treated fairly. Even though majority shareholders have voting control, they cannot abuse their position to oppress minority shareholders. Section 346 of the Companies Act 2016 provides a statutory remedy for “oppression.” If the affairs of a company are conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to a shareholder, the aggrieved minority shareholder may apply to court for relief. The court has wide powers to make orders, including regulating the company’s conduct, requiring the company to refrain from certain actions, or even ordering the majority shareholders to buy out the minority at a fair value.
Another important protection comes in the form of pre-emptive rights. These rights allow existing shareholders to be offered new shares before they are issued to outsiders. This prevents the dilution of ownership and voting power of minority shareholders. Without such protection, majority shareholders could issue shares to themselves or third parties, reducing the influence of the minority.
Minority shareholders also benefit from the right to information and inspection. They are entitled to receive audited financial statements, annual returns, and other statutory documents filed with the Companies Commission of Malaysia (SSM). Transparency in company records ensures that shareholders can monitor how the business is managed and whether directors are fulfilling their duties. If necessary, minority shareholders may also initiate legal proceedings to enforce their rights or challenge decisions that breach the law or the company’s constitution.
Corporate governance mechanisms, such as shareholders’ agreements, also play a vital role in minority protection. These agreements can provide additional contractual rights that go beyond statutory protection, such as veto rights on key business decisions, tag-along rights to ensure that minority shareholders can exit on the same terms as majority shareholders during a sale, and dispute resolution clauses to avoid costly litigation.
The law further recognises that directors must act in the best interest of the company as a whole, not just in favour of the majority shareholders who may have appointed them. This fiduciary duty provides an indirect safeguard to minority shareholders, as directors can be held accountable if they act in bad faith or for improper purposes.
In practice, minority shareholder disputes are among the most common forms of corporate litigation in Malaysia. They are often complex, involving both legal and commercial considerations. Seeking timely legal advice is essential for minority shareholders who suspect unfair treatment, and for majority shareholders who wish to avoid actions that may be challenged as oppressive.
In conclusion, while majority rule is a core principle of company law, it is balanced by statutory and contractual protections to ensure that minority shareholders are not left vulnerable. By understanding these rights and seeking proper legal guidance, both majority and minority shareholders can work towards building businesses that are not only profitable but also fair and sustainable.
Written by Lawyer Khoo, Ng, Zainurul, Seke & Khoo

The role of a director in a Malaysian company carries significant responsibilities. Under the Companies Act 2016, directors are entrusted with fiduciary and statutory duties that ensure the company is managed in a proper, accountable, and lawful manner. Many business owners assume that once they are appointed as directors, their role is limited to overseeing operations. In reality, the law imposes wide-ranging obligations that, if breached, may result in personal liability, civil claims, or even criminal sanctions.
At its core, a director owes a duty of care, skill, and diligence to the company. This means that directors must make informed decisions in good faith, exercise reasonable judgment, and avoid negligence in the management of the company’s affairs. The Companies Act 2016 sets an objective standard—measured against what a reasonable person in a similar position would do—combined with a subjective standard, which considers the individual director’s knowledge and experience. Simply put, a director cannot hide behind ignorance or inexperience as an excuse for poor decision-making.
Another fundamental obligation is the duty to act in the best interest of the company. Directors must prioritise the company’s welfare above personal gain, shareholder influence, or third-party pressure. This extends to avoiding conflicts of interest. For example, if a director has a personal interest in a proposed contract, they are required by law to disclose it. Failure to do so may lead to legal consequences, including the contract being declared voidable or the director being held liable for any resulting losses.
Directors are also subject to specific statutory duties. They must ensure that the company maintains proper accounting records, prepares audited financial statements (unless exempted), and files annual returns with the Companies Commission of Malaysia (SSM). They are further obliged to prevent the company from trading while insolvent. If directors allow the company to incur debts when they know—or should reasonably know—that the company cannot meet its obligations, they risk being held personally liable for those debts.
One of the more serious aspects of directorship is the potential for personal liability. The protection of limited liability does not shield directors who breach their duties. Under the Companies Act 2016, directors may face fines, disqualification, or imprisonment for serious breaches. For instance, wrongful use of company funds, reckless trading, or deliberate concealment of financial information can expose directors to both civil suits from shareholders and enforcement actions by regulators.
Given these responsibilities, it is essential for directors to seek professional advice whenever uncertainty arises. Corporate lawyers can provide guidance on structuring board decisions, drafting policies to avoid conflicts of interest, and ensuring compliance with statutory requirements. A proactive approach not only protects directors from legal risks but also enhances corporate governance and investor confidence.
In conclusion, being a director in a Malaysian company is far more than a ceremonial title. It is a position of trust that comes with legal duties under the Companies Act 2016. By understanding and fulfilling these obligations, directors not only protect themselves from liability but also contribute to the long-term success and credibility of their companies.
Written by Lawyer Khoo, Ng, Zainurul, Seke & Khoo

When entrepreneurs come together to start a company in Malaysia, the focus is often on the excitement of new opportunities, products, and markets. However, one of the most overlooked yet critical documents at the early stage of a business is the Shareholders’ Agreement. While the Companies Act 2016 provides a general framework for corporate governance, it does not address the unique needs and relationships of shareholders in a particular company. This is where a shareholders’ agreement becomes invaluable.
A shareholders’ agreement is essentially a private contract between the shareholders of a company. It governs their rights, responsibilities, and obligations in relation to the company and to one another. Unlike the company constitution, which is filed with the Companies Commission of Malaysia (SSM) and publicly accessible, a shareholders’ agreement is confidential and tailored to the specific needs of the business. It provides clarity in situations where the law may be silent or too broad, and serves as a safeguard against disputes that could otherwise destabilise the company.
One of the key benefits of a shareholders’ agreement is that it clearly defines decision-making powers. For example, it can specify which matters require unanimous shareholder approval, such as major acquisitions, borrowings above a certain limit, or changes to shareholding structures. By setting these rules early, shareholders avoid uncertainty and reduce the risk of deadlock. In cases where deadlock does occur, the agreement can provide a mechanism for resolution, such as mediation, arbitration, or a buy-out clause.
Another critical feature is protection for minority shareholders. Without a shareholders’ agreement, minority shareholders may find themselves sidelined by majority decisions. By inserting provisions such as pre-emption rights (the right of existing shareholders to buy shares before they are offered to outsiders) or veto rights on certain fundamental decisions, minority shareholders gain reassurance that their interests will not be unfairly diluted or ignored.
At the same time, a shareholders’ agreement also protects majority shareholders and the business as a whole. Clauses such as non-compete obligations prevent shareholders from using insider knowledge to start competing businesses. Confidentiality provisions ensure that sensitive company information is not disclosed to third parties. Exit strategies, such as drag-along and tag-along rights, provide a structured process when shareholders wish to sell their shares or when the company is acquired, reducing the likelihood of disputes.
Without a shareholders’ agreement, disputes among shareholders can become costly and disruptive, often leading to litigation or even the winding up of the company. A well-drafted agreement, however, anticipates potential conflicts and provides solutions in advance. This not only saves time and money but also preserves relationships among shareholders, which is often crucial for the continued success of the business.
For these reasons, entrepreneurs and investors should never treat a shareholders’ agreement as optional. It is a vital part of corporate planning that ensures certainty, fairness, and stability in the running of the company. Engaging a corporate lawyer to draft a comprehensive shareholders’ agreement tailored to the business structure is an investment that pays off by reducing risks and protecting shareholder value.
In conclusion, while incorporating a company in Malaysia is relatively straightforward, the real challenge lies in managing shareholder relationships over the long term. A shareholders’ agreement fills this gap by providing a customised framework that addresses governance, protection, and dispute resolution. Every company, regardless of size, should have one in place from the very beginning.
Written by Lawyer Khoo, Ng, Zainurul, Seke & Khoo

In Malaysia, the most common and practical business structure is the Private Limited Company (Sdn Bhd), which is regulated by the Companies Act 2016. Many entrepreneurs prefer this model because it offers limited liability protection, a separate legal identity, perpetual succession, and enhanced credibility with clients, banks, and investors. Compared to a sole proprietorship or partnership, a Sdn Bhd provides stronger safeguards for business owners while remaining flexible for growth and expansion.
To incorporate a company in Malaysia, several basic requirements must first be satisfied. At least one director must be appointed, and that individual must ordinarily reside in Malaysia. In addition, there must be at least one shareholder, who may be an individual or even a corporate entity. Every company must also appoint a licensed company secretary approved by the Companies Commission of Malaysia (SSM). The law allows for a minimum paid-up capital of RM1, but in practice, many companies declare a higher capital to improve their credibility in dealing with banks, suppliers, or government tenders. Finally, a local Malaysian registered address must be provided for statutory and official correspondence.
The incorporation process begins with reserving a company name through the MyCoID portal. The proposed name must be distinct and not misleading, offensive, or too similar to existing businesses. Once the name is approved, incorporation documents are prepared, including details of directors, shareholders, and the company secretary, together with statutory declarations and, if required, a constitution. These documents are then lodged online with SSM along with the incorporation fee of RM1,000. When the application is approved, SSM issues a Notice of Registration, which serves as proof that the company is legally established.
However, registering a company is only the first step. After incorporation, the company must meet ongoing compliance obligations. An auditor must be appointed within 30 days, unless the company qualifies for audit exemption. An annual return must be filed every year within 30 days of the anniversary of incorporation, and financial statements must be prepared and lodged accordingly. The company secretary is responsible for maintaining statutory registers and ensuring corporate records are kept up to date. Failure to comply with these requirements can result in penalties, fines, or even the striking-off of the company from the register.
New business owners often underestimate these compliance obligations. Common mistakes include choosing a company name that too closely resembles existing businesses, appointing directors who do not meet residency requirements, or neglecting annual filing duties. While the process may appear straightforward, such oversights can cause serious delays or even expose the company to legal risks.
Engaging a corporate lawyer provides peace of mind and long-term protection. Legal advice ensures that shareholding structures are properly planned, shareholders’ agreements are drafted to prevent disputes, and statutory duties are fulfilled. Lawyers also provide guidance on employment laws, tax compliance, licensing, and governance matters. These safeguards are essential for entrepreneurs who want their business to grow without being hampered by costly legal issues later on.
In summary, incorporating a Private Limited Company (Sdn Bhd) in Malaysia is a clear and structured process under the Companies Act 2016. Yet success lies not only in registration, but also in ensuring compliance and sound corporate governance from the start. By seeking professional assistance, business owners can be confident that their company is built on a strong legal foundation and ready for sustainable growth.
Written by Lawyer Khoo, Ng, Zainurul, Seke & Khoo

Why Domestic Inquiries Matter
When an employee is accused of misconduct—whether it is absenteeism, insubordination, harassment, or theft—many employers react quickly and decisively. Some issue warning letters; others move straight to termination. But under Malaysian employment law, dismissing an employee without giving them the chance to defend themselves can backfire badly.
That is where the domestic inquiry (DI) comes in. A DI is essentially an internal hearing where the employer gives the employee an opportunity to explain and defend themselves before any disciplinary action is taken. It is not a court trial, but it is a formal process that demonstrates fairness. Handled properly, it protects the employer from unfair dismissal claims. Handled poorly, it can undermine the employer’s case completely.

The Legal Foundation
The Industrial Relations Act and case law in Malaysia emphasise the principle of natural justice. This means that before imposing a penalty as serious as dismissal, an employer must give the employee two fundamental rights:
The right to know the charges against them.
The right to be heard before a decision is made.
A domestic inquiry is the mechanism through which these rights are honoured.

Steps to Conducting a Proper Domestic Inquiry
First, the process begins with a show cause letter. This letter sets out the alleged misconduct clearly, with dates, times, and details, and gives the employee a chance to reply. If the reply is unsatisfactory, the employer may proceed to a DI.
Next, the employer must form an impartial panel to hear the case. Ideally, the panel should consist of individuals not directly involved in the incident, to avoid bias.
The employee must then be given adequate notice of the hearing, usually a few days, so they can prepare their defence. They should also be allowed to bring witnesses or documents to support their case.
During the hearing, both sides should be heard. The employer presents the allegations and evidence; the employee has the right to cross-examine witnesses and to make their own representations.
After the hearing, the panel deliberates and issues findings in writing. If the employee is found guilty of misconduct, the employer may decide on the appropriate punishment—ranging from a warning to dismissal.

The Do’s of a Domestic Inquiry
Do keep it impartial: Bias in the panel undermines credibility.
Do document everything: Minutes of proceedings, witness statements, and evidence must be recorded.
Do allow the employee to be heard fully: Cutting them off or refusing witnesses can make the inquiry invalid.
Do follow your own company policies: If the employee handbook specifies procedures, follow them strictly.

The Don’ts of a Domestic Inquiry
Don’t predetermine guilt: The inquiry must be genuine, not a formality before a dismissal already decided.
Don’t rush the process: Allow reasonable time for preparation and response.
Don’t use vague charges: Allegations must be specific and detailed.
Don’t ignore the findings: If the panel finds the employee not guilty, dismissing them anyway risks a strong unfair dismissal claim.

Risks of Skipping or Mishandling a DI
Some employers argue that a domestic inquiry is unnecessary, especially in small companies. But skipping it entirely—or conducting a “paper inquiry” that is not genuine—creates significant risk. The Industrial Court may conclude that the employer denied the employee natural justice. In such cases, even if misconduct was real, dismissal may still be ruled unfair, leading to heavy compensation awards.
Mishandling the process is equally dangerous. An inquiry riddled with bias, missing records, or vague charges will not stand up in court. Instead of protecting the employer, it becomes evidence against them.

Benefits of a Proper Domestic Inquiry
A well-run DI strengthens the employer’s position in several ways. It shows the company acted fairly and reasonably. It creates a documented record of misconduct and the employee’s response. It demonstrates compliance with both the law and the principle of natural justice.
For employees, a DI is equally important. It gives them a chance to tell their side of the story, to present evidence, and to avoid being dismissed unfairly. Even if the outcome is dismissal, the employee knows they were given a fair chance.

Final Thoughts
Domestic inquiries may seem like an administrative burden, but they are in fact a vital safeguard for both employers and employees. For employers, they prevent costly unfair dismissal claims. For employees, they ensure dignity and fairness in the workplace.
The lesson is clear: never treat a DI as a mere formality. Approach it with seriousness, impartiality, and proper documentation. In the long run, the time and effort spent on a proper inquiry will save far more than the cost of defending an unfair dismissal claim.
At its heart, the domestic inquiry is about balance. It is about giving both sides a voice before life-changing decisions are made. And in that sense, it reflects the very spirit of employment law in Malaysia—fairness, justice, and respect for the rights of all.

✍️ Written by Lawyer Khoo, Partner at Ng, Zainurul, Seke & Khoo

Why Employment Contracts Matter
For many small and medium-sized enterprises (SMEs) in Malaysia, employment contracts are often treated as an afterthought. Owners are focused on growing the business, generating sales, and managing daily operations. Legal paperwork sometimes feels secondary. But when disputes arise—whether over termination, salary, or working hours—an unclear or poorly drafted contract can become a company’s biggest liability.
As an employment lawyer, I have seen SMEs face unnecessary claims simply because their contracts lacked clarity or failed to comply with the law. To avoid those costly lessons, here are the top five mistakes SMEs commonly make in employment contracts.

Mistake 1: Using a Generic Template Without Customisation
Many SMEs download a contract from the internet or recycle one from another business, assuming it will “cover everything.” Unfortunately, employment law in Malaysia is specific, and each business has unique needs. A one-size-fits-all template often leaves out key clauses on probation, confidentiality, intellectual property, or termination.
Worse, some templates include terms that directly contradict the Employment Act or Industrial Relations Act. This creates unenforceable provisions that give employees an advantage in disputes. Every SME should tailor contracts to reflect their industry, work arrangements, and legal obligations.

Mistake 2: Failing to Define Job Scope Clearly
Disputes often begin when employees say, “That’s not my job.” A vague job description in the contract leaves room for argument about what duties are expected. Employers may assume flexibility, while employees may assume limits.
A well-drafted contract should set out the role, responsibilities, and reporting lines clearly. While some flexibility is allowed, clarity prevents misunderstandings. This is especially important in SMEs, where employees often wear multiple hats.

Mistake 3: Ignoring Probation and Confirmation Clauses
Probation is a critical period, yet many SMEs fail to spell out its terms properly. Some contracts do not specify the probation period at all; others forget to explain what happens at the end of it.
Without clear clauses, employers risk disputes when an employee assumes they are confirmed automatically. The contract should clearly state the probation duration, the criteria for assessment, and whether confirmation is automatic or subject to employer discretion.

Mistake 4: Overlooking Termination Procedures
One of the most common mistakes SMEs make is treating termination casually. Some contracts say little more than “the employer may terminate at any time.” This is legally dangerous.
Malaysian law requires termination to be based on “just cause and excuse.” Employers must follow proper notice periods, disciplinary procedures, and due process. If a contract fails to outline these requirements, an SME could face an unfair dismissal claim.
A good contract should include notice periods, grounds for summary dismissal (such as serious misconduct), and references to due process such as show cause letters or domestic inquiries. These provisions protect both employer and employee by setting expectations upfront.

Mistake 5: Forgetting About Compliance with the Employment Act
Perhaps the most serious mistake is ignoring statutory law. The Employment Act sets minimum standards on matters such as wages, working hours, rest days, maternity leave, and overtime. Any contract that falls below these minimum standards is invalid.
SMEs sometimes draft contracts that impose longer working hours without overtime, or deny employees their statutory leave. Not only are such provisions unenforceable, they also expose the business to penalties and claims. Compliance is not optional; it is the foundation of every valid employment contract.

The Hidden Costs of Poor Contracts
When these mistakes occur, the costs can be significant. SMEs may face claims at the Industrial Court, orders to pay back wages or compensation, or investigations by the labour authorities. Beyond financial loss, poor contracts can damage employee trust, morale, and the company’s reputation.
The truth is, an employment contract is more than just a formality. It is a roadmap for the working relationship. Done properly, it protects both sides and reduces the risk of disputes.

Best Practices for SMEs
To avoid these pitfalls, SMEs should:
Invest in professionally drafted contracts tailored to their business.
Review contracts regularly to ensure compliance with updated laws.
Be clear about roles, probation, and termination procedures.
Train managers on the importance of following contractual and statutory obligations.
These steps require some effort upfront but save far more in the long run.

Final Thoughts
In the fast-moving world of SMEs, employment contracts may seem like paperwork that slows down growth. But ignoring them is like building a house without a solid foundation—the cracks will eventually show. By avoiding the common mistakes outlined above, SMEs can strengthen their business, protect themselves legally, and build healthier relationships with their employees.
At the end of the day, a well-drafted contract is not just a shield in disputes. It is a sign of professionalism, fairness, and respect—qualities that every successful SME should embody.

✍️ Written by Lawyer Khoo, Partner at Ng, Zainurul, Seke & Khoo

Why Show Cause Letters Matter
In Malaysian employment law, one of the most common mistakes employers make is mishandling misconduct at the workplace. When an employee breaches company rules or displays questionable behaviour, employers often act in haste—either by ignoring the matter or rushing straight to dismissal. Both approaches are risky.
The proper legal step is usually to issue a show cause letter. This letter asks the employee to explain or justify their actions before any disciplinary action is taken. It may look like a simple piece of paper, but in the eyes of the law, a show cause letter is a crucial safeguard for both employer and employee. Done correctly, it demonstrates fairness and due process. Done poorly, it can expose the employer to claims of unfair dismissal.

The Purpose of a Show Cause Letter
A show cause letter is not a punishment in itself. Its purpose is to give the employee an opportunity to be heard. In legal terms, this reflects the principle of natural justice—that no one should be condemned without being given a fair chance to explain.
The letter should clearly state the alleged misconduct, ask for the employee’s explanation, and allow a reasonable timeframe for response. Only after considering the explanation should the employer decide whether further action, such as a domestic inquiry or dismissal, is appropriate.

The Do’s of Issuing a Show Cause Letter
First, be clear and specific. The allegation must be described in sufficient detail—dates, times, places, and actions. A vague statement like “poor behaviour” or “lack of commitment” is not enough.
Second, stick to the facts. The letter should state what happened, not what the employer feels about it. Emotional or judgmental language weakens the letter’s credibility.
Third, allow a fair opportunity to respond. A common standard is 48 to 72 hours, depending on the complexity of the allegations. Employees must have enough time to prepare a proper explanation.
Fourth, follow up properly. Once the response is received, it must be considered genuinely. If the explanation is reasonable, the matter may end there. If not, the employer may proceed to a domestic inquiry or other disciplinary steps.
Finally, keep proper records. Documentation is key in case the matter is later challenged at the Industrial Court.

The Don’ts of Issuing a Show Cause Letter
Do not rush the process. Issuing a show cause letter on the same day as dismissal defeats the entire purpose.
Do not be vague. Without clear allegations, the employee cannot reasonably defend themselves. Courts often criticise letters that lack specific details.
Do not threaten or predetermine guilt. The tone should invite an explanation, not declare the employee guilty in advance. Phrases like “you are guilty of” or “we have decided to dismiss you” should be avoided.
Do not ignore the response. If the employee provides an explanation, the employer must evaluate it seriously. Ignoring it altogether makes the process appear like a sham.
And importantly, do not use the show cause letter as a weapon. It is not meant to intimidate employees or create fear. Its purpose is fairness, not punishment.

Risks of Getting It Wrong
When show cause letters are mishandled, the risks are serious. If the Industrial Court finds that an employee was dismissed without proper due process, the employer can be ordered to pay months or even years of back wages, plus compensation. The cost of an unfair dismissal claim can far outweigh the inconvenience of drafting a proper letter and conducting a fair inquiry.

Why Employees Should Pay Attention
From an employee’s perspective, a show cause letter should not be taken lightly. It is an opportunity to explain and defend yourself. Ignoring it or giving a careless response can make matters worse. A well-drafted explanation, supported by evidence or witnesses, can prevent escalation and even save your job.

Striking the Right Balance
Ultimately, a show cause letter is about balance. It protects the employer by showing that rules are enforced properly, and it protects the employee by ensuring fairness and the right to be heard. It may feel like paperwork, but in reality, it is a cornerstone of workplace justice.
As an employment lawyer, I have seen too many disputes where employers skipped this step or mishandled it, only to face costly claims later. I have also seen employees who ignored their chance to respond, only to regret it after dismissal.
The lesson is simple: handle show cause letters with care. For employers, draft them clearly and fairly. For employees, respond seriously and honestly. When both sides respect the process, the workplace becomes not only more compliant with the law but also more just.

✍️ Written by Lawyer Khoo, Partner at Ng, Zainurul, Seke & Khoo

The First Few Months
For many employees, joining a new company is both exciting and nerve-racking. The first few months—often called the probation period—are a time to prove yourself, adapt to the workplace culture, and show that you are the right fit for the role. For employers, probation is a safety net: a chance to evaluate whether the new hire has the skills, attitude, and reliability that the job demands.
But in Malaysia, the probation period is not just a formality. It carries specific legal rights and obligations. Both employers and employees often misunderstand what probation really means, and that confusion can lead to disputes when things do not go as planned.

What is a Probation Period?
A probation period is a trial stage of employment, usually lasting three to six months, though contracts may specify longer or shorter periods. During this time, the employee is expected to demonstrate competence and commitment. The employer, in turn, monitors performance closely to decide whether to confirm the employee as a permanent staff member.
Despite being on probation, an employee is still considered a regular employee under Malaysian law. The key difference is that confirmation is not automatic—the employer must make a decision at the end of the probation period.

Rights of Employees on Probation
A common misconception is that probationers have no rights. This is not true. Probationary employees are entitled to the same basic protections as confirmed employees. For example, they are covered by the Employment Act (if within the salary threshold) and enjoy rights to wages, leave, and other statutory benefits.
Most importantly, probationers cannot be dismissed arbitrarily. If an employer wishes to terminate a probationary employee for poor performance, the same principles of “just cause and excuse” apply. This means that the employer must show evidence of unsatisfactory performance, provide feedback, and give the employee a fair opportunity to improve.

Employer’s Right to Assess
Employers are not powerless during probation. The whole purpose of probation is to evaluate suitability. Employers may set performance standards, monitor progress, and even extend the probation period if they feel more time is needed for assessment. However, any extension should be reasonable and communicated clearly in writing.
If the employee consistently fails to meet expectations despite guidance and feedback, termination may be justified. But again, the process must be fair and well-documented to avoid legal challenges.

Risks for Employers
The biggest risk for employers is assuming that probation gives them complete freedom to dismiss without consequences. Termination without proper justification can lead to claims of unfair dismissal. Courts in Malaysia have repeatedly emphasised that probationers are entitled to natural justice.
Another risk is failing to document evaluations. If performance issues are not recorded—through appraisals, warning letters, or counselling sessions—the employer may struggle to defend a termination decision later.
Employers also face reputational risks. Treating probationers unfairly can damage morale among existing staff and harm the company’s reputation in the job market.

Risks for Employees
For employees, the main risk is uncertainty. Until confirmation, job security is weaker. Employers may decide not to confirm employment if performance is lacking. In some cases, employees are kept in extended probation, which can be demoralising.
Another risk is misunderstanding rights. Some probationers accept termination quietly, not realising they may have grounds to challenge the decision. Others assume confirmation is automatic, only to be disappointed when the employer chooses otherwise.

Best Practices for Employers
Set clear performance expectations from day one.
Conduct regular reviews and provide constructive feedback.
Document performance issues and keep records of discussions.
Communicate decisions—confirmation, extension, or termination—in writing.
Treat probationers with the same respect and fairness as confirmed employees.

Best Practices for Employees
Understand the terms of your probation contract, including duration and evaluation criteria.
Take feedback seriously and show willingness to improve.
Keep records of your achievements and any communications about performance.
If faced with unfair treatment, seek advice before making decisions.

Final Thoughts
The probation period is meant to benefit both sides: employers gain time to evaluate, and employees get the opportunity to demonstrate their worth. But in Malaysia, the law makes it clear that probation is not a free pass for arbitrary dismissal. Rights and obligations apply from the first day of work, regardless of whether an employee is confirmed.
For employers, the message is simple: fairness and documentation are your strongest protections. For employees, awareness of your rights is essential to avoid being taken advantage of.
Ultimately, probation is not about mistrust—it is about building trust. When handled properly, it sets the stage for a stronger and more confident employment relationship for both employer and employee.

✍️ Written by Lawyer Khoo, Partner at Ng, Zainurul, Seke & Khoo

The Confusion
In the workplace, not all departures are the same. Sometimes employees resign willingly to pursue new opportunities. Other times, they feel they have no choice but to leave because of the employer’s actions. The law treats these two situations very differently. Many employees are uncertain about whether their case amounts to a simple resignation or what is legally known as “constructive dismissal.”
Understanding the difference is crucial, because it can mean the difference between walking away empty-handed and successfully claiming compensation for unfair dismissal.

What is Resignation?
Resignation is straightforward: it is a voluntary act. An employee decides to leave the company, usually by giving notice as required in their contract. The reasons may vary—better job offers, career change, personal circumstances, or dissatisfaction with the role—but in the eyes of the law, resignation means the employee made the decision freely.
When you resign, you typically give up the right to challenge the termination. You are essentially ending the contract yourself. Unless there is evidence of coercion or legal exceptions, resignation closes the chapter.

What is Constructive Dismissal?
Constructive dismissal happens when an employee resigns, but not because they truly want to. Instead, they resign because the employer has made the working conditions so unbearable or has fundamentally breached the employment contract that the employee has no real option but to leave.
The law in Malaysia views constructive dismissal as a form of unfair dismissal, even though the resignation letter comes from the employee. In other words, if you were forced to resign because of your employer’s conduct, the law treats it as if you were dismissed by the employer.

Examples of Employer Conduct Leading to Constructive Dismissal
Constructive dismissal is not about ordinary dissatisfaction or minor disagreements. It requires serious conduct by the employer, such as:
A sudden and unilateral pay cut.
Demotion without valid reason.
Drastic change of job scope without consent.
Persistent harassment or victimisation.
Creating a hostile or unsafe work environment.
The key point is that the employer’s actions must amount to a fundamental breach of trust and confidence in the employment relationship.

The Legal Test
When assessing constructive dismissal, Malaysian courts often ask: Did the employer’s actions breach an essential term of the contract or the implied duty of mutual trust and confidence? And was the employee left with no real alternative but to resign?
If the answer is yes, the resignation may be treated as constructive dismissal. The employee can then bring a claim for unfair dismissal under the Industrial Relations Act.

The Fine Line
The challenge lies in the fine line between resignation and constructive dismissal. An employee who resigns simply because they are unhappy, stressed, or not getting along with a manager may not have a case. The law requires evidence of serious employer misconduct.
Timing is also important. If you continue working for months after the alleged breach, it may appear that you accepted the employer’s conduct. To succeed in a claim, the resignation must usually follow soon after the intolerable act.

Practical Advice for Employees
If you feel you are being pushed out, do not rush to resign. First, document what is happening—keep records of emails, instructions, or changes to your role. Second, seek legal advice before handing in your resignation letter. Once you resign, the burden is on you to prove constructive dismissal. Without clear evidence, it will be difficult to succeed.
If you are certain that your employer’s actions amount to a breach, you may resign and file a claim. But remember, constructive dismissal cases are complex and fact-specific. Professional advice can help assess whether your case has merit.

Practical Advice for Employers
For employers, the lesson is to handle workplace changes carefully and fairly. Do not unilaterally alter contracts, salaries, or job scopes. If changes are necessary, communicate transparently and seek the employee’s agreement.
Employers should also be alert to patterns of harassment or discrimination within the organisation. Turning a blind eye can lead to claims that could have been avoided with proper HR practices.

Closing Thoughts
Resignation and constructive dismissal may look the same on the surface—both involve an employee handing in a resignation letter. But legally, they are worlds apart. One is a voluntary act; the other is a forced departure that can amount to unfair dismissal.
For employees, knowing the difference can protect your rights. For employers, understanding the boundaries can prevent costly disputes. In the end, the law aims to ensure fairness in the workplace, because employment is not just about contracts and pay—it is about trust, dignity, and mutual respect.

✍️ Written by Lawyer Khoo, Partner at Ng, Zainurul, Seke & Khoo

Imagine this: you have been working in a company for several years, and suddenly you are told that your performance is not up to standard. Without much discussion, you are handed a termination letter. For the employer, this may seem like a reasonable step—why keep an employee who is “underperforming”? But for the employee, the experience feels unfair and devastating. The question then arises: what does Malaysian employment law actually say about termination for poor performance?
In Malaysia, the law requires that every termination must be supported by “just cause and excuse.” Poor performance can, in principle, amount to a valid reason. However, the courts have consistently held that it is not enough for an employer to simply label an employee as “not good enough.” The employer must be able to prove the allegation and show that a fair process has been followed before arriving at the decision to terminate.
A fair process usually begins with clear communication. Employees must know what is expected of them, whether through job descriptions, performance targets, or key performance indicators. Vague or inconsistent instructions will not hold up if a dispute reaches the Industrial Court. Employers must also provide proper feedback and warnings when performance falls short. A single incident of poor output is seldom enough to justify termination; the law expects employers to give employees time and guidance to improve.
This is where performance reviews or improvement plans come into play. A responsible employer will document counseling sessions, set timelines for improvement, and give employees a genuine chance to correct their weaknesses. Only after such opportunities have been exhausted would termination be considered fair. Importantly, the employee should also be given a chance to respond or explain their side of the story. This is part of the principle of natural justice, which lies at the heart of employment law.
Unfortunately, many employers stumble at this stage. Some act too quickly, terminating without prior warnings or without documenting the performance issues. Others rely on subjective judgments—such as saying an employee is “lazy” or “not committed”—without concrete evidence. These missteps often lead to costly unfair dismissal claims, where the employer may be ordered to pay significant compensation.
From the perspective of employees, it is equally important to know your rights. If you are terminated for poor performance, you should ask yourself whether your employer gave you clear expectations, whether you received proper warnings, and whether you were given a fair chance to improve. If the answer to these questions is “no,” you may have grounds to challenge the dismissal and seek redress.
Termination for poor performance remains one of the most common issues in Malaysian employment disputes. The lesson is clear: employers must ensure that termination decisions are backed by evidence and fairness, while employees must understand that they cannot be dismissed arbitrarily. At its core, employment law is about striking a balance between performance expectations and the dignity of workers.
As an employment lawyer, I have seen how disputes over performance can leave lasting scars on both sides. For employers, it is a reminder to act carefully and fairly. For employees, it is a reassurance that the law provides protection when dismissal is unjust. Ultimately, good communication and fair processes are the best safeguards for both parties, ensuring that the workplace remains not only productive but also just.

✍️ Written by Lawyer Khoo, Partner at Ng, Zainurul, Seke & Khoo