Poor Performance at Work in Malaysia: Can an Employer Dismiss an Underperforming Employee?

Poor performance is one of the most common and often mishandled reasons for terminating an employee.

An employee misses targets, makes repeated mistakes or struggles to meet deadlines. Management becomes frustrated and decides to “pay notice and move on”.

However, paying contractual notice does not automatically make the dismissal fair under Malaysian employment law.

An employer may dismiss an employee for genuinely poor performance, but should be able to prove the required standard, how the employee fell short, the warnings given and the opportunity provided to improve.

What Is Poor Performance?

Poor performance generally means that an employee has failed to perform their work to the standard reasonably required by the employer.

Examples may include:

• repeatedly missing reasonable targets;
• producing work containing persistent errors;
• failing to complete tasks on time;
• failing to meet service or quality standards;
• being unable to perform essential responsibilities; or
• failing to improve despite guidance and warnings.

Poor performance is not simply a manager feeling dissatisfied. The employer should be able to identify the expected standard and provide evidence showing how the employee failed to meet it.

Vague descriptions such as “not a good fit”, “poor attitude” or “does not meet expectations” will rarely be sufficient on their own.

Can an Employee Be Dismissed for Poor Performance?

Yes. Genuine and sufficiently serious poor performance may constitute just cause or excuse for dismissal.

However, an employer cannot usually dismiss an employee merely by relying on a contractual right to give notice.

In Goon Kwee Phoy v J & P Coats (M) Bhd [1981] 1 MLJ 129, the Federal Court held that where an employer gives a reason for dismissal, the Industrial Court must examine whether that reason existed.

If poor performance is the stated reason, the employer must prove it.

What Must the Employer Prove?

In Ireka Construction Berhad v Chantiravathan a/l Subramaniam James [1995] 2 ILR 11, the Industrial Court set out three commonly cited requirements for a performance-related dismissal:

1. the employee was warned about their poor performance;
2. the employee was given sufficient opportunity to improve; and
3. despite the warning and opportunity, the employee failed to improve sufficiently.

In practical terms, the employer should be able to show:

• the required standard was clear and reasonable;
• the employee knew about that standard;
• the employee’s shortcomings were properly identified;
• warnings and feedback were provided;
• reasonable guidance or support was given; and
• the employee remained below the required standard.

A dismissal should ordinarily be the conclusion of a genuine performance-management process, not the first time the employee learns that management is unhappy.

Poor Performance vs Misconduct

Poor performance is not necessarily misconduct.

Poor performance normally concerns the employee’s ability to meet the required standard. Misconduct generally involves wrongful conduct or a deliberate breach of employment obligations.

For example:

• An employee who tries but fails to meet a sales target may be a poor performer.
• An employee who deliberately refuses to contact customers may be committing misconduct.
• An employee who makes errors because they lack training may have a performance issue.
• An employee who falsifies records to conceal errors may be committing misconduct.

Poor performance should ordinarily be managed through feedback, warnings and an opportunity to improve. Misconduct is normally dealt with through investigation and disciplinary procedures.

Employers should identify the real problem instead of labelling every unsatisfactory outcome as misconduct.

Performance Standards Must Be Clear and Reasonable

An employee cannot fairly be criticised for failing to meet a standard that was never communicated.

Performance expectations may be found in:

• job descriptions;
• key performance indicators;
• sales targets;
• appraisal documents;
• project deadlines;
• written procedures; or
• lawful and reasonable instructions.

The standard should be relevant to the employee’s role, reasonably achievable and consistently applied.

A target may be questionable where it is impossible to achieve, substantially higher than the targets imposed on comparable employees or unsupported by the necessary resources and training.

How Can an Employer Prove Poor Performance?

Employers should rely on contemporaneous evidence such as:

• performance appraisals;
• written targets;
• internal reports/records
• customer complaints;
• sales or productivity figures;
• warning letters;
• Performance Improvement Plans; and
• progress-review documents.

An isolated mistake will not ordinarily prove persistent poor performance. The evidence should establish a pattern or a sufficiently serious failure affecting an essential responsibility.

Must the Employee Receive a Warning?

A confirmed employee should ordinarily be warned that their performance is unsatisfactory and that continued poor performance may result in termination.

The warning should identify:

• the areas of underperformance;
• the required improvement;
• the period allowed;
• the support available; and
• the possible consequences of failing to improve.

There is no universal rule requiring exactly three warning letters.

One clear warning followed by a genuine improvement process may be more valuable than three vague letters issued within a few days.

Written warnings are generally preferable because they create a reliable record. However, the overall question is whether the employee understood the shortcomings and was given a fair chance to correct them.

What Is a Performance Improvement Plan?

A Performance Improvement Plan, or PIP, is a structured plan intended to help an employee improve within a specified period.

A fair PIP should state:

1. the performance deficiencies;
2. the required standard;
3. the steps the employee must take;
4. how improvement will be measured;
5. the support or training available;
6. the review dates;
7. the duration of the plan; and
8. the possible consequences of failure.

A PIP is not expressly required by Malaysian legislation, nor does it automatically make a dismissal lawful.

The Industrial Court may examine whether the PIP was genuine, achievable and supported by proper assistance. A PIP designed with impossible targets merely to manufacture a dismissal may undermine the employer’s case.

How Long Should a PIP Last?

There is no statutory minimum period.

The appropriate duration depends on the role, the seriousness of the shortcomings and how quickly improvement can reasonably be measured.

Thirty, sixty and ninety-day PIPs are common, but they are not legal rules.

A sales employee may require several sales cycles, while an employee correcting a straightforward administrative problem may require less time. The real question is whether the employee was given sufficient time to demonstrate meaningful and sustainable improvement.

Must the Employer Provide Training or Support?

An employer should generally provide reasonable assistance appropriate to the performance problem.

This may include:

• explaining the required standard;
• providing coaching or training;
• clarifying priorities;
• supplying necessary tools;
• holding regular review meetings; and
• giving constructive feedback.

The employer is not required to retain an underperforming employee indefinitely. However, the opportunity to improve must be genuine.

The employee also has a responsibility to participate. Refusing training, ignoring feedback or making no reasonable effort to improve may strengthen the employer’s case.

Is a Domestic Inquiry Required?

A domestic inquiry is generally associated with misconduct rather than ordinary poor performance.

Where the issue is an employee’s inability to meet the required standard, the usual process involves:

1. identifying the shortcomings;
2. providing feedback and guidance;
3. issuing warnings;
4. allowing reasonable time to improve; and
5. conducting objective reviews.

A domestic inquiry may become relevant where the employee is accused of deliberate misconduct, such as falsifying results, concealing errors or intentionally refusing to perform assigned work.

Read more: Can My Employer Dismiss Me Without a Domestic Inquiry In Malaysia?

Can Poor Performance Justify Immediate Dismissal?

Ordinary poor performance will not usually justify summary dismissal without notice.

A performance-related termination is generally carried out with contractual notice or payment in lieu after a proper performance-management process.

However, paying notice does not remove the requirement for just cause or excuse. The employee may still challenge the dismissal if the alleged poor performance was not proved or no reasonable opportunity to improve was provided.

What About Probationary Employees?

Probation allows an employer to assess whether an employee is suitable for confirmation. However, a probationer cannot be dismissed arbitrarily.

In Khaliah Abbas v Pesaka Capital Corporation Sdn Bhd [1997] 3 CLJ 827, the Court of Appeal confirmed that probationers enjoy statutory protection against dismissal without just cause or excuse.

An employer may decide not to confirm an unsuitable probationer, but should conduct a genuine assessment and communicate material shortcomings.

In Radiant Visions Sdn Bhd v Donald Wayne Dickman [2003] 1 ILR 42, the Industrial Court considered whether the employer had reasonably appraised the probationer, provided guidance through advice or warning and made an honest effort to determine whether the required standard had been met.

The High Court in Hartalega Sdn Bhd v Shamsul Hisham Mohd Aini [2004] 3 CLJ 257 also recognised that the requirements applicable to confirmed employees should not be applied too rigidly to probationers, particularly regarding an inflexible requirement for written warnings.

Nevertheless, probationary performance should still be documented through review forms, feedback, work records and, where appropriate, an extension of probation.

Read more: The Rights of a Probationary Employee in Malaysia

Can Poor Performance Disguise Retrenchment?

Poor performance should not be used as a convenient label where the real reason is redundancy or cost reduction.

Warning signs may include:

• previously positive appraisals;
• performance complaints arising only after a restructuring;
• the employee’s position being abolished;
• no meaningful opportunity to improve; or
• internal documents referring to redundancy while the termination letter refers to performance.

In Maritime Intelligence Sdn Bhd v Tan Ah Gek [2021] 4 MLJ 719, the Federal Court confirmed that the Industrial Court’s inquiry is directed towards the reason operating in the employer’s mind at the time of dismissal.

Employers should identify the genuine reason and follow the correct procedure.

Read more: Retrenchment in Malaysia: Can Your Employer Really Let You Go? A Practical Guide to Your Rights

Can the Employee Challenge the Dismissal?

An employee who considers that they were dismissed without just cause or excuse may file a representation under section 20 of the Industrial Relations Act 1967.

The representation must generally be filed within 60 days of dismissal.

The Industrial Court may consider:

• whether poor performance was the genuine reason;
• whether the required standard was reasonable;
• whether the employer proved the shortcomings;
• whether warnings were given;
• whether sufficient opportunity and support were provided;
• whether the PIP was fair; and
• whether the employee failed to improve.

Employees should preserve their employment contract, job description, appraisal records, targets, warning letters, PIP documents, emails and evidence of completed work.

Practical Checklist for Employers

Before dismissing an employee for poor performance, ask:

• Is poor performance the genuine reason?
• What evidence supports it?
• Was the required standard clear and reasonable?
• Was the employee warned?
• Was sufficient time allowed for improvement?
• Were guidance and resources provided?
• Was progress assessed objectively?
• Does the termination letter state the true reason?

If these questions cannot be answered clearly, dismissal may be premature.

Final Thoughts

An employer is entitled to require reasonable standards and take action where an employee consistently fails to meet them.

What Malaysian employment law expects is a genuine and supportable process.

The employee should know what is required, where they are falling short and what they must do to improve. The employer should provide reasonable guidance, allow sufficient time and assess the outcome honestly.

For a broader overview of performance management, dismissal and workplace rights, read Employment Law Malaysia: The Complete Guide for Employees and Employers (2026)

Facing a poor performance or PIP issue? Get in touch for practical Malaysian employment law advice tailored to your situation.

This article provides general information and does not constitute legal advice. Each matter depends on its particular facts, documents and employment terms.