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Employment
2021
Malaysia: Law & Practice
Vijayan Venugopal
Shearn Delamore & Co

practiceguides.chambers.com
 MALAYSIA
Law and Practice
Contributed by:
Vijayan Venugopal
Shearn Delamore & Co see p.17

CONTENTS
1. Introduction p.3 6. Collective Relations p.10
1.1 Main Changes in the Past Year p.3 6.1 Status/Role of Unions p.10
1.2 COVID-19 Crisis p.3 6.2 Employee Representative Bodies p.10
6.3 Collective Bargaining Agreements p.11
2. Terms of Employment p.4
2.1 Status of Employee p.4 7. Termination of Employment p.12
2.2 Contractual Relationship p.5 7.1 Grounds for Termination p.12
2.3 Working Hours p.5 7.2 Notice Periods/Severance p.13
2.4 Compensation p.6 7.3 Dismissal For (Serious) Cause (Summary
2.5 Other Terms of Employment p.6 Dismissal) p.13
7.4 Termination Agreements p.14
3. Restrictive Covenants p.8
7.5 Protected Employees p.14
3.1 Non-competition Clauses p.8
3.2 Non-solicitation Clauses – Enforceability/ 8. Employment Disputes p.15
Standards p.8 8.1 Wrongful Dismissal Claims p.15
8.2 Anti-discrimination Issues p.15
4. Data Privacy Law p.8
4.1 General Overview p.8 9. Dispute Resolution p.16
9.1 Judicial Procedures p.16
5. Foreign Workers p.9
9.2 Alternative Dispute Resolution p.16
5.1 Limitations on the Use of Foreign Workers p.9
9.3 Awarding Attorney’s Fees p.16
5.2 Registration Requirements p.9

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1. INTRODUCTION not use the service charge paid by its custom-

ers to fulfil the minimum wage requirement. The
1.1 Main Changes in the Past Year Federal Court held that the purpose of the mini-
Industrial Relations (Amendment) Act 2020 mum wage legislation is to increase the basic
The Industrial Relations (Amendment) Act 2020 wages of workers. For that purpose, service
introduced several amendments to the Industrial charges do not form part of the “basic wages”,
Relations Act 1967, most of which came into and therefore cannot be included in the calcula-
effect on 1 January 2021. tion of minimum wages paid to the employees.

The following are some of the key amendments Pembangunan Sumber Manusia Berhad Act
that came into effect: 2001
The Pembangunan Sumber Manusia Berhad Act
• automatic referral by the Director General of 2001 was amended in March 2021, expanding
Industrial Relations to the Industrial Court for the types of businesses required to pay into the
unfair dismissal claims; Human Resources Development Fund (HRDF) to
• an employer or employee may now be repre- 48 new industries.
sented by any person of their choice (except
a legal representative) during a conciliation The amendment streamlined Malaysian com-
process at the Industrial Relations Depart- panies’ eligibility criteria across all industries,
ment, subject to the permission of the Direc- resulting in all industries being covered by HRDF
tor General; training except for the federal and state govern-
• Industrial Court awards can now be appealed ments, as well as NGOs involved in social wel-
to the High Court; fare activities.
• the Industrial Court may now impose interest
on an award (including an interim award) of Extension of SOCSO and EIS to Domestic
up to 8% per annum; and Workers
• the Minister of Human Resources is now The Social Security Organisation (SOCSO)
empowered to order a strike or lock-out to and Employment Insurance System (EIS), vide
stop if it “endanger[s] the life, safety, or health gazetted orders, have extended their coverage
of the whole or part of the population”. to include domestic workers, with effect from 1
June 2021.
Service Charges Are Excluded from the
Computation of Minimum Wages 1.2 COVID-19 Crisis
In March 2021, the Federal Court finally COVID-19 Act
answered the question as to whether service On 23 October 2020, the Malaysian government
charge received by hotels can be used to sup- gazetted the Temporary Measures for Reducing
plement the monthly salaries paid to hotel work- the Impact of the Coronavirus Disease 2019
ers, to meet the statutory minimum wage. (COVID-19) Act 2020 (COVID-19 Act). The pur-
pose of the Act was to provide temporary meas-
In the case of Crystal Crown Hotel & Resort Sdn ures to ease the impact of COVID-19 on various
Bhd (Crystal Crown Hotel Petaling Jaya) v Kes- sectors and industries in Malaysia. However,
atuan Kebangsaan Pekerja-Pekerja Hotel, Bar & the COVID-19 Act has had limited employment-
Restoran Semenanjung Malaysia [2021] MLJU related repercussions. In this regard, only Sec-
385, the Federal Court held that the hotel may tions 39 and 40 of the COVID-19 Act provide

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 Law and Practice MALAYSIA
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for the extension of limitation periods under the 2. TERMS OF

Industrial Relations Act 1967. Only the period EMPLOYMENT
from 18 March 2020 to 9 June 2020 is excluded
from the computation of the statutory limitation 2.1 Status of Employee
periods, specifically: Domestic Workers
Employees in Malaysia are broadly separated
• the 21-day period for employers or a trade into two categories: employees protected by the
union of employers to accord recognition or Employment Act 1955, and employees outside
notify the trade union of workmen concerned the purview of Employment Act 1955.
in writing of the grounds for not according
recognition, pursuant to Section 9(3); Generally speaking, the provisions of the
• the 14-day period for a trade union of work- Employment Act 1955 apply to all employees in
men to make any report of non-recognition or Peninsular Malaysia whose monthly wages do
non-compliance to the Director General for not exceed MYR2,000 (approximately USD470).
Industrial Relations (DGIR), pursuant to Sec- The Employment Act 1955 does not apply to
tion 9(4); and Sabah and Sarawak, where there are separate
• the 60-day period for any aggrieved employ- employment ordinances.
ee to file their unfair dismissal claim to the
DGIR, pursuant to Section 20. Employees under the purview of Employment
Act 1955 are entitled to the minimum standards
The subsequent extensions of the operations of legal protections as set out under the said
of the COVID-19 Act was not applicable to the Act, whereas for employees outside the scope of
foregoing sections. the said Act, their terms of employment are gov-
erned by their individual employment contracts
Financial Aids or any applicable collective agreement.
The government of Malaysia rolled out financial
relief in stages to employers who have met the Insofar as employment laws are concerned,
requirements. These reliefs are only temporary in legal protection in Malaysia does not distinguish
nature and are of a one-off nature. The current between “blue-collar” and “white-collar” work-
applicable reliefs are: ers. Nonetheless, employees who are engaged
in manual labour or direct supervision of the
• the PEMULIH Wage Subsidy Programme 4.0, same, automatically fall under the purview of
which is open for applications from 1 August the Employment Act 1955, irrespective of the
2021 to 30 October 2021; and quantum of their wages. Other categories of
• effective 1 June 2021 to 31 December 2021, employees who are protected by the Employ-
all employers registered with the HRDF-Corp ment Act 1955 include those who are engaged
are exempted from paying the mandatory in the operation or maintenance of any mechani-
HRDF levy under the Pembangunan Sumber cally propelled vehicle, engaged in any capacity
Manusia Berhad Act 2001. in any vessel registered in Malaysia, or engaged
as domestic servants.

Foreign Workers
For foreign workers, depending on their skills,
different work permits will be issued by the

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Immigration Department of Malaysia. The gov- ment contract. In fact, the Employment Act
ernment draws a distinction between: 1955 recognises “any agreement whether oral
or in writing and whether express or implied,
• blue-collar workers in manufacturing, con- whereby one person agrees to employ another
struction, plantation, agriculture and ser- as an employee and that other agrees to serve
vices, who will be eligible for the “temporary his employer as an employee”. The exception to
employment pass”; and the foregoing is Section 10 of the Employment
• expatriates, who are generally involved in Act 1955, which provides for the requirement of
white-collar and/or highly skilled jobs, who an employment contract to be in writing where
are eligible for the “employment pass” and it is for a fixed term or for a specific piece of
“professional visit pass” (see 5. Foreign work that lasts for a specific period exceeding
Workers). a month.

2.2 Contractual Relationship Nonetheless, as best practice and for practical

In Malaysia, employers may engage workers reasons, employment contracts are generally in
under two main types of contract: writing. Salient terms of employment that are
included in the employment contract include:
• contracts of service, also known as “employ-
ment contracts”; or • period of employment (whether permanent or
• contracts for services, also known as “inde- for a specific period);
pendent contracts”. • rate of remuneration;
• job scope;
For engagement made under items contracts of • work location;
service, the workers are recognised as “employ- • working hours;
ees” who are protected by the labour and • wage period;
employment laws of Malaysia – such as protec- • notice period;
tion against unfair dismissal – whereas engage- • employment benefits; and
ment under contracts for services is considered • holidays, annual and sick leave entitlements.
as non-employment (ie, those involved have
independent contractor status) and the relation- 2.3 Working Hours
ship is purely contractual. Working Hours
For employees under the purview of the Employ-
For employment contracts, the different arrange- ment Act 1955, Section 60A (1) of the Act pro-
ments which may be entered into include: vides that an employee shall not be required to
work:
• permanent employment;
• fixed-term employment; and • more than five consecutive hours without a
• part-time employment. period of leisure of not less than 30 minutes
duration;
Employment Contracts • more than eight hours in one day;
There is no legal requirement that employment • in excess of a spread-over period of ten
contracts must be in writing in order to be valid. hours in one day;
There are also no specific formalities that are • more than 48 hours in one week.
required by the law to formalise an employ-

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For employees outside the purview of the grant a discretionary bonus to employees, where
Employment Act 1955, the hours of work will be payment of the same is subject to, inter alia,
determined by the contract of employment and the employees’ individual performance and the
there is no legal regulation of the same. business’s overall performance.

Overtime Work Increments

The Employment (Limitation of Overtime Work) Similar to bonuses, there is no law or policy man-
Regulations 1980 limits the total hours of over- dating any form or scale of increment of salaries
time to be of 104 hours in a month. The Employ- of employees. Unless the same is provided for as
ment Act 1955 prescribes that the minimum rate a term of employment in the individual employ-
of pay for overtime work is 150% of the hourly ment contract, increments are generally granted
rate of pay. on a discretionary basis and are not considered
as an “as of right” entitlement of the employees.
For employees outside the purview of the However, where there is a collective agreement
Employment Act 1955, there are no specific in place, it will often provide for mandatory sal-
regulations on overtime work. ary increments.

2.4 Compensation 2.5 Other Terms of Employment

Minimum Wage Requirements Employment Act Leave
Section 23 of the National Wages Consultative The Employment Act 1955 provides for the
Council Act 2011 grants power to the Minister to minimum requirements for several leave entitle-
gazette minimum wages orders to prescribe for ments, as follows.
the minimum wages for a given time.
Annual leave
At the time of writing, the order in effect is the Section 60E of the said Act provides for the mini-
Minimum Wages Order 2020, which came into mum number of days of annual leave, depending
force from 1 February 2020. Pursuant to the Min- on the length of service of each employee, as
imum Wages Order 2020, the minimum wage follows:
for areas under the categories of City Council
or Municipal Council are MYR1,200 per month, • eight days for every 12 months of continuous
whereas for the remaining parts of Malaysia, the service with the same employer if the employ-
minimum wage is MYR1,100 per month. ee has been employed by that employer for a
period of less than two years;
It is worth noting that failure to pay the minimum • 12 days for every 12 months of continuous
wage constitutes an offence under the National service with the same employer if the employ-
Wages Consultative Council Act 2011. On con- ee has been employed by that employer for a
viction, the employer shall be liable to a fine of period of two years or more but less than five
not more than MYR10,000 for each employee. years; and
• 16 days for every 12 months of continuous
Bonuses and 13th Month Pay service with the same employer if the employ-
Payment of bonuses, or “13th month pay”, to ee has been employed by that employer for a
employees is not mandated by the law or poli- period of five years or more.
cy, unless the same are provided for as a term
of employment. It is common for employers to

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Sick leave For those who do not fall within the scope of
Section 60F of the Employment Act 1955 pro- Employment Act 1955, their leave entitlements
vides that where it is certified by a registered would be dependent upon their contractual
medical practitioner, employees are entitled to terms.
the following minimum number of days of sick
leave in each calendar year: Maternity leave and other familial leave
Maternity protection is provided for under Part IX
• 14 days, if the employee has been employed of the Employment Act 1955, where under Sec-
for less than two years; tion 37 of the said Act, every female employee
• 18 days, if the employee has been employed shall be entitled to maternity leave for a peri-
for two years or more but less than five years; od of not less than 60 consecutive days. It is
• 22 days, if the employee has been employed worth noting that despite being provided for
for five years or more. by the Employment Act 1955, this part of the
Act extends to all female employees irrespec-
Where hospitalisation is necessary, an employee tive of whether they fall under the purview of the
shall be entitled to 60 days of sick leave in the Employment Act 1955.
aggregate in each calendar year.
Other types of familial leave – such as parental,
Public holiday child-care and adoption leave – are not man-
Section 60D of the Employment Act 1955 pro- dated by the law, and are relatively uncommon
vides that employees shall be entitled to a total in Malaysia. Similarly, paternity leave is not man-
of 11 days of gazetted public holidays per cal- dated by law and is not common in Malaysia.
endar year, of which five days shall be:
Implied Terms of Employment
• the National Day; Apart from the express terms and conditions
• the birthday of the King of Malaysia; that are provided for in the contract of employ-
• the birthday of the ruler of the respective ment, the common law also imposes various
state or federal territory; implied terms of employment into an employ-
• the Workers’ Day; and ment relationship.
• Malaysia Day.
The relationship between employer and employ-
On top of that, employees shall also be entitled ee has been described as a relationship of mas-
to any day declared as a public holiday under ter and servant, where there is an implied duty
Section 8 of the Holidays Act 1951. to maintain the mutual trust and confidence
between the employer and the employee. This
The foregoing are only applicable to employees is also described as the duty of fidelity, which
who are under the purview of the Employment requires the employee to faithfully serve the
Act 1955 and they are merely the minimum employer and provides that the former must not
standards set by the law. There is nothing in law act against the interests of the employer.
preventing employers from providing terms or
benefits that are more favourable than the fore- Examples of these duties include a duty on the
going standards. employee to protect the confidential information
and trade secrets of the employer and a duty
to not damage the reputation of the employer.

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In fact, the courts have repeatedly upheld the 3.2 Non-solicitation Clauses –
principle that any breach of mutual trust and Enforceability/Standards
confidence as well as the good faith obligation, Non-solicitation of Customers/Business
which is likely to damage the reputation of the Relations
employer, may constitute gross misconduct and These clauses are in principle valid and protect-
will lead to disciplinary action up to and includ- ed under the confidentiality law. Therefore, such
ing dismissal. a clause would be enforceable if the employer
is able to prove that the customers or business-
related information are the confidential informa-
3. RESTRICTIVE tion of the business. The duty of confidential-
COVENANTS ity extends perpetually until such information
becomes available in the public domain.
3.1 Non-competition Clauses
As a general rule, non-compete clauses in any In practice, however, it may be difficult for the
agreements, including employment agreements, employer to prove that such customers or busi-
are not enforceable in Malaysia. This is because, ness information are the confidential information
unlike other jurisdictions, Section 28 of the Con- of the company, or that such information has
tracts Act 1950 provides that any agreement been misappropriated by the ex-employee dur-
to restraint the exercise of a lawful profession, ing the course of their employment, and sub-
trade, or business of any kind, is void under the sequently divulged by the ex-employee to the
law. The purpose of this section is to promote company’s competitor. Nonetheless, such claus-
free trade and the free movement of labour. es may have a deterrent effect on the employee.

Pursuant to Section 28 of the Contracts Act Non-solicitation of Employees (Non-

1950, the common law test of reasonableness poaching)
does not apply in Malaysia. Similarly, the courts Generally, this is not enforceable as employees
have no discretion but to declare a non-compete are not protected as “confidential information”
clause void and unenforceable. Nonetheless, in of the employer. Nonetheless, in practice, this
practice, this clause is often included in employ- clause is often included in employment contract
ment contracts for deterrent purposes. for deterrent purposes.

However, where it relates to the protection of

confidential information, the employee will still 4 . D ATA P R I V A C Y L A W
be bound by any confidentiality provisions stated
in their employment contract. Even in absence 4.1 General Overview
of any confidentiality provisions, there is also an The main legislation governing the protection of
implied duty of confidentiality imposed on the personal data in Malaysia is the Personal Data
employee. The duty of confidentiality extends Protection Act 2010 (PDPA). The PDPA imposes
beyond the employment – ie, the employee is certain obligations on data users in processing
still obliged to keep confidential the confidential the personal data of data subjects. In the con-
information and trade secrets to which they was text of employment law, employers are usually
exposed in the course of their employment. the “data users”, whereas the employees whose
personal data will be processed represent the
“data subjects”.

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Under the PDPA, employers must obtain the or imprisonment for a term not exceeding two
consent of their employees prior to collecting years, or both.
and processing their personal data. Where “sen-
sitive personal data” is involved, explicit consent
should be obtained. 5. FOREIGN WORKERS

The employees must be provided with a per- 5.1 Limitations on the Use of Foreign
sonal data notice that is issued in both Eng- Workers
lish and the Malay language. Essentially, in the Foreign workers are only allowed to work in cer-
notice, employees must be notified on the nature tain sectors in Malaysia. These include manufac-
and purpose of the collection of their personal turing, construction, plantation, agriculture and
data, to whom it will be disclosed, and that the services.
employee has a right to access and correct their
personal data. Apart from the above, it should be noted that for-
eign workers are only permitted to work for one
In terms of managing the personal data, the employer and to be stationed at one work loca-
employer shall take practical steps to protect the tion, as per the name and address of the employ-
personal data from any loss, misuse, modifica- er on their respective work passes. Employers
tion, unauthorised or accidental access or dis- are not entitled to assign these foreign workers
closure, alteration or destruction. There is also a to any subcontractor, party, or sector other than
duty on the employer to take reasonable steps to those specified on their work passes.
ensure that the personal data is accurate, com-
plete, not misleading and kept up to date (hav- 5.2 Registration Requirements
ing regard to the purpose for which the personal Employment Permits
data was collected and further processed). The type of work permit issued by the govern-
ment depends on the skill of the foreign appli-
The PDPA also provides that the personal data cant, as well as the remaining quota for that sec-
shall not be retained for a period longer than is tor. It is a requirement for employers to apply for
necessary for the fulfilment of the purpose of its and obtain approval from the relevant govern-
collection, and shall be permanently destroyed ment agencies prior to hiring foreign workers.
or deleted if it is no longer required. In this
regard, employers should be mindful in rela- There are three types of employment permits
tion to retaining the personal data of employees for which foreign workers can apply in Malay-
after the cessation of employment. Nonetheless, sia, and the differences between each of these
employers should also bear in mind that Section passes are summarised below.
61 of the Employment Act 1955 provides that
there is a duty on the employers to retain the Employment passes (EP)
register of employees’ information for a period The EP is a work permit that allows an expa-
of at least six years. triate to work under a contract of service for a
Malaysian company and is further classified into
Failure to comply with the PDPA 2010 consti- three categories, depending on the expatriates’
tutes an offence which, on conviction, is pun- positions and salaries.
ishable by a fine not exceeding RM300,000

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The employer has to request approval to hire and the National Union of Bank Employees
the applicant through the expatriate commit- (NUBE).
tee (EC) or another authorised approval agency.
This is referred to as applying for an expatri- A trade union is defined under the Trade Union
ate post. Once the expatriate post application Act 1959 as any association of workmen or
is approved, the employer must submit the employers within particular or similar establish-
employment pass application at the Immigration ments, trades, occupations or industries with
Department of Malaysia. one or more of the following objectives:

Temporary employment passes (TEP) • to regulate and promote good working rela-
The TEP is issued to semi-skilled or unskilled tionship between the workmen and employ-
workers in certain approved sectors. There are ers, improving the working conditions of
two categories of TEP, those for: workmen or enhancing their economic and
social status, or increasing productivity;
• foreign workers in the manufacturing, con- • to regulate the relationship amongst the
struction, plantation, agriculture and services workmen or amongst the employers;
sectors; and • to provide representation in trade disputes;
• foreign domestic helpers (FDH). • to conduct or deal with trade disputes and
their related matters;
Professional visit pass (PVP) • to improve the working conditions for an
Foreign talents with acceptable professional employee; and
qualifications or skills are issued a PVP. The • to promote, organise, or finance its members
PVP is different from the other types of Malay- during a strike or lockout.
sian work permits because such an individual
would not actually be employed by a Malaysian 6.2 Employee Representative Bodies
company or organisation. Once a trade union is established, Section 8 of
the Trade Union Act 1959 requires any organi-
sation that meets the requirements to apply for
6. COLLECTIVE union registration within one month of its estab-
R E L AT I O N S lishment. The Registrar of Trade Unions may
extend this period at their discretion, but such
6.1 Status/Role of Unions extension may not exceed six months.
Under Article 10 of the Federal Constitution of
Malaysia and Section 4 of the Industrial Relations The process of registration of trade unions is
Act 1967, all workers or employers in Malaysia provided for in Section 10 of the Trade Union
have the right to form or join trade unions and to Act 1959. The following steps are to be taken in
participate in their lawful activities. order to form and register a trade union:

Malaysia has several active workers’ trade • the application must be signed by at least 7
unions, the largest of which are the Malaysian members;
Trade Union Congress (MTUC), the National • it must be in the prescribed form and accom-
Union of the Teaching Profession (NUTP), the panied by the prescribed fees;
National Union of Plantation Workers (NUPW)

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• a printed copy of the rules of the union (in the and a trade union of workmen on the other, on
national language of Malaysia) signed by the matters relating to the terms and conditions of
seven members has to be submitted; employment and work of workmen or concern-
• the names, occupations, and addresses of ing relations between such parties; whereas
the members making the application should “collective bargaining” is defined as “negotiat-
be included; ing with a view to the conclusion of a collective
• the name and address of the head office of agreement”.
the union should be included; and
• the name, age, citizenship and occupation of The steps taken to enter into collective bargain-
the office-bearers should be submitted. ing and form a collective agreement are sum-
marised below.
In these circumstances, Section 12 of the Trade
Union Act 1959 empowers the Director General Union Recognition
to register the Trade Union. After registering a The process by which an employee trade union
trade union under Section 12, the Director Gen- seeks official acceptance from the employer to
eral shall issue the trade union a certificate of act on behalf of the employees who fall under
registration in the prescribed form, and that cer- the scope of its representation is known as
tificate, unless proven to have been cancelled “Union Recognition”. The aim of securing such
or withdrawn, shall be conclusive evidence for “Union Recognition” is to enable the trade union
all purposes that the trade union has been duly of employees to act on their behalf and com-
registered under the Act. It should also be noted mence collective bargaining. Without an order of
that, according to Section 59 of the Trade Union recognition, the trade union has no locus standi
Act 1959, a union is prohibited from engaging in to represent the employees within the scope of
any activity until the Director General issues a its representation for the purposes of collective
registration certificate. bargaining.

Notwithstanding the foregoing, Section 12 also Invitation to Commence Collective Bargaining

gives the Director General the authority to refuse Once a trade union is recognised by an employ-
to register a trade union for one of the following er, Section 13 of the IRA 1967 provides that the
reasons: trade union would have the automatic right to
enter into contract negotiations as a principal
• the Director General believes that the union with the employer on the terms and conditions
is likely to be used for unlawful purposes or of employment to be contained in a collective
contrary to its objectives and rules; agreement. In these situations:
• any objectives of the union are unlawful; or
• the Director General is not satisfied that the • the trade union of workmen may invite the
trade union has complied with the provisions employer or trade union of employers to com-
of the Act. mence collective bargaining; or
• the employer or the trade union of employ-
6.3 Collective Bargaining Agreements ers may invite the trade union of workmen to
The Industrial Relations Act 1967 (IRA 1967) commence collective bargaining.
defines a “collective agreement” as an agree-
ment in writing concluded between an employer This invitation must be in writing and must
or a trade union of employers on the one hand, include the proposals for a collective agreement.

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Upon receipt of such invitation, the invitee must Under the common law, the grounds for ter-
respond in writing (to the inviter) within 14 days, mination which are accepted as “just cause or
indicating acceptance or rejection of the invita- excuse” include:
tion. The collective bargaining must commence
within 30 days of the receipt of the acceptance. • misconduct;
• poor performance; and
If an invitation is rejected or is not accepted • redundancy.
within 14 days, or if collective bargaining does
not commence within 30 days, the inviter may Depending on the grounds of dismissal, differ-
file a formal complaint with the Director General. ent procedures ought to be adopted to ensure
The Director General has the authority to com- procedural fairness.
pel parties to commence collective bargaining.
If collective bargaining does not take place, a Misconduct
trade dispute is deemed to exist. For a dismissal on the grounds of misconduct,
due inquiry ought to be conducted before deter-
Negotiation mining the guilt of the employee. In fact, Section
Once collective bargaining has commenced, 14 of the Employment Act 1955 also requires
the parties must negotiate the provisions that that due inquiry be conducted before discipli-
will be included in the collective agreement. In nary action (including termination) can be taken
this respect, any proposals or counter-proposals against the employee. A domestic inquiry is not
from either party must be in writing and the ulti- a legal requirement when enquiring into an alle-
mate outcome of a successful negotiation is the gation of misconduct of an employee – what is
collective agreement. required is that the employee is accorded the
opportunity to explain, for example, by way of a
show cause letter.
7 . T E R M I N AT I O N O F
EMPLOYMENT Poor Performance
For a dismissal due to poor performance, the
7.1 Grounds for Termination employee must first be warned about their poor
Malaysia does not recognise “at will employ- performance and be given sufficient opportunity
ment” – ie, employers cannot simply terminate to improve. This can be done by way of a perfor-
an employee for any reason. Termination of an mance improvement plan. If the employee does
employee’s services can only be carried out pro- not show the expected improvement within the
vided that it is justified, done in good faith, and stipulated time, the employer can then proceed
done in a fair and reasonable manner. This prin- with the dismissal.
ciple is reflected in the Industrial Relations Act
1967, where Section 20 of the Act provides that Redundancies
where a dismissal was done “without just cause For redundancies, the Code of Conduct for
or excuse”, the employee would have the right Industrial Harmony provides guidance on con-
to file an unfair dismissal representation to the ducting a retrenchment exercise. Nonetheless,
Director General of Industrial Relations. the courts have repeatedly held that the provi-
sions of the Code do not have the force of law.
Therefore, departure from the same does not
necessarily mean that the retrenchment is unfair.

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Once it is established that there is a redundan- • eight weeks’ notice if the employee has been
cy situation, the next step is the selection of so employed for five years or more on such
employees to be retrenched. Under Section 60N date.
of the Employment Act 1955, foreign employ-
ees must be retrenched first before retrenching The agreed notice period should be put in writ-
Malaysian employees. Thereafter, the default ing as a term of employment as a matter of best
selection is based on the principle of “last in, practice. Generally, the term of notice period is
first out” (LIFO), but the employer may depart also accompanied by the agreement between
from the LIFO principle by using its own selec- parties to accept salary in lieu of such notice
tion criteria, as long as the same can be shown period.
to be fair and reasonable.
7.3 Dismissal For (Serious) Cause
For a collective dismissal, it is recommended (Summary Dismissal)
that the employer should give a warning as Summary dismissal is an action of immediate
early as practicable. Where the employees are dismissal where the employer does not give the
represented by a trade union, the employer is employee any notice of termination or salary
advised to consult with the union and ensure in lieu of notice. This can only be done in the
that they comply with any applicable collective event that the employee has committed gross
agreement. The employer may also offer mutual misconduct.
or voluntary separation schemes to the employ-
ees for amicable departure of the employees. There is no statutory definition of gross miscon-
duct, but, generally, it can be understood as
It is compulsory for an employer to submit a actions or behaviour that are so serious in under-
report on retrenchment to the Department of mining the mutual trust and confidence between
Labour office Malaysia in the relevant form. the employer and employee, that they justify the
Under Section 63 of the Employment Act 1955, punishment of instant dismissal.
failure to do so will constitute an offence and the
employer shall be liable to a fine of MYR10,000. Due Inquiry
Prior to carrying out a summary dismissal, the
7.2 Notice Periods/Severance employer should first conduct investigations
There is no statutory prescribed notice period. into the matter, and thereafter due inquiry into
Employers and employees are free to agree upon the allegation of such gross misconduct. As
the length of any notice period to be binding on explained in 7.1 Grounds for Termination,
both parties. In the absence of any agreed notice domestic inquiry is not mandated by law. How-
period in writing, Section 12 of the Employment ever, the employee must be given a chance to
Act 1955 provides for the minimum notice peri- respond before the decision to dismiss them is
ods, which are: made.

• four weeks’ notice if the employee has been Where the employer is of the view that the pres-
so employed for less than two years on the ence of the employee at the workplace would
date on which the notice is given; hamper or prevent any investigations, the
• six weeks’ notice if the employee has been so employee may be suspended.
employed for two years or more but less than
five years on such date; and

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 Law and Practice MALAYSIA
Contributed by: Vijayan Venugopal, Shearn Delamore & Co

When the employee is asked to provide their contract of service voluntarily. The VSS offer
response to the allegation(s), whether by way is generally accompanied by a compensation
of issuing a show cause letter or a domestic package offered by the company.
inquiry, the employee must be made aware
of the nature of allegations against them. The On the other hand, an MSS is a mechanism
employee should also be given reasonable time where the employer identifies the particular
to respond to the charge(s). employees to whom to extend such offer of sep-
aration. Generally, the employer and employee
If the employer is unsatisfied with the employ- can negotiate the compensation package of the
ee’s explanation, and after taking all circum- MSS and the employee can then decide whether
stances into account, reasonably believes that to accept or reject that offer.
the employee is guilty of a gross misconduct, the
employer should then decide whether the gravity The fundamental element of a mutual/voluntary
of the misconduct justifies a summary dismissal. separation is that the employer agrees to a mon-
If in the affirmative, the employer should issue a etary payment in exchange for the employee
written letter of dismissal to the employee. The agreeing to voluntarily resign. The agreement,
reason for dismissal should be made known to however, must be entered into voluntarily and
the employee. not through use of force, subtle or otherwise,
or by coercion or under duress in any form or
Failure to adopt a fair dismissal procedure could by any unfair labour practice. In this regard, if
expose the employer to potential liabilities. If the the court determines that one of the aforemen-
employee believes that they have been termi- tioned elements was present in the formation of
nated without just cause or excuse, they can file the agreement, the court may hold that this was,
a complaint with the Industrial Relations Depart- in fact, a dismissal and the employer would be
ment under Section 20 of Industrial Relations Act obliged to show just cause or excuse.
1967 seeking the remedy of reinstatement and
back wages of up to 24 months (or up to 12 7.5 Protected Employees
months for probationers). Section 37(4) of the Employment Act 1955 pro-
vides that a female employee shall not be termi-
7.4 Termination Agreements nated during the period in which she is entitled
As discussed in 7.1 Grounds for Termination, to maternity leave except on the grounds of clo-
there is no “termination at will” in Malaysia. All sure of the employer’s business.
termination must only be carried out with just
cause and excuse. Section 5(1)(d) of the Industrial Relations Act
1967 provides that employers shall not dismiss
However, employers can offer mutual separa- or threaten to dismiss an employee by reason
tion schemes (MSS) or voluntary separation that they propose to become or persuade others
schemes (VSS) to their employees, which involve to become involved in a trade union or partici-
the parties voluntarily bringing the employment pate in the formation, promotion or activities of
relationship to an end by entering into an MSS a trade union.
or VSS agreement.

A VSS is a mechanism where the employer

offers its employees the choice to terminate the

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MALAYSIA Law and Practice
Contributed by: Vijayan Venugopal, Shearn Delamore & Co

8. EMPLOYMENT 8.2 Anti-discrimination Issues

DISPUTES Article 8 of the Federal Constitution prohibits
any form of discrimination against citizens on
8.1 Wrongful Dismissal Claims the grounds of religion, race, descent, place of
An employee who considers themselves to have birth or gender. Notwithstanding the foregoing,
been dismissed without just cause and excuse the Federal Court, in the case of Beatrice AT
has the right to file a representation to the Direc- Fernandez v Sistem Penerbangan Malaysia &
tor General of Industrial Relations, who would Anor [2005] 3 MLJ 681, held that Article 8 of the
subsequently take steps to resolve the dispute Federal Constitution only applies to the legis-
amicably. If the parties are unable to reach a set- lature, government authorities and Parliament,
tlement, then the Director General of Industrial and does not extend to the private employment
Relations shall refer the representation to the sector.
Industrial Court for adjudication.
In this regard, employees in the private sector
Where an employer is unable to prove “just may rely on the following provisions, which pro-
cause and excuse” for a dismissal, such dis- hibit workplace discrimination.
missal will be deemed as “unfair”. In such cir-
cumstance, the Industrial Court may grant the • Section 60L of the Employment Act 1955 –
following remedies to the employee. any employee (local or foreign) may submit a
complaint to the Director General of Industrial
• Reinstatement of the employee to their last Relations on the grounds that they are being
held position; if reinstatement is not granted discriminated against in relation to being a
or not practical, the Industrial Court will order foreign employee/local employee in respect
compensation in lieu of reinstatement, which of the terms and conditions of their employ-
is computed at the rate of one month’s salary ment.
for each year of completed service. • Section 5(1)(c) of Industrial Relations Act
• Back wages (ie, wages from the day of 1967 – employers shall not discriminate
dismissal up to the date of the Industrial against any person regarding employment,
Court decision), capped at 24 months of the promotion, any condition of employment or
employee’s last drawn salary, or 12 months if working conditions on the grounds that they
the employee is a probationer. are a member or officer of a trade union.

However, where an employee chooses to file Aside from the above provisions, employees
their claim for breach of employment contract may also pursue civil tortious claims for unfair
before the civil courts, the common law provides discrimination. The following elements must be
that the damages that the employee is entitled present for an employee to claim unfair discrimi-
to are limited to the wages due during the notice nation under the scope of this tort.
period. An employee is not entitled to damages
for loss of earnings or injured feelings. This is set • There must be some form of discrimination;
out in the case of Fung Keong Rubber Manufac- discrimination occurs only when equals are
turing (M) Sdn Bhd v Lee Eng Kiat & Ors [1981] treated unequally.
1 MLJ 238. • The discrimination must be unfair; discrimina-
tion must be accompanied by an element of
harshness or unfairness, or that there was an

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 Law and Practice MALAYSIA
Contributed by: Vijayan Venugopal, Shearn Delamore & Co

unjust or unreasonable unfair bias in favour of The Labour Court only has the power to hear
one and against another. complaints from two categories of workers:
• There must be resultant harm or injury that is
recognised by law – ie, pecuniary or non- • those who are covered by the Employment
monetary loss. Act 1955; and
• those who are earning a basic salary of up to
The burden of proof for tortious claims for unfair MYR5,000 per month.
discrimination, like other civils claims, is on the
balance of probabilities, and legal remedies for 9.2 Alternative Dispute Resolution
this claim are often pecuniary damages to be An arbitration clause is rarely seen in employ-
paid to the victim as compensation for loss or ment contracts, but in the presence of any, the
injury. same will be enforceable and there is nothing to
stop parties from arbitrating employment-related
disputes.
9. DISPUTE RESOLUTION
Nonetheless, as the amount involved in employ-
9.1 Judicial Procedures ment disputes is generally quite low in compari-
Industrial Court son to the costs of an arbitration, arbitrations are
The Industrial Court is a statutory tribunal that not the usual choice of forum to resolve employ-
was created to hear matters relating to the ment-related disputes as the costs do not justify
Industrial Relations Act 1967, such as unfair the quantum claimed.
dismissal claims, trade disputes or trade union
recognition. Generally, all employees (excluding On the other hand, mediation is a more common
independent contractors) are eligible to file their ADR process to resolve employment-related
claim before the Industrial Court. disputes. This is because the Industrial Court
also plays a relatively active role in encouraging/
Section 27 of the Industrial Relations Act 1967 assisting parties in mediation in order to resolve
provides for representation before the Industrial their dispute.
Court. Briefly, parties may represent themselves
by appearing personally (or in the case of an 9.3 Awarding Attorney’s Fees
employer, any duly authorised officer of the com- Costs are not awarded at the Industrial Court.
pany), be represented by their trade union rep- Each party will bear their own legal fees, irre-
resentative or by a lawyer. spective of whether they win or lose the case.

Labour Court On the other hand, it is common for costs to

The Labour Court is established to hear any dis- be awarded to the winning party by civil courts.
pute or claim relating to the provisions of the Nonetheless, the costs awarded are determined
Employment Act 1955 and its regulations, as by the court and most of the time, will not cover
well as certain contractual claims. all legal fees.

16
MALAYSIA Law and Practice
Contributed by: Vijayan Venugopal, Shearn Delamore & Co

Shearn Delamore & Co is a premier full-service resolution as well as representation before the
law firm that prides itself on providing creative, judicial forums. Shearn Delamore & Co has
pragmatic and cost-effective solutions for its been engaged in cases that have contributed
clients. The firms’ Employment & Administrative to the evolution and expansion of employment
legal practice group consists of six partners and and administrative law in Malaysia. The practice
several associates. It offers comprehensive rep- continues to keep abreast of changes to the law
resentation and assistance to clients involved in and regularly advises clients on the nature and
various stages of employment-related dispute implications of key amendments.

AUTHOR

Vijayan Venugopal is a partner judicial reviews, employment law aspects of

of Shearn Delamore & Co who mergers and acquisitions, minimum wage,
has worked with the firm for occupational health and safety legislation,
over 27 years and has been reorganisations and retrenchment, statutory
exclusively practising in the field benefits, and union recognition. He has
of employment law throughout conducted hearings at various levels of the
that period. He has extensive experience judicial hierarchy, including the Labour Court,
dealing with the law on dismissals, trade union the Industrial Court, the Magistrate’s Court, the
disputes, collective bargaining, contracts of Sessions Court, the High Court, the Court of
service, employment issues, industrial action, Appeal and the Federal Court.

Shearn Delamore & Co

7th Floor, Wisma Hamzah-Kwong Hing
No.1, Leboh Ampang
50100 Kuala Lumpur
Malaysia

Tel: +603 2027 2866

+603 2027 2874
Fax: +603 2078 5625
Email: [email protected]
[email protected]
Web: www.shearndelamore.com

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