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:
- the EPFA which establishes the EPF as a retirement saving scheme;
- 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
- 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.
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.
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.
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.