MALAYSIALabor Laws

Common law and East Malaysia autonomies

Unlike Japan, which adopts the civil law legal system, due to its historical background, Malaysia adopts the common law legal system based on influence from the United Kingdom, its former colonial power. Consequently, companies should have knowledge regarding judicial precedents of unwritten laws, in addition to knowledge regarding the Federal Constitution, statutes, and their subordinate regulations established by the Congress and constitutions, laws, and regulations that are prescribed in each state.

Furthermore, the States of Sabah and Sarawak in East Malaysia have numerous autonomies in light of their historical background, and in addition to having separate laws, legal qualifications are also different. Because each state has its own unique labor laws, for issues regarding this region, it is essential to consult with an attorney who is qualified in that state.

*Overview of Common Law and Civil Law
Common Law is a legal system mainly in use in the UK and in nations formerly part of the British Empire (the USA, Canada, Australia, New Zealand, etc.), which emphasizes decisions based upon traditions, customs, and precedent.

On the other hand, civil law developed on the European continent in nations, such as France and Germany, and as a legal system compared to common law, civil law places emphasis on statutes. Japan uses a civil law legal system.

Protection of low-income workers and manual laborers

Malaysia has enacted various laws and regulations for employees who correspond to an "employee" under the Employment Act. A company is often required to follow careful procedures upon dismissing an employee, and it is not easy for companies to dismiss its employees. Moreover, as the government has implemented measures to hold companies responsible for the management of foreign employees in recent years, companies need to take precautions at every stage of employment from hiring to termination. Particularly, when a company is to treat an employee disadvantageously, such as when dismissing an employee, the company may be required to conduct an internal inspection that includes the collection of evidence and the holding of interviews, and consideration must also be given to the implementation of proper procedures. On the revision of an employment contract, in order to prevent future disputes between the companies and the employee, it is noted to be sure to document the agreement between the parties pertaining to any revision of the employment contract.

Implied rights of employees, collective bargaining

In Malaysia, as a matter of custom, employees are given certain implied rights that are not pursuant to contracts or laws. For instance, companies and employees must mutually trust and respect each other, and employees are protected from wrongful dismissal. Among the above, unlike Japan, negotiations with trade unions need to be applied to and registered with the Director General of Trade Unions (DGTU), and only trade unions that are acknowledged by the company are permitted to engage in collective bargaining. Furthermore, since legal restrictions are also applicable in the course of collective bargaining, companies are advised to confirm such restrictions when engaging in negotiations with trade unions.

Status of recent labor policies

Based on the Economic Transformation Programme announced in 2010, the Malaysian government has set various numerical targets. Starting with the liberalization of the service sectors, including IT, welfare, and tourism, aiming at attracting foreign capital and competent foreign employees, it is anticipated that the government continues to enact legislation for various sectors, including labor laws, and in some cases, the enacted legislation is to be revised.

In the field of labor laws, new regulations to tighten the management and responsibilities of companies for foreign employees working in Malaysia were established on January 1, 2017. Furthermore, from January 1, 2018, payment of an annual levy for foreign employees has been borne by employers instead of employees, and a company must give overtime pay and sick leave to its employees and shall not cause any employee to work without consent. In January 2023, major legal changes came into force to expand the application of labor laws (this amended Employment Act is referred to as the “Amended Employment Act”).

In addition to the above, the Minimum Wages Order 2022 has been attracting attention recently. In Malaysia, much discussion has been held between the public and trade unions, which have been demanding the introduction of a minimum wage system, and companies (business owners) who have been opposing the introduction of such a minimum wage system out of the concern that it may lead to increased costs. However, minimum wage regulations have been established and were enforced from July 2016. Subsequently, the Minimum Wages Order was issued in January 2019, February 2020, and April 2022 and minimum wages were increased to RM 1,500 monthly or RM 7.21 hourly for the whole of Malaysia. Recently, penal provisions based on the Minimum Wages Order have been applied, and there was a case where the magistrate's court ordered the payment of approximately RM 30,000 to a cleaning company that paid wages to 17 of its employees in an amount that was lower than the minimum wage.

Labor laws under common law system

In the field of labor laws, the precedents of labor courts, high courts, appellate courts, and federal courts are important, in addition to the laws enacted by the Parliament and the State Council. When there are no corresponding provisions or examples in a specific case, precedents in the United Kingdom and other countries adopting the common law system can be used as a reference.

On a practical level, in cases where a contract has been created, companies should note that the effect of any description that differs from the provisions of the contract or any agreement outside of the contract is not easily acknowledged, and that the fair and equitable principle is not easily adopted as a general doctrine. For instance, with regard to the former (description that differs from the contract), because an employment contract for a period of one month or longer needs to be created in writing (Section 2(1) and Section 10(1) of the Employment Act) even if a verbal agreement that differs from the contract is reached, the description in the contract will prevail, and there is a possibility that the verbal agreement will not be acknowledged. Thus, it would be desirable to clearly specify any agreement between labor and management in a written contract in advance.

Employment Act

The Employment Act of 1955 was a statute that provides security for certain employees for a long time. However, the above-mentioned Amended Employment Act implemented in January 2023, in principle, provides that all the provisions shall apply to employees. This Act guarantees employees the right to receive overtime payments and the right to receive wages when taking annual paid leave, sick leave, and maternity leave. It should be noted that a company that violates the Employment Act may be subject to penalties.

1. Applicability

   It should be noted that the former Employment Act did not apply to all employees. However, the Amended Employment Act applies to all employees. Provided that, the provisions of the overtime payment, holiday wages, and dismissal allowance do not apply to employees with a monthly wage of RM4,000 or more. For persons corresponding to any one of the following, such as manual laborers, the provisions of the overtime payment, holiday wages, and dismissal allowance shall apply regardless of the wages. (First Schedule for Section 2(1)). (however, please note that certain provisions of the Employment Act shall apply, particularly provisions that take effect regardless of the wages paid).

   
   

   All stipulations in the Employment Act shall apply to any person who is engaged in manual labor (*) including such labor as an artisan or apprentice, who supervises or oversees other employees engaged in manual labor employed by the same employer in and throughout the performance of their work, who is engaged in any capacity in any vessel registered in Malaysia, or who is engaged as a domestic servant (**) (also corresponds to cases where the monthly wage exceeds RM 4,000)

   *Provided that where a person is employed by one employer partly for manual labor and partly in some other capacity, then such person shall not be deemed to be performing manual labor unless the time during which the person is required to perform manual labor in any one wage period exceeds one-half of the total time during which the person is required to work in such wage period.

   **Under the Amended Employment Act, the word “servant” has been changed to “employee.”

   
   

   While the foregoing Employment Act does not apply in the States of Sabah and Sarawak, similar provisions are prescribed in the labor ordinances of these states.

2. Various types of security

   The Employment Act prescribes and guarantees the minimum standards for labor conditions. With regard to the basic provisions of an employment contract, such as payment of wages, work hours, rest break, maternity leave, employment of women, employment related to children and juveniles, termination of employment, dismissal, and retirement allowance, those that fall below the standards are deemed invalid, and those that are advantageous to employees beyond the standards are deemed to be valid as written (Section 7 of the Employment Act). For employees not covered by the Employment Act, it is often the case that they are offered better working conditions than those prescribed by the Employment Act because it would make it difficult for employers to secure talent if they offer lower conditions to prospective employees compared with competitors.

   Cf. Main types of guarantee under the Employment Act ¹

   Overview

   Description of Guarantee

   Working hours 
   (Section 60A)

   No more than 8 hours per day, 45 hours per week ²

   Overtime

   No more than 104 hours per month (Employment (limitation of overtime work) Regulation 1980 ³) ⁴

   Overtime Allowance
    (Monthly Wages)
   (Section 60,60A, 60D)

   On normal working day/overtime: 1.5 times the hourly rate of pay 
   On rest day/within normal working hours (half day or less): 1 day rate of pay 
   On rest day/within normal working hours (exceeding half day): 2 days rate of pay 
   On rest day/overtime: 2 times the hourly rate of pay 
   On public holiday/within normal working hours: 2 times the hourly rate of pay (if overtime, 3 times the hourly rate of pay) 

   Public Holidays(Section 60D) 

   In any calendar year, at least 11 gazetted public holidays (inclusive of 5 compulsory public holidays) and other holidays set out in the Holidays Act 1951 as public holidays

   Annual Leave (may differ depending on the number of years of service) (Section 60E)

   Less than 2 years: 8 days
   2 years or longer and less than 5 years: 12 days
   5 years or longer: 16 days

   Sick Leave (may differ  depending on the number of years of service) (Section 60F)

   Less than 2 years: 14 days 2 years or longer and less than 5 years: 18 days  5 years or longer: 22days 
   If hospitalization is required: up to 60 days

   Maternity Leave (Section 37)

   98 consecutive days (may take from the day 30 days immediately prior to the confinement)

Other laws

1. Trade Unions Act

   Trade Unions Act 1959

   This statute prescribes matters related to the activities and establishment of trade unions.

   Industrial Relations Act 1967

   This statute prescribes the relation of companies and employees/trade unions and sets forth the means for resolving labor disputes between labor and management.

2. Social security

   Employees Provident Fund Act 1991

   This statute prescribes matters related to the employee's provident fund, which is a pension plan run by the government. Both companies and employees are obligated to participate in the plan.

   Employee's Social Security Act 1969

   This statute aims to establish an insurance plan for offering compensation and financial support to employees who were injured or became ill during their years of service and work hours.

   Workmen's Compensation Act 1952

   This statute aims to establish an insurance plan for offering compensation and financial support to employees who were injured or became ill while engaging in their job duties.

3. Security of workers

   Factories and Machinery Act 1967

   This statute prescribes matters related to the management of factories and the registration and inspection of machinery related to safety, sanitation, and the welfare of factory employees. This law protects the safety and health of employees (regardless of gender) who work in factories, and applies to all manufacturers.

   Occupational Safety and Health Act 1994

   This statute was enacted to grant legal protection in order to protect the safety, health, and welfare of employees in conducting their job duties. This statute obligates companies to conduct safety inspections/maintenance of their facilities and systems, as well as to offer information, guidance, training, and supervision to their employees, and create safety/health rules and revise the same as appropriate. Consideration must be given so that measures are implemented in accordance with the Safety and Health Policy.

4. Employment of non-residents

   Immigration Act 1959/1963

   This statute prescribes matters related to immigration, visas, and their procedures, as well as matters related to immigrants and foreign employees.

   Employment (Restriction) Act 1968

   This statute prescribes matters that specifically apply to foreign employees.

5. Human Resource Development Act 2001

   This statute prescribes matters related to the promotion of training of employees, matters related to the Human Resource Development Fund, and the establishment and management of the said fund and then obligates companies to make contributions to the fund.

6. Minimum Retirement Age Act 2012

   The mandatory minimum retirement age in a private company is 60 years of age, and if a company requests that employees resign/retire before reaching the age of 60, the company is responsible for reinstatement or compensation and a fine not exceeding RM 10,000. Meanwhile, if early retirement is approved under the employment contract or the labor agreement, the employee may choose to retire early. This statute was enforced in July 2013, and contributions to the employee's provident fund were consequently revised to be continued up to the age of 60.

7. Children and Young Persons (Employment) Act 1966

   This statute prevents exploitation based on child labor. It imposes restrictions on children under the age of 15: they are permitted to work six hours per day but prohibited from working during the time from 8 p.m. to 7 a.m., and children between the ages of 15 and 18 are permitted to work seven hours per day but prohibited from working during the time from 8 p.m. to 6 a.m.⁵

8. Key guidelines other than laws

   Minimum Wages Order 2022

   This order prescribes the minimum wages; the term "wages" refers to the basic wages and does not include bonuses and other compensation (for details, see Section 4 "Wages").

   The Code of Conduct for Industrial Harmony 1975 and Guidelines on Retrenchment Management⁶

   This code prescribes the guidelines in building a labor-management relationship and sets forth the procedures for retrenchment to be implemented by companies.

   The Code of Practice for the Eradication and Prevention of Sexual Harassment in the Workplace 1999

   This code prescribes guidelines for preventing sexual harassment.

Legal duty to prepare internal work regulations

The creation of work rules is not legally required, and there are no laws that define or prescribe work rules. Nevertheless, in order to further deepen the employees' understanding of the company's business operations, improve the company's productivity, and prevent disputes, many companies prescribe their own internal rules, such as company's rules. If a company wishes their employees to understand the company's protocols and policies, the company should distribute a copy of its internal rules to all employees and have the person in charge offer a verbal explanation regarding the internal rules to have the employees understand the contents thereof, and it would also be useful for the company to obtain a signed document from its employees to the effect that they fully understand and follow the internal rules from the perspective of preventing subsequent disputes.

When a company establishes work rules, in addition to updating the work rules as appropriate according to the working environment, it is also important for the company to familiarize its employees with the updated work rules of the workplace. The posting of work rules will demonstrate the company's transparency in its business operation; that is, the fact that the company is not treating its employees unfairly, and this is considered to lead to obtaining the trust of its employees.

Details

Not only is the comprehensive inclusion of all possible provisions in the work rules unrealistic, it may also cause confusion for employees. Thus, it would be desirable to specifically and clearly prescribe the issues that will become particularly important to both the employer and the employee; for instance, acts that would be subject to disciplinary action in business areas that may require disciplinary procedures, so that the employees can recognize the acts that would result in disciplinary action.

Examples of entries

Provisions that are generally prescribed in the work rules of Malaysia are as follows.

Definition of wages

The term "wages" shall mean the basic wages and all other payments in cash payable to an employee for work done with respect to the employee’s employment contract but does not include the following (Section 2(1) of the Employment Act):

• any allowances for housing, meals, fuel, utilities, medical treatment, or of any other approved welfare expenditures;
• any contribution voluntarily paid by the employer to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement allowance, thrift scheme, or any other fund or scheme established for the benefit or welfare of the employee;
• any travelling allowance or special allowance for business trips;
• any sum payable to the employee to defray special expenses entailed by the nature of the work;
• any gratuity payable on discharge or retirement; or
• any annual bonus or any part of any annual bonus.

While overtime pay corresponds to wages, bonus, retirement allowance, and other payments that are not for work done and payments that are not based on the employment contract do not correspond to wages. Note that, if a provision regarding bonuses is not prescribed in the employment contract or the work rules, the company is not obligated to pay any bonus to its employees under the Employment Act.

Payment method, frequency, amount to be paid

A wage period⁷ shall not exceed one month, so the companies must pay the salary at least once a month (Section 18(1) of the Employment Act) in cash, and upon obtaining the written consent of the employee, the company may also pay wages by way of transfer to the employee's bank account or by way of check (Section 25A of the Employment Act). Payment in kind is not allowed.

The amount of overtime allowance to be paid is also regulated under the Employment Act.

The Amended Employment Act provides that the calculation shown below will apply to the salary calculation when an employee works less than one month in the event (i) the employee starts work in the middle of the calculating month, (ii) the employee is terminated before the end of the calculating month, or(iii) employee takes unpaid leave or absence from work in the month in question(Section 18A of the Employment Act).
[(monthly wages / number of days of the particular wage period) x number of days eligible in the wage period]

Time of payment

As a general rule, wages must be paid within seven days from the last day of the wage period (if the seventh day is a rest day, then before the seventh day) (Section 19 of the Employment Act).

When the employment contract is terminated, the date of payment will differ as follows depending on the cause of termination.

1. When a definite term employment contract expires, an employment contract is terminated based on prior notice, and an employment contract is terminated by a company without prior notice, the company must pay the entire amount of wages to the employee not later than the day on which such employment contract is terminated (Section 20 and Section 21(1) of the Employment Act).
2. Where an employee terminates an employee’s employment contract without notice, the company must pay the wages to the employee within three days after the date of such termination (Section 21(2) of the Employment Act) (see Section 5 below).

Minimum Wages Order 2022

Minimum Wages Order 2022 came into force on May 1, 2022. Minimum wages were increased to RM 1,500 monthly or RM 7.21 hourly for the whole of Malaysia. This order does not apply to domestic employees, such as maids.

When wages are to be paid in accordance with a piece rate, tonnage, task, trip, or commission and not as basic pay, the wages must not fall below RM 1,500 monthly.

Advance payment of wages

1. Amount

   While a company may make an advance payment of wages, the company may not earn interest (Section 22 and Section 24(1)(c) of the Employment Act). As a general rule, the amount of advances of wages must not exceed the amount of wages earned in the preceding month, but the company may make an advance in a greater amount if such advance is made to the employee:

   • To enable the employee to purchase a house or to build or improve a house
   • To enable the employee to purchase land
   • To enable the employee to purchase a motorcar, a motorcycle, or a bicycle
   • To enable the employee to purchase shares of the employer's business offered for sale by the employer
   • To enable the employee to purchase a computer
   • To enable the employee to pay personal medical expenses or the employee’s immediate family members (The Amended Employment Act includes the spouse.)
   • To enable the employee to pay for daily expenses pending receipt of any periodic payments for temporary disability under the Employees' Social Security Act 1969
   • To enable the employee to pay for personal educational expenses or the employee’s immediate family members (Section 22 of the Amended Employment Act includes the spouse.)
   • Any other case in which the approval of the Director General of the Labor Department is obtained

2. Repayment

   While the advance payment may be deducted from subsequent wages for repayment, as a general rule, the amount of the deduction may not exceed 50% of the wages earned by the employee in that month (Section 24(8) of the Employment Act).

Deduction from wages

The following may be deducted from wages:

• overpayment of wages made during the immediately preceding three months because of the employer's mistake;
• compensation due to breach of the employment contract;
• recovery of advances of wages; and
• authorized by any other written law (contribution to employee's provident fund, employee's social security fund, etc.)

As a general rule, the amount of the deduction may not exceed 50% of the wages to be paid during the wage period, but this does not apply to cases where the employee terminates the employment contract without any advance notice or when the employee is obligated to repay the company (Section 24(8), Section 24(9)(a), and 24(9)(b) of the Employment Act). When an employee is to repay a new housing loan, subject to the prior permission in writing of the Director General of the Labor Department, up to 75% may be subject to the deduction (Section 24(9)(c) of the Employment Act).

13th Month Allowance

Similar to the AWS (Annual Wage Supplement) of Singapore, it is also customary in Malaysia to pay the salary of the 13th month under the name of "13th Month Salary (Bonus)" or the like, and many companies are actually paying this allowance. In addition, certain companies pay bonuses according to the performance of individual employees or a bonus of one month's worth of pay as Contractual Bonus. If a company explicitly sets forth in its employment contract that annual bonuses will be paid to employees, it will have an obligation to pay such bonuses to employees; therefore, in many cases, companies state "based on performance" only in its employment contract.

Working Hours, Overtime, Rest Days, and Holidays

1. Working Hours

   Working hours

   Under the Employment Act, by agreement under the contract of service between the employee and the employer, the number of hours of work shall, in principle, be less than eight hours in a day, forty-five hours in one week. (Section 60A of the Employment Act. The employer shall not require the employee to work for more than ten hours in one day.) As the number of hours of work under the former Employment Act was less than eight hours in a day, forty-eight hours in a week, it is necessary to review the existing operation of working hours, such as paying overtime for hours worked in excess of 45 hours. Contracts of service may need to be amended if what is provided for the number of hours of work is beyond forty-five hours.
   
   Subject to the flexible working arrangement, an employee may apply to an employer for various hours of work, days of work, or place of work in relation to his employment (Section 60P(1) of the Employment Act). The employer shall, within 60 days from the date such application is received, approve or refuse the application. In the case of a refusal, the employer shall state the grounds for such refusal in writing (Section 60Q of the Employment Act).

2. Break

   The employee shall not be required to work more than five consecutive hours without a 30-minute break period (Section 60(1)(a) of the Employment Act). Any break of less than 30 minutes shall not break the continuity of those five consecutive hours (Section 60A(1)(i) of the Employment Act).
   
   Under the Guidelines on the Performance of Solat During Working Hours, an employer shall allocate time for Muslim employees to perform the Solat for at least 20 minutes for each prayer time, and at least one hour and 30 minutes for Friday Prayers. In practice, it is often allowed for Muslim employees to pray for 15 minutes for each of the ordinary prayers (Zuhur, Asar) from Monday to Thursday, and for approximately two hours for Friday Prayers (not as break) (for the avoidance of unfairness between races, 2 hours break is often given to all employees).

3. Overtime Work

   For any overtime work carried out in excess of the normal hours of work agreed on in the contract of service, an employee with wages less than RM 4,000 shall be paid the overtime payments (employees with wages exceeding RM 4,000 are entitled to overtime payment as long as agreed on in the contracts including the contract of services).

4. Overtime Payment (for employees with monthly wages)	Workday/out of the normal working hours Rest day/within the normal working hours. - less than half-day - excess of half-day but less than one day Rest Day/out of the normal working hour Holiday/within the normal working hours Holiday/out of the normal working hour	one and half times of the hourly rate of pay* Additional half day Additional one day Two times the hourly rate of pay Additional two days Three times the hourly rate of pay
   Overtime Payment (for employees calculated by hourly or daily)	Workday/excess of the normal working hours Rest day/within the normal working hours - less than half-day - excess of half-day but less than one day Rest Day/out of the normal working hours Holiday/within the normal working hours Holiday/out of the normal working hour	One and one-half times of the hourly rate of pay Additional half day Additional two days Two times the hourly rate of pay Additional two days Three times the hourly rate of pay

   *Regarding the hourly rate of pay as the base of calculation of 1.5 times of the hourly rate of pay, where an employee is employed on a monthly rate of pay, the ordinary rate of pay shall be calculated as follows: monthly wage without commission is divided by 26 and is divided by the normal hours of work (Section 60I(1) and (1A)).

5. Rest Day and Holidays (annual paid leave, holidays, and other leave)

   The Employment Act allows a rest day and holidays in Malaysia as follows. It should be noted that the regulations with regard to a rest day and all types of leave regardless of monthly wages shall apply under the amended Act.

6. Rest Day	Once a week (A specific date will be determined by the employer, and where an employee is allowed more than one rest day in a week, the last of such rest days shall be the rest day.) (Section 59(1))
   Holidays	11 gazette public holidays in any calendar year (five of them are designated) and any day appointed as a public holiday under Section 8 of the Holidays Act 1951 as other public holidays.
   Annual Leave (the number of days depends on the term of service)	Employed less than two years - eight days Employed two years or more but less than five years – 12 days Five years or more – 16 days
   Sick Leave (the number of days depends on the term of service)	Employed less than two years – 14 days Employed two years or more but less than five years – 18 days Five years or more – 22 days When hospitalization is necessary – a maximum of 60 days
   Maternity Leave	Consecutive 98 days (eligible to commence 30 days prior to immediately preceding the confinement)
   Paternity Leave	Consecutive seven days

Dismissal

As a dismissal deprives an employee of income, it often causes disputes; therefore, it is important for an employer to follow careful procedures. It is often difficult to dismiss an employee, thus, in order to avoid problems, such as subsequent disputes regarding wrongful dismissal, it is important to preserve objective evidence in advance. Depending on the cause, dismissals are mainly broken down into the following categories: (1) ordinary dismissal, (2) punitive dismissal, and (3) dismissal for reorganization. In principle, a company needs a just cause or excuse⁸ to dismiss an employee, which may vary depending on the cause of dismissal and specific situation.

1. Prior notice

   While both the employee and the company can terminate the employment contract by providing prior notice to the other party, when the company is to dismiss its employee, the company should be careful because, as a general rule, just cause or an excuse, such as employee's misconduct and poor performance, is required.

   The period of prior notice shall be pursuant to the termination notice period if such period is prescribed in the employment contract. If such termination notice period is not prescribed in the employment contract, the notice period shall be pursuant to the following periods set forth in Section 12(2) of the Employment Act for employees who are covered by the Employment Act. The parties to the contract may determine a notice period different from what is set forth in the table below; however, the required notice period must be the same for both the employee and the company (Section 12(2) of the Employment Act).

   Years of service

   Required notice period

   Less than 2 years

   At least 4 weeks in advance

   2 years or longer and less than 5 years

   At least 6 weeks in advance

   5 years or longer

   At least 8 weeks in advance

2. Exceptions

   Nevertheless, as exceptions, the following cases do not require a prior notice (Section 13 of the Employment Act):

   • When either party pays to the other party a sum equal to the amount of wages that would have accrued to the employee during the notice period (Section 13(1) of the Employment Act)
   • In the event of any willful breach by the other party of the employment contract (Section 13(2) of the Employment Act)
   • When an employee is dismissed on the grounds of misconduct inconsistent with the fulfillment of the express or implied conditions of the assigned service, after due inquiry (Section 14(1)(a) of the Employment Act)
   • When an employee or the employee’s dependents are immediately threatened with danger by a third party in the form of death, violence, or disease (including cases where the employment contract prescribes that an advance notice is not required) (Section 14(3) of the Employment Act)

Ordinary dismissal

Ordinary dismissal refers to dismissal other than punitive dismissal and dismissal for reorganization, and includes dismissal with cause on the side of employee such as lack of ability or poor work attitude.

1. Flow up to ordinary dismissal

   A dismissal for poor performance can also be a reasonable cause. However, as with other dismissal procedures, it is understood that just cause is required, and proper procedures must be followed for each individual case. In terms of the proper procedures, it is important for a company to do its best to cause the employee to demonstrate the employee’s abilities until dismissal and to ensure sufficient communication between the company and the employee through written documents and other means. As there are many possible causes for poor performance, the company is expected to investigate the causes and make efforts to avoid dismissal by internal transfer, etc.

   On a practical level, the following procedures may be taken for dismissal due to poor performance.

   
   

   (i) Presentation of warning letter describing the following points to the employee

   • List of specific job-related issues of the employee (causes and reasons)
   • Possibility of dismissal if the employee’s performance is not improved
   • Specific period for improving the employee’s performance

   (ii) Implementation of evaluation period (period provided as an opportunity to improve one's performance)

   • Monitoring of improvement of performance during the evaluation period
   • Providing opportunities of training and coating

   (iii) Re-evaluation of worker, extension of evaluation period, or determination of appropriateness of dismissal

2. Precautions regarding ordinary dismissal

   Because there are many possible reasons that prevent employees from achieving favorable business results, in addition to investigating the cause, the company is expected to give consideration to the employee's aptitude and, if an internal transfer is able to avoid the dismissal of the employee, exert efforts to realize such internal transfer. Furthermore, in cases where a company has established an evaluation system, it would be desirable for the company to present the details and standards for such evaluation system to the employee prior to entering the evaluation period and have the employee recognize thereof before causing the employee to carry out that the employee’s duties once again. When an employee mentions that the employee understands the evaluation system and the details thereof, it would be useful to obtain the signature of the employee to such effect.

Punitive dismissal

Punitive dismissal means that the company dismisses an employee as a means of discipline. It often causes disputes, including as to whether or not the grounds for disciplinary punishment exist or the appropriateness of choosing dismissal over other means. In Malaysia, where employees are generously protected and decisions by labor courts regarding dismissal are strict, after an employee's misconduct is discovered, the company must collect relevant evidence and carefully implement measures up to the dismissal of the employee in preparation for the possibility of subsequent disputes.

1. Applicability

   Any misconduct by an employee constitutes grounds for punitive dismissal. It is understood that the term "misconduct" includes inappropriate behavior, intentional misconduct, intentional breach of rules, and any acts that contradict the employee's obligations (including implied obligation under the employment contract prescribing that the employee must perform one's duties carefully and sincerely). Although there are events of minor misconduct and major misconduct, as a general rule, punitive dismissal requires major misconduct. The following acts may correspond to major misconduct: being absent from work for more than two consecutive working days⁹ (Section 15(2) of the Employment Act); noncompliance with a supervisor's instructions; sexual harassment; criminal acts of theft, violence, and fraud; and work under the influence of alcohol and/or drugs.

2. Flow up to punitive dismissal

   (i) Appropriate internal investigation of misconduct

   When misconduct by an employee has been discovered and the company considers punitive dismissal of the employee, it is considered to be useful to prepare a document that describes the misconduct in detail. In performing an internal investigation, in general, it is considered necessary for the company to confirm the following matters, including whether the company had sufficiently implemented measures for preventing the misconduct.

   • Details of the regulation that was breached (express or implied)
   • Circumstances that the misconduct occurred (date and time, place, situation)
   • Existence of eyewitness or witnesses (if applicable, such eyewitness or witnesses should be interviewed for details)
   • Existence of relevant witnesses or relevant information
   • Existence of physical evidence of the misconduct (document, physical evidence, etc.)

   During the investigation, many companies often send a Show Cause Letter to the wrongdoer and request the person to defend the conduct or actions.

   
   

   (ii) Due Inquiry

   In order to dismiss an employee based on the results of the investigation of misconduct obtained as in (1) above, the company is required to take the measures of "Due Inquiry" - which is an internal questioning process under Section 14 of the Employment Act.¹⁰ This procedure is carried out based on the following rules for realizing fair inquiry and eliminating any unpredictability and to be verified by an internal third party organization.

   • The employee is able to know, in writing, the reasons why the employee is being subject to disciplinary procedures (date, place, and time of the misconduct have been specified).
   • The employee is provided with an opportunity of a hearing and rebuttal.
   • The employee is entitled to retain an agent (union, colleague, or other company personnel¹¹).
   • The procedure is implemented by a third party with no prejudice or bias.
   
   

   (iii) decision on whether to take disciplinary action

   After above processes have been taken, the company decides which of the following disciplinary actions to take: verbal warning, warning in writing, lighter measures, such as suspension of work for the maximum period of 2 weeks (Section 14(1)(c) of the Employment Act), downgrading (Section 14(1)(b) of the Employment Act), or dismissal (Section 14(1)(a) of the Employment Act). In general, it is construed that a fine is not permitted under the Employment Act.

3. suspension of work

   For employees covered by the Employment Act, a company may order suspension of work for a maximum period of two weeks in lieu of the payment of half salary (Section 14(2) of the Employment Act); however, if no evidence of misconduct has been identified, the company must pay full salary to the employee (Section 14(2) of the Employment Act). For employees not covered by the Employment Act, it is construed that the company may not order suspension of work for the employee if such provision has not been stipulated in the employment contract. Note that, on a practical level, one of the following items must be satisfied for the company to order suspension of work to an employee.

   Cf. Causes of suspension of work

   (i) Existence of the employees has an adverse effect on the working environment
   (ii) Necessity of a period for the employee to calm down (e.g., violence in the workplace)
   (iii) Necessity to prevent the continuous misconduct by the employee (e.g., embezzlement)
   (iv) Possibility of destruction of evidence or threatening of witness by the employee

Retrenchment

1. Definition

   While the term "retrenchment" is not defined under laws, the Guidelines on Retrenchment Management define retrenchment as termination of employment as a result of a surplus of employees for various reasons, such as closure of a company, restructuring, decrease in production, merger, change in technology, acquisition, and economic downturn.

2. Validity of Retrenchment

   Retrenchment is considered effective if it is done pursuant to the Code of Conduct for Industrial Harmony 1975 ("Code"). Although this rule is a guideline, it is commonly referred to as a fair and reasonable means in courts. The Guidelines on Retrenchment Management prescribe the steps to be taken in relation to retrenchment. As this guideline refers to the Code , the following information is provided in accordance with the Code and the Guidelines on Retrenchment Management.

   
   

   (i) First, it is advisable to consider and perform the following in consultation with a representative of employees, labor union, and the Ministry of Human Resources (Clause 20 of the Code):

3. • Freezing new employment of employees
   • Restricting overtime work
   • Restricting working on holidays and public holidays
   • Reduction in the number of working days
   • Reduction in working hours
   • Retraining of employees
     Also, according to the Guidelines on Retrenchment Management, the following items have been added.
   • Internal transfer of an employee and change in duty
   • In case of temporary layoff, providing appropriate salary and assistance for an employee to find temporary work until the work can be resumed (in case of temporary layoff, an employee should notify the authorities of the period of the layoff so that the authorities know whether the employee is reemployed, Voluntary Separation Scheme is offered, or the employee is permanently laid off).
   • Reduction in employees' salary should be the last option after conducting all other cost reduction
   • Checking any vacant position in the company that can be offered to an employee to be dismissed

   (ii) Even if a company has decided that dismissal on the grounds of reorganization is necessary, it is still advisable to follow the procedures below (Clause 22(a) of the Code):

   
   
   • Give advance notice to employees as soon as possible
   • Establish an early retirement scheme
   • Notify the dismissal to the Manpower Department
   • Provide rehiring support in cooperation with the Ministry of Human Resources
   • Implement organized dismissal over the period
   • Notify a representative of employees and unions first Also, according to the Guidelines on Retrenchment Management, the following items have been added.
   • Offer a voluntary separation scheme with adequate compensation
   • Terminate employment of an employee who has reached retirement age
   • Pay compensation for dismissal to an eligible employee (for employees covered under the Employment Act, the minimum termination benefits are as below subject to the terms of Employment Agreement).
     ・10 days' wages for every year of service if the length of service is one year or more but fewer than two years
     ・15 days' wages for every year of service if the length of service is two years or more but fewer than five years
     ・20 days' wages for every year of service if the length of service is five years or more
   • Termination notice or payment in lieu of notice (for employees covered under the Employment Act, the minimum notice periods are as below subject to the terms of Employment Agreement).
     ・Four-week notice if the length of service is fewer than two years
     ・Six-week notice if the length of service is fewer than five years
     ・Eight-week notice if the length of service is five years or more

   (iii) When choosing employees who will be subject to the dismissal, it is stipulated to dismiss foreign employee first in Section 60N of the Employment Act (Principles of Foreign Workers First Out). When choosing employees who will be subject to dismissal out of the remaining employees after foreign employees have been dismissed, it is advisable to dismiss the person most recently employed first (Last In First Out Principles (LIFO Principles). Also, the following matters should be taken into consideration upon deciding the person to dismiss (Clause 22(b) of the Code):

   • Necessity to increase the operational efficiency
   • Ability, experience, skills, and qualifications of each employee for improving operational efficiency
   • Number of years of service and position (foreigner/regular employee/ temporary staff)
   • Age
   • Family situation
   • Other standards stipulated by the government

   (iv) According to the Guidelines on Retrenchment Management, an employer is required to submit a form designated by the Ministry of Human Resources (PK Form) to the nearest Labor Office at least 30 days before retrenchment, voluntary retirement, layoff, and salary reduction.

Dismissal allowance

1. Principle

   When a company is to terminate the employment contract of an employee who had been continuously employed for 12 months or longer (provided that this doesn’t apply to employees with a monthly salary of RM 4,000 or more¹² as a general rule, the company is required to pay dismissal allowance according to the years of service (Clause 3(1) of the Employment (Termination and Layoff Benefit) Regulations 1980).

   A company is required to pay the dismissal allowance in accordance the years of service of the employee (Clause 6 of the Employment (Termination and Layoff Benefit) Regulations 1980) as set forth in the table below.

   Years of service

   Number of days

   Less than 2 years

   10 days

   2 years or longer and less than 5 years

   15 days

   5 years or longer

   20 days

   If there is any period that is shorter than one year regarding the number of days of service, a dismissal allowance will be paid in proportion up to the month that is closest to the date that the employment contract was terminated.

2. Exceptions

   When an employment contract is terminated for the following reasons, the company is not required to pay any dismissal allowance (Clauses 4 and 8 of the Employment (Termination and Layoff Benefit) Regulations 1980):

   • The employee reaches the age of retirement stipulated in the employment contract.
   • The company terminates the employment contract on the grounds of misconduct inconsistent with the fulfillment of the express or implied condition of the assigned service after due inquiry.
   • The employee voluntarily resigns.
   • The same company renews the employment contract re-employs the employee on terms and conditions that are not less favorable that the conventional employment contract.
   • The renewal or re-engagement takes effect immediately on the ending of employment.
   • The conditions of the employment contract to be renewed or the conditions of an employment contract to be newly executed (including conditions related to the job description and workplace of the employee and other conditions) are more favorable than the conditions of the previous employment contract, and the company offers the same to the employee at least seven days before the termination of the previous employment contract, but the employee has unreasonably refused that offer.
   • After a proper notice concerning the termination of the employment contract is given to the company, the employee resigns without the prior consent of the company prior to the expiration of the foregoing notice, or resigns without having made proper payment to the company in lieu of said notice in accordance with Section 13 of the Employment Act.
   • There is a change in the ownership of all or a part of the business that the employee is engaged in, and the new owner offers to continue to employ the employee under conditions that are not less favorable than the conditions of the previous employment contract within seven days after the change in ownership, but the employee unreasonably refuses the offer.¹³

3. Time of payment

   The company must pay the foregoing dismissal allowance to the employee within seven days from the termination of the employment contract (Clause 4 and Clause 11(1) of the Employment (Termination and Layoff Benefit) Regulations 1980.

Remedies against wrongful dismissal

When a worker¹⁴wishes to contest a wrongful dismissal, the worker may make representations in writing to the Director-General of Industrial Relations to be reinstated in the former employment position within 60 days of dismissal (Section 20 of the Industrial Relations Act). The Director General of Industrial Relations shall take such steps as may be considered necessary to settle the dispute, or upon determining that there is no likelihood of settlement, the Director General of Industrial Relations is required to refer the case to the Industrial Court for an award. (Before the amendment in 2020, the Minister of Human Resources has the discretionary power to settle such disputes; however, the discretionary power has been transferred from the Minister to the Director General of Industrial Relations (DGIR), and any such dispute has been automatically referred to the Labor Court for an award.)¹⁵

While the labor court may order the company to reinstate the worker as a result of the hearing, in cases where the worker is already working for another employer or the worker's reinstatement is difficult because the confidential relation with the company has been lost, the labor court often orders the company to pay damages rather than reinstate the worker.¹⁶

Various visas related to immigration and residency

　There are three types of stay visas in Malaysia: (1) single, (2) multiple and (3) transit.

1. Single entry visa is issued primarily for social visitors and is valid only once for three months from normal issue.
2. Multiple Entry Visa is issued to visitors for business / diplomatic purposes and is normally valid between 3 to 12 months after issuance, and multiple trips within the valid period and staying is permitted as a maximum of 30 days per entry (no extension).
3. Transit Entry Visa will be issued to those traveling to a third country via Malaysia. However, it is not necessary to apply when you are going to the next destination on the same flight without leaving the airport.

Main types of passes

A person who is not a citizen of Malaysia is required to obtain a valid employment pass in Malaysia (Section 5(1) of the Employment (Restriction) Act 1968). Various passes are separately required for the States of Sabah and Sarawak of East Malaysia, the applicant needs to confirm with the State Immigration Office upon entering these states.

Main work-related passes and visas are explained below.

Employment Pass

Since a foreigner is not allowed to work in Malaysia with a Visitor's Pass, in general, the foreigner needs to acquire an Employment Pass (EP) in order to legally work and reside in Malaysia. EP is classified into three categories: (i) Expatriate Category 1, (ii) Expatriate Category 2, and (iii) Knowledge/Skilled Worker, Category 3; an EP holder may work in Malaysia during the approved period (Approved periods are maximum 5 years for category (i), maximum 2 years for category (ii) and maximum 12 months for category (iii)). Effective as of January 1, 2021, companies hiring foreign nationals are required to advertise job vacancies to local Malaysians in advance with some exceptions for Employment Pass applications for key positions, such as CEO, or positions with a monthly wage of RM 15,000 or more.

The following capital requirements are stipulated for obtaining EP.

Professional Visit Pass (PVP)

This is one of the types of employment passes that allows professionals to stay in Malaysia for a period of no longer than 12 months. This pass is eligible for volunteers and students who participate in an internship, researchers, and professionals in different industries.

Dependent Pass

EP holders, excluding Knowledge/Skilled Workers, are eligible to apply for a Dependent Pass. A Dependent Pass may be acquired for an EP holder's spouse, child under the age of 18, adopted child, and child with a (physical) disability. An EP holder's parents, common-law wife (certification of Embassy is required), child over the age of 18, and stepchild are eligible to apply for a Social Visit Pass. If any family member of EP holder wishes to work in Malaysia, it is necessary to obtain a separate EP, and a spouse or child who wishes to go to school in Malaysia is required to obtain Study Approval.

Work permit for the Spouse of a Malaysian Citizen

A spouse of a Malaysian citizen who has previously obtained a work permit from the Immigration Office is allowed to work in Malaysia without having to re-acquire an Employment Pass (EP).

Student Pass

All students, regardless of the level of education, are required to acquire a Student Pass. Applicants need to contact their school because procedures are taken through the respective schools. Students to study in Malaysia for their master's degree or doctoral course are eligible to apply for a Dependent Pass for their child, spouse, and parents.

During the renewal process for a pass, if the validity of that pass expires due to procedural delays or other reasons, it should be noted that, while it will not constitute illegal residency, the pass holder is no longer allowed to work or study.

When corresponding to an overstay or activities outside the permitted scope, the pass holder may be subject to imprisonment, fines, deportation, or prohibition of re-entry.