In Malaysia, employees cannot be dismissed without just cause or excuse. Dismissing an employee by simply invoking the notice period clause in an employment contract may render a dismissal lawful, but not necessarily just.
Under the Industrial Relations Act 1967, an employee who believes they have been dismissed without just cause or excuse can file a representation to seek reinstatement through the Industrial Court.
One of the most common grounds for dismissal is poor performance. In any workplace, performance is critical not just for individual achievement but also for team morale, productivity, and overall business success. Left unaddressed, underperformance can have cascading negative effects.
With the rise of hybrid and remote work arrangements, identifying and managing poor performance has become more complex. Reduced face-to-face interaction and increased autonomy make it easier to miss early warning signs. Avoiding performance issues does not make them disappear; it only allows them to escalate.
Poor performance generally refers to an employee’s consistent failure to meet job expectations. Common indicators include missing deadlines, low-quality work, and decreased productivity. However, it is crucial to distinguish poor performance from external factors such as personal challenges or lack of resources and from misconduct, which is a separate issue entirely.¹
Legal Principles
Before an employee can be dismissed on the grounds of poor performance, the following principles must be satisfied²:
(a) The employee must have been warned about his/her shortcomings;
(b) The employee must have been accorded a sufficient opportunity to improve; and
(c) Notwithstanding the above, the employee failed to sufficiently improve his/her performance.
Role of Managers
Managers play a central role in ensuring employees are given a fair opportunity to improve. One key initiative is placing underperforming employees on a performance improvement plan (“PIP”). A manager’s responsibilities extend far beyond ticking HR boxes, they must be actively engaged in supporting the employee’s development.
Performance appraisals are often the first documents scrutinised by courts. Therefore, managers must ensure evaluations are conducted thoroughly, fairly, and with integrity.
Appraisals should:
(a) Highlight specific areas for improvement.
(b) Provide concrete examples.
(c) Reflect genuine assessments, rather than serve as a formality.
During a PIP, clear communication is essential. Expectations, standards, and evaluation criteria must be explicitly stated and documented. Managers should offer ongoing feedback, conduct regular check-ins,³ and ensure the employee has the necessary resources to meet expectations. All aspects of the process should be meticulously documented.
Dos and Don’ts for Managers
To manage poor performance fairly and lawfully, managers should:
(a) Always be available to their subordinates. For instance, requiring an employee to go through a secretary to schedule a meeting only to receive an appointment two weeks later creates unnecessary communication barriers.⁴
(b) Take personal responsibility for supervising and evaluating the performance of their direct reports. These tasks cannot be passed off to others.⁵
(c) Hold frequent, structured conversations between managers and employees to keep employees informed about their performance and areas requiring improvement.⁶
(d) Actively assist employees in meeting performance expectations by offering the necessary assistance, training, or counselling.⁷
(e) Establish targets at the outset of the PIP. Adding new goals midstream undermines the fairness of the process.⁸
(f) Evaluate employees on tasks that fall within their defined role. Forcing them to take on unrelated responsibilities during a performance review period is inappropriate.⁹
(g) Avoid assigning tasks unrelated to the employee’s core responsibilities.¹⁰
(h) Allow a reasonable and realistic timeframe to address performance issues and demonstrate progress.¹¹
(i) Not increase the employee’s workload during the PIP. For example, requiring an employee to take over the responsibilities of a colleague on maternity leave during a PIP.¹²
(j) Offer focused, structured, and documented feedback. Performance weaknesses must be clearly communicated and documented in line with the company policy. In one case, a manager had given acceptable midyear ratings but later adjusted them downward without proper justification to reflect “needs improvement” by year-end.¹³
(k) Not delay setting performance targets. KPIs should be set at the beginning of the review period (e.g., January for a January–December cycle). In one case, KPIs were only established in June, drastically shortening the employee’s window for achieving them.¹⁴
(l) Avoid transferring an underperforming employee to a different department with new expectations and settings, as this can further affect performance and is not a fair means of addressing the issue.¹⁵
(m) Not remove essential support staff during the PIP. For example, removing the employee’s subordinates during the review period, thus reducing the team’s output adversely affects performance.¹⁶
(n) Avoid appointing a new or inexperienced manager to oversee the PIP. In one case, a company appointed a new probationary hire to supervise an employee on a PIP. The supervisor lacked sufficient familiarity with the company’s operations to assess the employee fairly.¹⁷
(o) Consider external factors that may impact performance. For example, if the company is undergoing transformation, restructuring, or other organisational changes.¹⁸
(p) Given employees a fair opportunity to address each concern raised in the performance review or PIP forms.¹⁹
(q) Ensure all evaluations are properly dated, signed, and clearly identify both the appraiser and the appraisee. Incomplete documentation undermines the process.²⁰
(r) Not carry forward unresolved issues from prior reviews. In one case, performance shortcomings from a prior cycle were repeatedly carried forward into new assessments, eventually snowballing to the point where they became unmanageable.²¹
(s) Ensure adequate support resources are available. Employees must be given access to qualified subordinates or team members, and managing them should not significantly increase the employee’s own workload.²²
Conclusion
Dismissal for poor performance may be justified in cases where all appropriate corrective measures have failed. However, it should never be the first resort. Instead, employers must invest time and effort in diagnosing root causes, offering support, and maintaining open lines of communication.
Ultimately, performance management is not merely a legal requirement. It is a leadership responsibility. By approaching underperformance with structure, fairness, and empathy, employers not only reduce legal risk but also foster a culture of growth and accountability.
If you have any queries, please contact Partner Amardeep Singh Toor (ast@lh-ag.com) or Associate Roseveen Kaur Tyndall (rkt@lh-ag.com)
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