Most employment contracts should have a “notice period”, whereby either employer or employee may terminate the employment contract by providing the specified notice (or by making payment in lieu of that notice).
Why do we need Notice Period in Employment contracts?
- May want the resigning employee completes their outstanding
- Assist with Handover and Transition
- May need a buffer time to plan and search for other source of income or a new job
However, there are also situations where an employee will resign with “immediate effect” and stop showing up to work, despite the notice period in the contract.
“What happens if an employee resigns without serving the contractual notice period? “
Employer may recover a sum of money equal to the salary that the employee would have earned during the notice period. This is often referred to as a “payment in lieu of notice”, or an “indemnity” for the notice period.
- Employee X’s monthly salary is RM 8,000
- Employee X’s employment contract states that he may terminate his employment by providing 1 months’ notice, or making payment in lieu of notice
- Employee X resigns on 1 January 2019
- Under his contract, he is therefore contractually required to serve notice until1 February 2019
- Employee X says that his resignation is efffective immediately and he does not turn up to work after resigning
Since Employee X has failed to serve his 1-month notice, he is required to make payment to his employer in lieu of that notice (i.e.: RM8,000.00 representing 1 month of his salary)
Employer has two options to recover payment in lieu of notice from their errant employees, through the Labour Court, or the Civil Court depends on the amount of the employee’s monthly salary:
- Does not exceed RM 5,000.00 (Labour Court); and
- Exceeds RM 5,000.00 (Civil Action in Civil Court)
- If the employee’s monthly salary does not exceed RM 5,000.00, the employer is able to recover the payment in lieu of notice
- Through the labour court pursuant to Section 69(2)(iii) of the Employment Act 1955
- Inquiries by the Director General of Labour
- No filing fees involved in recovering an amount through the Labour Court
The procedures involved are also relatively less formal compared to legal proceedings in the civil court. However, as there are no specific timelines under the Employment Act 1955, delays may occur. Any decision by the Labour Court may be appealed to the High Court.
- If the employee’s monthly salary above RM 5,000.00, the employer may take legal action against the employee for breach of contract, due to the employee’s failure to make payment in lieu of notice.
- If the employer is successful in their claim, they will have a court judgment which can be enforceable against the employee.
- Employer should also consider issuing a letter of demand before any commencing legal action against their employees
- A letter of demand will establish the intention of the employer to recover the payment in lieu of notice
- Some employees will opt to settle the payment in lieu of notice rather than risk a legal action being filed against them
Most of the time, the notice period issue is only looked at from the lens of an employee, whether employee has been given enough notice of termination.
However, it should not be overlooked that employers similarly have rights to ensure that a resigning employee complies with their contractual obligations. An abrupt resignation or abandonment of employment can cause an employer loss and damage as there would be an unplanned vacancy.
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