Lee Hishammuddin Allen & Gledhill

1

GENERAL PRINCIPLES

Forums For Adjudicating Employment Disputes

The High Court and subordinate courts have general jurisdiction over employment disputes in Malaysia. The Industrial Court is a specialist court established under the Industrial Relations Act 1967 [Act 177] (“the IRA”) to adjudicate trade disputes and matters pertaining to rights of trade unions and the correlative rights of employers. It also adjudicates claims by private sector employees of dismissal without just cause or excuse and is empowered to award the remedy of reinstatement.

The Director General of Labour and his subordinates (popularly referred to as the “Labour Court”) provide a convenient alternative forum for inquiring into certain employment decisions made by an employer and to award monetary payments due under employment legislation and contracts of employment. The High Court exercises an appellate jurisdiction over the Labour Court and also the Industrial Court (with effect from January 1, 2021). It also adjudicates claims for relief by public sector employees based on unlawful dismissal claims. It is important to note that the jurisdiction of the various forums is essentially determined by the reliefs sought by the employee.


The Main Sources Of Employment Law

The legal relationship between employer and employee is based on common law as modified by legislation. Principal legislation governing the employer-employee relationship are the Employment Act 1955 [Act 265] (“the EA”) and the corresponding Labour Ordinance of Sabah [Sabah Cap. 67] (“the Sabah Labour Ordinance”) and Labour Ordinance of Sarawak [Sarawak Cap. 76] (“the Sarawak Labour Ordinance”), the IRA, the Trade Unions Act 1959 [Act 262] (“the TUA”), the Employees’ Social Security Act 1969 [Act 4 (“the ESSA”), the Employees Provident Fund Act 1991 [Act 452] (“the EPFA”), the Employment Insurance System Act 2017 [Act 800] (“the EISA”) and subsidiary legislation made thereunder.

Other sources of employment law in Malaysia are case precedents of awards of the Industrial Court and judgments of the High Court and appellate courts, collective agreements that become binding terms and conditions of employment, and individual contracts of employment. The Industrial Court is statutorily empowered to take into consideration the Code of Conduct for Industrial Harmony and the Agreed Practices annexed thereto (“the Code of Conduct”) which is a tripartite document embodying principles of fair labour practices which were agreed to by the representatives of the employers and the workmen in 1975 with the collaboration and approval of the Minister of Labour and Manpower (as the Minister of Human Resources was then referred to).

The applicability of the various principal and subsidiary legislation to the employer-employee relationship is essentially determined by the definition of an employee and employer in the respective legislation which in turn may be determined based on the quantum of wages or type of work. The EA and corresponding Sabah and Sarawak Labour Ordinances which establish minimum standards in the terms and conditions of employment apply to only 2 categories of persons. The first category is identified by reference to wages earned; i.e. any person irrespective of his occupation, who has entered into a contract of service with an employer under which such person’s wages do not exceed:

    1. Malaysian Ringgit (RM)2,000.00 per month under the EA; and
    2. RM2,500.00 per month under the Sabah and Sarawak Labour Ordinances.

The second category is based on occupation irrespective of the amount of his/her monthly wages; namely, any employee who is either engaged in manual labour or a supervisor of such employees, engaged in the operation or maintenance of any mechanically propelled vehicle used for the transport of passengers or goods, or for reward or for commercial purposes, engaged in any capacity in any locally registered vessel but is not a certified officer or engaged as a domestic servant. Under the Sabah and Sarawak Labour Ordinances, the second category also includes a person engaged in recruiting employees.

The Employment (Part-time Employees) Regulations 2010 (“the Part-Time Regulations”) which is a subsidiary legislation made under the EA apply to only a part-time employee who is covered by the EA whose average hours of work per week as agreed between him/her and his/her employer are more than 30% but not exceeding 70% of the normal hours of work per week of a full-time employee employed in a similar capacity in the same enterprise. The Part-Time Regulations do not, however, apply to a part-time employee:

    1. who is engaged occasionally or on an irregular basis, as and when needed, and whose working hours in one week does not exceed 30% of the normal hours of work of a full-time employee in one week (who is also known as a casual employee); and
    2. who performs work for an employer within the employee’s residence, irrespective of occupation (who is also known as a home working employee).

There are substantially similar rules made under the respective Sabah and Sarawak Labour Ordinances which apply to only the part-time employees covered by the respective Ordinances, namely the Labour (Part-time Employees) (Sabah) Rules 2013 and the Labour (Part-time Employees) (Sarawak) Rules 2013 (collectively “the Part-Time Rules”).

Public sector employees are generally excluded from some of the principal legislation above; and their tenure and terms and conditions of service are governed by the Federal Constitution, specific primary legislation and subsidiary regulations generally referred to as “ General Orders ”.


National Law And Employees Working For Foreign Companies

National law governs the employment relationship if the employee is engaged within Malaysia by a foreign employer who has a local presence in Malaysia.


National Law And Employees Of National Companies Working In Another Jurisdiction

In general, national law, unless expressly provided otherwise, do not have extra-territorial application. The dismissal of an employee of a national company who is working in another jurisdiction has been held to be a dispute within the jurisdiction of the Malaysian Industrial Court.


Data privacy

The Personal Data Protection Act 2010 [Act 709] (“the PDPA”) is the primary legislation in Malaysia regulating the processing of personal data in commercial transactions and connected or incidental matters. The PDPA applies to any person who processes and any person who has control over or authorizes the processing of any personal data in respect of commercial transactions. The PDPA also applies to a person in respect of personal data whether such person processing the personal data is established in Malaysia (including any other person employed or engaged by that establishment) or if not being established in Malaysia, uses equipment in Malaysia for processing personal data otherwise than for the purposes of transit through Malaysia. According to the PDPA, a commercial transaction includes any matters relating to the “supply or exchange of goods or services”. In this regard, a contract of employment would be considered to be a form of commercial transaction.

2

HIRING THE EMPLOYEE

Legal Requirements As To The Form Of Agreement

There are no statutory requirements that require a specific form of agreement to be used in entering into a contract of employment. Under the EA (Section 10) and the corresponding Sabah and Sarawak Labour Ordinances, however, a contract of service for a specified period of time exceeding one month or for the performance of a specified piece of work, where the time reasonably required for the completion of the work exceeds or may exceed one month, shall be in writing and shall set out the manner in which such contract may be terminated by either party. The Sabah Labour Ordinance (Section 18) and Sarawak Labour Ordinance (Section 19) further stipulate that such contract of service shall also be signed by both parties.


Mandatory Requirements
  • Trial Period

    • There is no mandatory requirement to provide trial periods to new employees. It is, however, common practice among employers to put an employee on probation ranging from 6 to 9 months, with an option to extend at the employer’s discretion.

  • Hours Of Work

    • For employees covered by the EA and the Sabah and Sarawak Labour Ordinances, strict provisions are stipulated for among others, maximum daily working hours, work in excess of normal hours of work, rest periods and so on. Thus, subject to certain exceptions, the EA (Section 60A) and the corresponding Sabah and Sarawak Labour Ordinances stipulate that regular full-time employees are not allowed to work for more than 5 consecutive hours without a period of leisure of not less than 30 minutes duration; more than 8 hours in one day; in excess of a spread over period of 10 hours in one day; or more than 48 hours in one week.

    There are also provisions under the EA and the Sabah and Sarawak Labour Ordinances on hours of work which apply specifically to persons engaged in shift work or in work which must be carried on continuously and which requires their continual attendance.

  • Special Rules For Part-time Work

    • For employees covered by the Part-Time Regulations and the corresponding Part-Time Rules in Sabah and Sarawak, their minimum entitlements to annual leave, sick leave, public holidays and rest days as well as payments for extra work beyond their normal hours of work and work on public holidays and rest days follow the provisions of the said regulations and rules.

  • Earnings

    • Since the implementation of the National Wages Consultative Council Act 2011 [Act 732] (“the NWCCA”) and the first Minimum Wages Order 2012, the statutory minimum wage has been reviewed and the most recent increase was implemented through the Minimum Wages Order 2020 (“the MWO”) which came into effect on February 1, 2020. The MWO has to be read together with the NWCCA, in particular Section 23(1). All employees including foreign employees are subject to the minimum wages order made under the NWCCA unless expressly provided otherwise by the said order.

    Under the MWO which is currently in effect, the stipulated minimum wages rates, whether hourly, daily or monthly, differ depending on whether the employees work in a city council area, municipal council area or otherwise. Employees working in the city council or municipal council areas are entitled to a higher minimum wages rate.

    The MWO applies to ‘contracts of service’ which include collective agreements made under Section 14 of the IRA. Wages has the same meaning assigned to it under the EA (Section 2) and the Sabah and Sarawak Labour Ordinances (Section 2).

  • Holidays/Rest Periods

    • For employees covered by the EA and the corresponding Sabah and Sarawak Labour Ordinances, the full-time employees’ entitlement to a rest day in each week, paid annual leave and public holidays differ from that which the part-time employees are entitled to under the respective Part-time Regulations and Rules.

    Under the EA (Section 59) and the corresponding Sabah and Sarawak Labour Ordinances, the meaning of rest day differs between a regular employee and an employee engaged in shift work.

    With regard to annual leave, the EA (Section 60E) and the corresponding Sabah and Sarawak Labour Ordinances stipulate the entitlement to the number of annual leave days which depends on the full-time employees’ years of service.

    The number of public holidays entitlement differs between full-time employees in Peninsular Malaysia (Section 60D of the EA) and those in Sabah and Sarawak (Section 103 of the Sabah Labour Ordinance and Section 104 of the Sarawak Labour Ordinance).

  • Minimum/Maximum Age

    • Under the Children and Young Persons (Employment) Act 1966 [Act 350] (“the CYPEA”), a child who is below the age of 15 years and a young person who has attained the age of 15 years but is under the age of 18 years may be engaged in only certain categories of work, such as light work suitable to their capacity in a family business (Section 2). There is no maximum age for a person to be employed in the private sector. There is, however, a statutory minimum retirement age for all private sector employees as prescribed by the Minimum Retirement Age Act 2012 [Act 753] (“the MRAA”).

    Persons who are on probation, part-timers, retirees who are re-employed, non-citizens, persons employed under fixed-term contracts of employment (inclusive of extension) which do not exceed 24 months and those employed under fixed-term contracts of employment (inclusive of extension) which exceed 24 months but do not exceed 60 months with minimum basic wages of RM20,000.00 per month are not covered under the MRAA.

  • Illness/Disability

    • For employees covered by the EA and the corresponding Sabah and Sarawak Labour Ordinances, their entitlement to paid sick leave depends on their years of service and whether they are full-time or part-time employees.

    The number of days of paid sick leave which a full-time employee is entitled to under the EA (Section 60F) and the corresponding Sabah and Sarawak Labour Ordinances is expressed as a certain number of days for “each calendar year” ranging from 14 days for an employee with less than 2 years of service to 22 days for those with 5 years of service or more. Where hospitalisation is necessary, the full-time employee is entitled up to 60 days’ paid sick leave in the aggregate in each calendar year which is inclusive of paid sick leave taken where no hospitalisation is necessary.

    Malaysian employees covered by the Social Security Organization (“the SOCSO”) who are below 60 years are entitled to benefits under both the Employment Injury Scheme and Invalidity Scheme of the SOCSO. Malaysian employees who have attained 60 years of age as well as foreign employees are, however, only entitled to benefits under the Employment Injury Scheme. Under the Employment Injury Scheme, employees are protected from, among others, accidents occurring while in the course of work, travelling which is connected to employment, emergency at the employer’s premises and also occupational diseases. Benefits provided include — but are not limited to — medical, temporary disablement and permanent disablement benefits. With effect from June 1, 2021, these schemes are also applicable to domestic servants depending on their nationality and residency status in Malaysia.

  • Location Of Work/Mobility

    • All employers who wish to hire and employ any employees are required by the EA (Section 63A) and the corresponding Sabah and Sarawak Labour Ordinances to notify or update the nearest Department of Labour in writing on the place of work within 90 days from the date of commencement of operations or business, or taking over of a business, or change of name or location of the undertaking or establishment.

    There is no legal requirement under the EA to state the location of work of the employee in his/her contract of employment. The Labour (Contents of Contract) (Sabah) Rules 2008 and Labour (Contents of Contract) (Sarawak) Rules 2008 (collectively “the Contents of Contract Rules”), however, stipulate that the place of employment shall be included in the contract of employment, where practicable. Case laws indicate that location of work and/or mobility of the employee can be problematic when such provision is not expressly provided for in the contract of employment. In respect of an expatriate employee, the location of the position must be stated in the job description which is to be submitted together with his contract of employment to the immigration authority when making an application for his employment pass.

    Under the EA and the corresponding Sabah and Sarawak Labour Ordinances, there is a prohibition of underground work for female employees. Children and young persons under the age of 18 years are also prohibited from working underground (see the CYPEA and the Sabah and Sarawak Labour Ordinances).

  • Pension Plans

    • Pension plans are statutorily provided and made available to only public servants. Employees who are not employed by the Government are members of a state contributory fund called the Employees Provident Fund (“the EPF”) governed by the EPFA. The EPF is a compulsory saving scheme for Malaysian private sector employees to manage their savings for retirement purposes. Employers and employees falling within the scope of the EPFA are liable to make monthly contributions according to the rates set out in the Third Schedule to the EPFA.

    It is not mandatory for a foreign employee and his/her employer to contribute to the EPF unless such employee elects to do so. Upon election to do so, both the foreign employee and his/her employer must contribute and cannot opt out.

    Employers are, however, at liberty to initiate their own pension funds.

  • Parental Rights (Pregnancy/ Maternity/ Paternity/ Adoption)

    • Under the EA (Section 37) and the corresponding Sabah and Sarawak Labour Ordinances, female employees in the private sector shall be entitled to maternity leave for a period of not less than 60 consecutive days in respect of each child. Female employees in public service whereas are entitled to between 60 to 90 days of maternity leave for each birth and it is limited to 300 days throughout their period of service.

    There are no statutory provisions for paternity leave. Some employers, however, do provide paternity leave entitlement in their contracts of employment or employee handbooks.

  • Compulsory Terms

    • The EA (Section 7) and the corresponding Sabah and Sarawak Labour Ordinances set out minimum statutory terms and conditions of employment for employees who are covered by these laws. Any term or condition in a contract of employment which is less favourable than that prescribed by these laws or the subsidiary legislation made thereunder shall be void and of no effect and the more favourable statutory provisions shall be substituted in its place.

    It is mandatory under the Contents of Contract Rules made under the Sabah and Sarawak Labour Ordinances to contain certain terms in the contracts of employment of employees in Sabah and Sarawak such as the place of employment, occupation and job description, duration of employment or retirement age, hours of work, rates and method of calculation of wages, other employment benefits and period of notice of termination.

  • Non-Compulsory Terms

    • Employers are at liberty to set terms and conditions that are more favourable than those set out in the EA or the corresponding Sabah and Sarawak Labour Ordinances.


Types Of Agreement

Statutory definitions of employee, employer and contract of service determine whether a person is an employee for the purpose of specific employment legislation. In this regard, subject to the statutory definitions, tribunals and courts apply common law principles distinguishing a contract of service from a contract for services. The label given to the agreement is not conclusive and the court will determine the true nature of the legal relationship. Once it is determined that a person is an employee, whether casual, probationary, permanent or on a fixed term, the provisions of the relevant legislation shall apply.


Secrecy/Confidentiality

Under the common law, there is read into every contract of employment the implied duty of good faith and fidelity. One of the components of this duty pertains to confidentiality obligations, which cease upon the cessation of employment. There exists, however, a post-employment residual duty of confidentiality pertaining to the former employer’s trade secrets and confidential information akin to trade secrets which the court will protect.

The PDPA makes it illegal for corporate entities or individuals to sell personal information or allow the use of personal data by third parties without consent. Organisations will have to comply with requirements under the PDPA when processing their employees’ personal data.The PDPA makes it illegal for corporate entities or individuals to sell personal information or allow the use of personal data by third parties without consent. Organisations will have to comply with requirements under the PDPA when processing their employees’ personal data.


Ownership of Inventions/Other Intellectual Property (IP) Rights

In Malaysia, the Copyright Act 1987 [Act 332] governs works created by an employee in the course of employment that will accrue to the employer (Section 26). Furthermore, the Patents Act 1983 [Act 291] provides that unless expressly agreed in the contract of employment, the rights to a patent for an invention made in the performance of such contract of employment shall be deemed to accrue to the employer (Section 20).


Pre-Employment Considerations

There are generally no statutory pre-employment considerations except the requirement to obtain the consent of the employees for processing their personal data under the PDPA and to obtain immigration approvals for non-nationals. There may, however, be specific industry requirements which will be further dealt with below.


Hiring Non-Nationals

Hiring of non-nationals is allowed in Malaysia. Non-nationals are required to possess employment passes/permits which are issued by the immigration authority. The sectors allowed to hire foreign employees, the recruitment criteria and the procedures as well as the types of employment pass or permit differ between ‘blue-collar’ foreign employees (commonly referred to as foreign workers) and ‘white-collar’ foreign employees (commonly referred to as expatriates or expatriate employees). Additionally, under the Sabah and Sarawak Labour Ordinances, an employer intending to hire a non-resident employee (including a foreign employee) must obtain a Licence to Employ Non-Resident Employee from the Director of Labour.

The sectors allowed to hire foreign workers are subject to immigration policies which are introduced by the Government from time to time. There is currently a freeze on hiring of new foreign workers across all sectors due to the Covid-19 pandemic and to give locals priority in securing employment. Re-employment of foreign workers who have been retrenched by previous employers, however, are allowed provided that they still have valid work permit and work in the same sector as well as subject to prescribed procedures. There is also a new policy effective January 1, 2021 that requires employers to advertise vacancies for a period of at least 30 days and conduct interviews for hiring local employees as a pre-condition for applications to hire foreign employees unless the foreign employees to be hired fall within the prescribed exceptions or are expressly exempted.

Each time an employer hires a foreign employee who is covered by the EA (Section 60K) or the corresponding Sabah and Sarawak Labour Ordinances, the employer is required to report the same to the nearest Department of Labour with particulars of the foreign employee within the stipulated time. An employer in Peninsular Malaysia is also required to give an employer’s undertaking relating to matters such as foreign workers levy, the terms and format of the employment contract, the foreign workers’ passports, immigration requirements and repatriation.

With effect from February 25, 2021, employers must provide accommodation for their foreign employees who are covered by the EA in Peninsular Malaysia and the Federal Territory of Labuan and holding a Visit Pass (Temporary Employment), except domestic servants, under the Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990 [Act 446] (“the EMSHAAA”) and the Employees’ Minimum Standards of Housing, Accommodations and Amenities (Employees Required to be Provided with Accommodations) Regulations 2021 made thereunder. The EMSHAAA has been extended to Sabah and Sarawak under the Emergency (Employees’ Minimum Standards of Housing, Accommodations and Amenities) (Amendment) Ordinance 2021 with effect from February 26, 2021.


Hiring Specified Categories Of Individuals

There may be additional statutory requirements for hiring specified categories of individuals where the employer is regulated by an approving agency or is in a sector under the purview of a specific regulatory body. The category of workers and their skills and qualifications will need to be set out in the legislation pertaining to the specific business or industry. Among others, employees carrying out construction work must meet the requirements under the Act which established the Construction Industry Development Board of Malaysia (“the CIDB”). Under this Act (cited as the Lembaga Pembangunan Industri Pembinaan Malaysia Act 1994 [Act 520] ), employees carrying out construction work (other than construction personnel who has professional qualification and is registered under any written laws) are required to be registered with the CIDB and hold valid certificate of registration issued by the CIDB.

Food handlers in the food industry in Malaysia must undergo medical examination as to their fitness, be vaccinated or inoculated against infectious diseases including typhoid, undergo food handlers training and obtain a Certificate of Food Handlers Training from an approved institution pursuant to the Food Act 1983 [Act 281] and the regulations made thereunder as well as the by-laws of the relevant local government where the business is licensed to operate.

Employers who are hiring drivers of commercial, public service, goods and tourism vehicles in Malaysia are to be guided by the Occupational Safety and Health Industry Code of Practice for Road Transport Activities 2010 issued by the Department of Occupational Safety and Health under the Ministry of Human Resources to ensure, among others, certain minimum criteria such as examining drivers’ record from the police or Road Transport Department database in Malaysia, conducting preliminary tests on competency and proficiency levels of the drivers as well as ensuring that the drivers undergo health screening.

When applying for employment pass for expatriate employees, employers who are regulated by an approving agency or are in a sector under the purview of a specific regulatory body are required to first obtain the approval of the said agency or the support of the specific regulatory body. Where an employer is not in the purview of either any approving agency or any regulatory body, the employer is required to obtain the approval of the Expatriate Committee.


Outsourcing And/Or Sub-Contracting/Temporary Agency Work

There are no specific statutory rules on outsourcing and/or sub-contracting. According to principles established in the Industrial Court, while outsourcing and/or subcontracting are exercisable pursuant to an employer’s managerial prerogative, these may not be tainted by unfair labour practices. Termination of employment arising out of outsourcing and/or sub-contracting may be disputed and adjudicated by the Industrial Court. Evidence of unfair labour practices may lead the Industrial Court to hold a termination of employment arising from outsourcing and/or sub-contracting to be a dismissal without just cause or excuse.

Under the EA and the corresponding Sabah and Sarawak Labour Ordinances, employers are obliged to pay termination and lay-off benefits pursuant to the respective Employment (Termination and Lay-off Benefits) Regulations 1980, Labour Rules (Sabah) (Termination and Lay-Off Benefits) 2008 and Labour Rules (Sarawak) (Termination and Lay-Off Benefits) 2008 (collectively “the Termination Benefits Regulations and Rules”) where as a result of outsourcing, employees covered by the respective legislation who are made redundant have their service terminated.

The EA (Section 33) and the corresponding Sabah and Sarawak Labour Ordinances respectively imposes liability on principals, contractors and their subcontractors for wages due to the employees covered by these laws by the contractors or the subcontractors. Such wages must be due for work done in the course of performing the contract for the execution by the contractor of work undertaken by the principal in the course or for the purpose of the latter’s trade or business.

3

MAINTAINING THE EMPLOYEE RELATIONSHIP

Changes To The Contract

Employers are not allowed to unilaterally change the terms of the contract of employment. Should there be a need to change or modify the terms, the employee’s consent is required. Subject to the minimum standards in the terms and conditions of employment set out in the EA and the corresponding Sabah and Sarawak Labour Ordinances, employers and employees may agree to vary the terms and conditions of the contract of employment.


Change In Ownership Of The Business

Under the EA and the corresponding Sabah and Sarawak Labour Ordinances, change in ownership of the business will entitle the employees who are covered by these laws and whose service is terminated as a result of such change to termination and lay-off benefits pursuant to Regulation 8 of the respective Termination Benefits Regulations and Rules. An affected employee is, however, ineligible for such benefits if he/she declines to accept the offer by the person taking over the business to continue employing him/her on no less favourable terms than those of his/her original employer.


Social Security Contributions

The 3 pieces of primary social security legislation in Malaysia which apply to employers and employees in the private sector are:

    1. the EPFA which establishes the EPF as a retirement saving scheme;
    2. the ESSA which provides the Employment Injury Scheme and Invalidity Scheme to cover employment injuries, illness and death as well as incapacity which is not work related; and
    3. the EISA which establishes an Employment Insurance System scheme (“the EIS”) to protect employees in the event of loss of employment which is not caused by voluntary resignation, expiry of a fixed-term contract, mutual termination without terms and conditions, completion of a project, retirement or dismissal for misconduct.

It is a mandatory requirement in Malaysia for both the private sector employer and employees, whether they are Malaysian citizens or permanent residents, and regardless of their wages, to contribute to the EPF, the SOCSO and the EIS subject to other requirements such as a minimum age and a cut-off age. A foreign employee who opts in under the EPFA and his/her employer are also liable to contribute to the EPF.

The coverage of the SOSCO and the EIS have been extended since July 1, 2018 to now include wives or husbands who are employed by their respective spouses to work for them.

With effect from January 1, 2020, the coverage of the Employment Injury Scheme under the SOCSO has also been extended to foreign employees with valid work passes or permits. This extension is regardless of whether any of these foreign employees are still covered under the insurance policy procured by their employers for the purpose of the Foreign Workers Compensation Scheme (“the FWCS”) under the Workmen’s Compensation Act 1952 [Act 273] (“the WCA”).

There are special provisions enabling self-contributions by Malaysian individuals who are not liable to contribute to the EPF or the SOCSO because either they do not fall within the statutory meaning of an employee under the EPFA or the ESSA or their employers are unable to register with the said fund/scheme (such as foreign companies with no local presence). The EPFA encourages optional contribution by self-employed persons, public sector employees who are on pensionable status and persons not being an employer or an employee. Such optional contribution is subject to the conditions as to registration and maximum contribution permissible. Hence, employees directly hired by foreign employers with no local presence, self-employed gig workers and housewives may self-contribute to the EPF.

Effective from January 1, 2020, self-employed Malaysians in 20 sectors including passenger transportation (such as e-hailing), goods and food delivery as well as online business are now liable to contribute to a separate Self-Employment Social Security Scheme established under the Self-Employment Social Security Act 2017 [Act 789].


Accidents At Work

It is the duty of the employer to ensure the safety of all his employees. Besides an employer’s common law duty, extensive statutory provisions are to be found in the Occupational Safety and Health Act 1994 [Act 514] and the Factories and Machinery Act 1967 [Act 139] (“the FMA”). These laws also impose reporting or notification obligations with regard to accidents, occupational poisoning, occupational disease and so on.


Discipline And Grievance

It is the managerial prerogative of employers to set out disciplinary rules, procedures and sanctions which may include dismissal. This is subject, however, to review by the Industrial Court where the dismissal is contested on the grounds that the dismissal was effected without just cause or excuse.

An employer may also provide for grievance procedures in a contract of employment or in an employee handbook. In a unionised environment, it is common for the grievance procedure to be contained in a collective agreement.


Harassment/Discrimination/Equal pay

The EA imposes an obligation on the employer to inquire into any sexual harassment complaints in the prescribed manner unless the stipulated grounds of refusal are satisfied. Any persons dissatisfied with the refusal may refer the matter to the Director General of Labour. If, upon conducting an inquiry, the employer is satisfied that sexual harassment is proven, disciplinary action may be taken against the wrongdoer, including dismissal or downgrading. Alternatively, where the inquiry is undertaken by the Director General and the Director General is satisfied that sexual harassment is proven against an employer who is a sole proprietor, the complainant may terminate the employment without having to comply with requirements relating to termination notice.

There are no special laws or rules on non-discrimination or equal pay at the workplace except for the Persons With Disabilities Act 2008 [Act 685] which provides for the right of persons with disabilities to access to employment on equal basis with persons without disabilities. Section 29 of this Act compels an employer to protect the rights of persons with disabilities, on equal basis with persons without disabilities, to just and favourable conditions of work including equal opportunities and equal remuneration for work of equal value, safe and healthy working conditions, protection from harassment and the redress of grievances.

Under the EA, the Director General of Labour may inquire into complaints of discrimination between local employees and foreign employees in respect of their terms and conditions of employment and issue such directives as may be necessary or expedient to resolve the matter (Section 60L). There are similar provisions in the Sabah Labour Ordinance (Section 118B) and the Sarawak Labour Ordinance (Section 119B) but these provisions apply to complaints of discrimination between residents of Sabah / Sarawak and non-residents (including Malaysians who are neither residents nor permanent residents of Sabah / Sarawak as well as foreign employees).


Compulsory Training Obligations

In general, there are no compulsory training obligations imposed on employees. Certain industries, such as manufacturing and food industries, do impose such obligations to ensure that employees are equipped with the necessary knowledge and skills. Under the FMA, no employee can be employed to operate a machine unless he is sufficiently instructed of the dangers likely to arise in connection with the machine and the precautions to be observed (Section 26). The CIDB, which has the power to make recommendations to the federal and state Governments on matters affecting or connected to the construction industry, introduced the CIDB Green Card programme which is compulsory for all personnel working at the construction site. Participants have to attend a one-day Safety Induction Course for Construction Workers, at the end of which they will be given the CIDB Green Card.

There is also an Act which established a Human Resources Development Fund (“the HRDF”) for the purpose of collecting HRDF levies from employers of specified industries and with certain number of employees for the purpose of promoting the training and development of employees, apprentices and trainees. With effect from March 1, 2021, this Act (cited as the Pembangunan Sumber Manusia Berhad Act 2001 [Act 612]) has been expanded to cover Malaysian employers across all sectors with a minimum of 10 local employees subject, however, to the confirmation of their eligibility by the HRDF upon processing their registration application. This Act does not apply to the federal and state Governments, local councils, statutory bodies and certain non-governmental organisations (“NGOs”). Employers in the eligible sectors who have 5 to 9 local employees and certain NGOs with at least 5 employees but less than 500,000 employees have the option to register with and contribute to the HRDF.


Offsetting Earnings

Under the EA (Section 24) and the corresponding Sabah and Sarawak Labour Ordinances, only lawful deductions from wages as stipulated in these laws, and subject to the statutory conditions, may be made. Lawful deductions include deductions authorised by any other written law.

Under the EPFA, the ESSA and the EISA, an employer of employees who are liable to contribute to the relevant social security fund/scheme as aforementioned are compelled to deduct from their wages the employees’ share of contribution which is to be paid directly to the said fund/scheme on the employees’ behalf.

An employer is also mandated under the Income Tax Act 1967 [Act 53] (“the ITA”) and the Income Tax (Deduction from Remuneration) Rules 1994 made thereunder to make monthly tax deductions in accordance with the prevailing rates and any other tax deductions as may be directed by the Director General of Inland Revenue from the remuneration of each employee which is chargeable to tax to be paid directly to the Inland Revenue Board of Malaysia on the employees’ behalf.

With effect from June 1, 2020, the EMSHAAA also authorises an employer to collect, by way of deductions from the wages of the employee, any sum for rent or charge in respect of accommodation provided to the employee by the employer or a centralized accommodation provider in accordance with this Act. With effect from September 1, 2020, the maximum rental or charges for accommodation that may be deducted under the Employees’ Minimum Standards of Housing, Accommodations and Amenities (Maximum Rental or Charges for Accommodation) Regulations 2020 is RM100.00.


Payments For Maternity And Disability Leave

Under the EA and the corresponding Sabah and Sarawak Labour Ordinances, female employees in the private sector, irrespective of their wages, will be entitled to receive maternity allowance for the duration of their maternity leave of 60 consecutive calendar days inclusive of Sundays and public holidays subject to having met prescribed conditions.

No specific provisions in these laws are made for disability leave but where hospitalisation due to disability is necessary, the employees covered by the said legislation are entitled up to 60 days’ paid sick leave less any sick leave taken for outpatient treatment.

For employees covered by the ESSA, an insured person who sustains temporary disablement rendering him/her incapable of doing his/her work would be entitled to daily temporary disablement benefits assessed on his/her average daily wage. In this situation he will not be entitled to paid sick leave, including hospitalisation for the period of his temporary disablement.


Compulsory Insurance

Aside from the mandatory Employment Injury Scheme and Invalidity Scheme established under the ESSA as aforementioned, the WCA mandates compulsory insurance for employment injury and death as well as occupational diseases but only in respect of foreign workers.

From 1993 until December 31, 2018, foreign workers were not covered by the schemes under the SOCSO and employers have had to insure and keep themselves insured in respect of their foreign workers under the FWCS approved by the Minister of Human Resources pursuant to Section 26(2) of the WCA, the most recent being the Workmen’s Compensation (Foreign Workers’ Compensation Scheme) (Insurance) Order 2005 (“the FWCS Order”) .

With effect from January 1, 2019, however, the FWCS Order made under the WCA has been revoked and any insurance policies which were issued under the now revoked order will only continue to apply until its expiry. The revocation was made to facilitate the extension of the Employment Injury Scheme under the SOCSO to all foreign workers.


Absence For Military Or Public Service Duties

In Malaysia, the legislation that governs the absence of an employee owing to public service duties is the National Service Training Act 2003 [Act 628] , which stipulates that employers are to grant leave to employees called up for national service. Although the National Service Training Programme implemented under this Act was shelved in 2018 by the then Government, there are plans by the Government of the day to revive this programme.


Works Councils or Trade Unions

The TUA and subsidiary legislation made thereunder contain provisions that govern work councils and trade unions. Trade unions in Malaysia must be registered in order to operate lawfully (Section 8 of the TUA). Failure to register a trade union or where the registration is refused, withdrawn or cancelled by the Director General of Trade Unions, or is rendered null and void by a decision of any court, will render the trade union an unlawful association and it shall cease to enjoy any of the rights, immunities or privileges of a registered trade union (Section 19 of the TUA).

Registered trade unions must, however, obtain recognition from the employer in order for collective bargaining to commence. Where a claim for recognition was made prior to the year 2021 and recognition is refused, the matter may be referred to the Minister of Human Resources for his decision on whether recognition ought to be granted (former Section 9 of the IRA). For claims for recognition made from January 1, 2021 onwards which are refused, the power to grant recognition is vested in the Director General of Industrial Relations (new Section 9 of the IRA).


Employees’ Right To Strike

The right to strike is one of the forms of industrial action available to workmen and their trade unions. This right is provided under the IRA (Section 43) and TUA (Section 25A). The right to strike is, however, not without limitation. Provisions in the legislation mentioned above lay down the procedures for a legal strike.


Employees On Strike

Workmen who commence, continue or otherwise act in furtherance of an illegal strike commit an offence (Section 46 of the IRA). Such action may also constitute serious misconduct in respect of which an employer can take disciplinary action.

The IRA also makes it a criminal offence for anyone who instigates or incites participation in an illegal strike (Section 47).


Employers’ Responsibility For Actions Of Their Employees

Employers may be responsible for the acts of their employees in the course of their employment by virtue of the common law doctrine of vicarious liability.

4

FIRING THE EMPLOYEE

Procedures For Terminating the Agreement

An employer may lawfully terminate the contract of employment in accordance with the terms of the contract and/or the EA or Sabah and Sarawak Labour Ordinances where applicable. The employer is obliged to give notice of termination of employment or make payment in lieu of notice.

Under the IRA, such lawful termination, however, is subject to challenge by the workman on the grounds that the employer did not have just cause or excuse to dismiss him/her.

Such just cause or excuse may be found in misconduct, poor performance, redundancy or incapacity which must be established in accordance with the principles found in the jurisprudence of the Industrial Court. A procedural failure to comply with the rules of natural justice is not, while making the procedure unfair, tantamount to unjust dismissal and the employer may still proceed to prove that the dismissal was for a just cause.

Under the EA (Section 14) and the corresponding Sabah and Sarawak Labour Ordinances, an employer may impose a disciplinary sanction, including termination of employment, on the employee because the employee has failed to fulfil the express or implied conditions of service. This sanction can be imposed only after holding a due inquiry.


Instant Dismissal

Under the common law, an employer may instantly dismiss an employee on the grounds of gross misconduct. Under the EA and the corresponding Sabah and Sarawak Labour Ordinances, an employer may summarily terminate an employee’s service on the grounds of wilful breach by the employee of a condition of the contract of employment upon due inquiry.


Employee's Resignation

The employee is allowed to terminate the contract of employment by giving the requisite period of notice or by making a payment of indemnity in lieu of notice. His/her resignation must not, however, be a forced resignation.


Termination On Notice

Either party can terminate the contract of employment by giving notice. The length of notice is usually provided for in the contract of employment. In the absence of specific lengths of notice in the contracts of employment, or in prescribed circumstances, the EA and the corresponding Sabah and Sarawak Labour Ordinances stipulate the length of notice to be provided in respect of employees covered by these laws which is dependent upon the period of service completed. For employees who are not so covered, the notice period is determined in accordance with common law.

In a redundancy situation which leads to retrenchment, the employer may not discharge the employees unless the requisite statutory notification to the Department of Labour has been filed within the stipulated time notwithstanding anything to the contrary in the contracts of employment.


Termination By Reason Of The Employee's Age

The MRAA for the private sector stipulates that the minimum retirement age of an employee is 60 years. This Act does not, however, prevent an employee from retiring upon attaining the age of optional retirement in accordance with the contract of employment or collective agreement. The MRAA also does not prevent parties from agreeing to a higher retirement age. The contract of employment is terminated by effluxion of time once the employee reaches the retirement age as agreed in the terms of employment.


Automatic Termination In Cases Of Force Majeure

In cases of force majeure, the contract of employment is deemed to have been “frustrated” thereby justifying the automatic termination of the contract of employment. Force majeure can be invoked only if it is expressly provided for in the contract of employment.

Where there is no force majeure clause in the contract of employment, the common law doctrine on frustration as modified by the Contracts Act 1950 [Act 136] (“the Contracts Act”) would apply provided that any termination on this ground conforms and complies with accepted standards of good industrial relations practices.

The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 [Act 829] (“the Temporary Measures Act”), however, provides in Part II that the inability of a party to perform any contractual obligation arising from any of the categories of contracts specified in the Schedule to this Part due to the measures prescribed, made or taken under the Prevention and Control of Infectious Diseases Act 1988 [Act 342] to control or prevent the spread of COVID-19 shall not give rise to the other party or parties exercising his/her or their rights under the contract, including the right to terminate the contract. Part II of this Act further provides that parties may resort to mediation instead in the event of any dispute in respect of any inability of any party or parties to perform any contractual obligation. These provisions while not extending to contracts of employment in general, apply to professional services contracts.

Part II of the Temporary Measures Act is deemed to have come into effect on March 18, 2020. The period of its operation has been extended from the initial expiry date of December 31, 2020 until June 30, 2021 and is subject to further extensions. That being said, if any termination of a professional services contract had been undertaken from March 18, 2020 until the date of publication of this Act on October


Collective Dismissals

Where the termination of employment is by way of retrenchment or voluntary separation scheme (“VSS”) on the ground of redundancy or closure of business, the Employment (Retrenchment) Notification 2004 (“the Retrenchment Notification”) made under the EA requires the employer to notify the nearest Department of Labour of such termination by completing and submitting the prescribed forms within the stipulated time. This applies to all employers irrespective of the number of employees affected or the amount of their respective monthly wages. The employer is also statutorily required to pay termination benefits to the eligible employees covered under the EA. There is corresponding subsidiary legislation on similar statutory reporting and payment of termination benefits requirements made under the Sabah and Sarawak Labour Ordinances.

Employers who are planning to undertake a retrenchment exercise are also expected to conform and comply with the accepted standards of good industrial relations practices such as the “Last-in-First-out” rule and those set out in the Code of Conduct. The Code of Conduct is not a legally binding instrument. In auditing an employer’s management of a redundancy situation, however, the Industrial Court is empowered to take into account the provisions in the Code of Conduct in determining whether any non-compliance with the Code of Conduct might have a bearing on the need for retrenchment in the context of the key question whether the retrenchment was with just cause or excuse.


Termination By Parties’ Agreement

Parties are free to mutually terminate the contract of employment. It is advisable that there is some degree of formality in such arrangements and a mutual separation agreement is usually executed.


Directors Or Other Senior Officers

There are no special rules that govern the firing of directors or other senior officers. Working directors who are also members of the board of directors wear two hats; they are both directors and employees. In the latter capacity, they enjoy rights generally available to employees and may seek their remedies in the Industrial Court for unjust termination.


Special Rules For Categories Of Employee

There are no separate rules that govern the termination of certain categories of employees. Under the EA, however, it is an offence if the employer dismisses a female employee during her maternity leave unless the termination is on the ground of closure of the employer’s business (Section 37). Under the Sabah Labour Ordinance (Section 91) and Sarawak Labour Ordinance (Section 92), the employer cannot give notice of termination of employment during a female employee’s maternity leave or so that the notice will expire during such absence. Under the EA (Section 42) and the corresponding Sabah and Sarawak Labour Ordinances, it is also an offence to terminate or give notice of termination of service to such employee if she remains unfit and absent from work after the expiration of maternity leave as a result of illness certified by a registered medical practitioner to arise out of her pregnancy and confinement until her absence exceeds a period of 90 days after maternity leave.

Further under the EA (Section 60M), no employer shall terminate the contract of employment of a local employee for the purpose of employing a foreign employee. Where an employer is required to reduce the workforce by reason of redundancy which necessitates retrenchment, the employer also must not terminate the services of a local employee before having first terminated the services of foreign employees employed in a similar capacity to the local employee (Section 60N of the EA). There are similar prohibitions in the Sabah and Sarawak Labour Ordinances in respect of the termination of service of their resident employees whether for the purpose of employing non-resident employees or before terminating the services of non-resident employees in the event of a redundancy necessitating retrenchment.

In the event of a termination of the employment of any foreign employees who are covered by the EA, the employer must report the same to the nearest Department of Labour by completing and submitting the prescribed forms within the stipulated time (Section 60K of the EA). This obligation covers any termination due to either a termination by the employer or the foreign employee (including abscondment from place of employment), the expiration and non-renewal of the work pass issued by the immigration authority, or the repatriation or deportation of the foreign employee to his/her country of origin. In the event of collective dismissals for redundancy, this reporting obligation will be in addition to the employer’s obligation under the Retrenchment Notification as aforementioned.


Specific Rules For Companies in Financial Difficulties

Employees covered under the EA (Section 31) and the corresponding Sabah and Sarawak Labour Ordinances are accorded protection in respect of any wages due to them when their employers, which are in financial difficulties or in the process of being wound up, are subject to receivership. Where there is a sale of a place of employment, the wages of the employees affected shall be given priority over payment to the secured creditors or debenture holders subject to the provisions of Section 31 of the EA and the corresponding provisions in the Sabah and Sarawak Labour Ordinances.

Furthermore, in a winding up, wages and salaries of employees are to be paid second after the costs and expenses of the winding-up of the company (Section 527(1) of the Companies Act).


Restricting Future Activities

Common law rules against restraint of trade are codified in the Contracts Act (Section 28).


Whistleblower Protection Laws

The Capital Markets and Services Act 2007 [Act 671] (“the CMSA”) protects a whistleblower from retaliatory and discriminatory action affecting his/her employment and livelihood (Section 321). Persons covered under the relevant provisions are the chief executive, any officer responsible for preparing or approving financial statements or financial information, an internal auditor or a secretary of a listed corporation. Similar provisions are found in the Companies Act 2016 [Act 777] (“the Companies Act”), which extends the scope of protection to all employees of a corporation (Section 587).

The Whistleblower Protection Act 2010 [Act 711] is an act designed to provide protection to a whistleblower who discloses an improper conduct to an enforcement agency. The whistleblower or any person related to or associated with the whistleblower may claim remedies from the court where there is detrimental action taken in reprisal for a disclosure of improper conduct.

Remedies that may be claimed by the informant include:

    1. Damages or compensation;
    2. Injunction (injunctive); and/or
    3. Other relief as the court thinks fit.

Special Rules For Garden Leave

There are no special rules on garden leave in Malaysia and this may be provided for in the terms of the contracts of employment.


Severance Payments

In the event of a retrenchment, employees who are covered by the EA and the corresponding Sabah and Sarawak Labour Ordinances are entitled to be paid termination and lay-off benefits pursuant to the respective Termination Benefits Regulations and Rules.


Special Tax Provisions And Severance Payments

Compensation for loss of employment is exempted from tax in respect of payments that do not exceed RM10,000.00 multiplied by each number of completed years of service (paragraph 15 of Schedule 6 to the ITA).


Allowances Payable To Employees After Termination

Employers are not required to contribute to any allowances payable to employees after termination. Under the EISA, however, where the Malaysian employees (including Malaysian domestic servants with effect from June 1, 2021) and their employers have been contributing to the EIS and the employees subsequently lost their employment, they may be eligible to claim Job Search, Reduced Income and/or Early Re-Employment allowances provided that the loss of employment is within the permitted categories.


Time Limits For Claims Following Termination

Under the IRA, a workman who seeks reinstatement on the grounds that he/she was dismissed without just cause or excuse must lodge his/her representation within 60 days of the dismissal.

Under the EA, an employee who is terminated by his/her employer under Section 14 of the EA must make his/her complaint to the Director General of Labour within 60 days from the date on which the decision to dismiss him/her is communicated to him/her either orally or in writing by the employer, or the Director General shall not exercise such powers to inquire into and confirm or set aside any decision made by the employer. There are similar provisions in the Sabah and Sarawak Labour Ordinances in respect of a claim following a termination of service under Section 13 of the Sabah Labour Ordinance or Section 14 of the Sarawak Labour Ordinance.

5

GENERAL

Specific Matters Which Are Important Or Unique To This Jurisdiction

There are no other specific matters which are important or unique to this jurisdiction.



Search by:
Need more information?
Contact a Contributing Author:
Lim Heng Seng
Lee Hishammuddin Allen & Gledhill
Malaysia


Tan Hooi Ping
Lee Hishammuddin Allen & Gledhill
Malaysia


Disclaimer:

© 2021, Lee Hishammuddin Allen & Gledhill. All rights reserved by Lee Hishammuddin Allen & Gledhill as author and the owner of the copyright in this chapter. Lee Hishammuddin Allen & Gledhill has granted to Multilaw non-exclusive worldwide license to use and include this chapter in this guide and to sublicense Lexis Nexis, a division of RELX Inc. and its affiliates certain rights to use and distribute this Guide.

The information in the How to Hire and Fire Guide provides a general overview at the time of publication and is not intended to be a comprehensive review of all legal developments nor should it be taken as opinion or legal advice on the matters covered. It is for general information purposes only and readers should take legal advice from a Multilaw member firm.

Publication Date: June 2021