A Closer Look at Labour Law in Malaysia: Essential Facts and Guidelines

The Basics of Malaysian Labour Law

The Malaysian labour law is composed of a myriad of statutes, rules, regulations and guidelines, which generally apply throughout the country. Malaysia has several different state governed laws, such as those dealing with land and local government, which must be adhered to in addition to the federal laws. So, while employed persons will usually be protected by many provisions of the Malaysian Constitution, regulations also need to be read within the context of the jurisdiction it is being applied to. The common law has preserved for a long time the supremacy of the contract of service over statutory provisions. The law presumes that employment contracts are always or upon the whole of the contract lawful and that parties usually undertake an obligation to act in good faith. As such, the general law presumes that contracts of service are lawful unless there is an express statutory provision prohibiting its enforcement or an overriding policy consideration against having such a contract. In Malaysia, the employment relationship is regulated primarily by contract , legislation and industry practice. Common law principles also govern employment relationships, such as vicarious and strict liability. Of all applicable laws, the most significant statutes that jointly form the bedrock of labour law are the Employment Act 1955, Industrial Relations Act 1967 (IRA), Occupational Safety and Health Act 1994 (OSHA) and the Trade Unions Act 1959. Any breach of these laws could result in the employer being exposed to civil or criminal liability. The Employment Act 1955 is the main statute pertaining to employee protection in the private sector. It does not apply to persons in government service, persons who have entered into contracts of apprenticeship, prospecting, mining and quarrying, persons covered under the Petroleum Development Act 1974, and persons who are employed in any managerial, executive, administrative or professional capacity. Despite this, employers are encouraged to adopt the provisions of the Employment Act 1955 for persons who are not bound by it, e.g., by being fairer to their non-statutory employees than they are required to be under the Act.

The Employment Act 1955

Its application is restricted to Peninsular Malaysia only and does not extend to Sabah and Sarawak, although the latter two States have similar legislation in the form of the Employment Ordinance (Sabah Cap 69) and Employment Ordinance (Sarawak Cap 76). In a nutshell, the Act provides for statutory protection to employees in relation to their conditions of service and entitlements. Non-Malaysians or those whose salary exceeds RM2,000.00 per month are not governed by the Act. Application of the Act. The employer must be a person or persons who, including his deputy or manager employs one or more persons to work for him but does not include: The employer must operate the business in one of the sectors: manufacturing, mining, plantations, agriculture, forestry, fisheries, construction, transport, communications and utilities, services involving skill, manual labour, clerical work, any activity which is public in nature without manual labour involved, and others related to the above, an employer is deemed a "factory owner". The employee is one who has entered into a contract of service with an employer for wages and must be a Malaysian citizen. The basic working hours and stipulate the normal days of work, hours of work and overtime. The normal days of work limit the maximum number of days of work in a week to be six whilst the normal hours of work limits the hours of work to be 9 hours per day if the employee works for 6 days in a week or in the case of a 5 day working week, 9 hours per day inclusive of the time off duty for meals as stated in the individual contract. The overtime rate is calculated as the minimum rate of pay expressed on an hourly basis and multiplied by 1½ the hourly pay of the employee. For work done on a rest day or paid public holiday, this rate is multiplied by 2. The Act provides that an economic dismissal must be based on the following grounds:- An employer is required to submit a written report to the Industrial Relations department within 7 days of its action or as soon thereafter as practicable in the case of a dismissal on any of the valid grounds under the Act. An employee or representative who wishes to appeal a dismissal has up to60days to file the necessary application.

Minimum Wage Regulations in Malaysia

The Minimum Wage Order 2018 (MWO 2018) prescribed a minimum monthly salary of RM1,200.00 for employees in Peninsular Malaysia and a minimum monthly salary of RM1,100.00 for employees in Sabah, Sarawak and the Federal Territory of Labuan. For employees whose wages are fixed according to an hourly, daily or piece rate, the minimum hourly rate is set at RM5.77 per hour in Peninsular Malaysia and RM5.29 per hour in Sabah, Sarawak and the Federal Territory of Labuan.
The National Wages Consultative Council Act 2010 (Act 732) requires the Minister of Human Resources to seek and consider the views of the National Wage Consultative Council (NWCC) and to determine wages in collaboration with the NWCC. The NWCC published a report "Study on the Impact of Labour Policies in the 11th Malaysia Plan" to help the government consider and strategise its response to the global and regional economic developments.
The gradual increase in Minimum Wage Standards (MWS) raises concerns over rising costs of production and reaffirms the need for small to medium enterprises (SME) to adapt to these changes. SMEs may find complying with labour regulations challenging due to their limited human resources (i.e. dedicated compliance personnel). It is also not unusual for foreign-owned SMEs to be less aware of labour regulations.
The amended MWO 2020 came into effect on 1 February 2020. The minimum monthly salary was raised to RM1,200 in all states, although employers are still permitted to take into account allowances, commissions and other payments when determining if a worker is being adequately compensated.

Rights and Benefits of Employees

Worker’s rights and benefits
One of the first questions I am often asked clients is whether the employees are given leave from work and paid. The answer is: yes; provided that the employee has met the minimum qualifying period of 30 days worked over a 60-day period (s 60D of the EA).
In Malaysia, employees are entitled to paid maternity leave, sick leave, annual leave, public holidays, the right to work overtime and rest days. In this section I will discuss each of these in turn and point out the right and benefits equally available to foreign employees.
Paid maternity leave of 60 consecutive days is granted if an employee has served more than 90 days working for that employer (s 43 EA). Just as important is the right not to be dismissed or otherwise terminated from the employment contract during pregnancy unless the dismissal occurs 4 months after the expected date of childbirth (ss 41 and 45 EA).
Maternity leave under the EA is also available to male employees but only as unpaid leave. However, according to the Guidelines of Salaries and Employment (Amendment) Act Malaysia 1998, men are entitled to 7 days of paid paternity leave if the employee has been employed for a minimum of 6 months. The guidelines do not apply penalties or fines for employers who do not comply with the terms.
Sick leave entitlements for employees are stipulated under s 60E EA, which states an employee is entitled to 14 days of paid sick leave if the employee has served a minimum of 4 months. An employee who has served less than 4 months is entitled to 14 days of unpaid sick leave.
Employees are entitled to 8 public holidays in addition to any employees’ birthday. Employers can add additional public holidays above the 8 statutory leaves provided in the EA, normally during festive seasons. Employers are required to adhere to general guidelines set by the Labour Department if an employee’s work on a public holiday is deemed as an emergency or involving special circumstances. A 2-fold pay compensation is permitted by law.
Employees of 6 months are entitled to a minimum of 8 days annual leave after serving 6 months and attendance at work for 4 days a week (s 44 EA).
Employees are entitled to a weekly day off, usually on a Sunday, except employees in transport and public services (s 60B EA).
Section 64 EA provides for the payment of overtime during the working day or a holiday at a rate of twice the hourly rate. According to s 61 EA an employer is obliged to pay employees in certain sectors, rotating shift allowances. The Labour Department in Malaysia has the right to impose a fine on employers failing to comply with rotating shift allowances.

Obligations of Employers

Essentially, the objective of the statutory provisions in labour law in Malaysia is to ensure that employers are primarily responsible for maintaining a safe and healthy workplace by:

• Taking reasonable care to ensure the safety, health and welfare of its employees.
• Ensuring so far as is practicable, the safety, health and welfare at work of all its employees.
• Appointing a sufficient number of qualified employees as safety and health officers.
• Establishing and operating a safety and health committee at an office with more than 40 employees.
• Preparing a safety and health policy and communicating it to its employees.
• Preparing arrangements in accordance with the guidelines issued by the Director General of Occupational Safety and Health to ensure the safety and health of its employees.

In order to effectively implement and comply with the abovementioned, employers are required to have a safety and health officer registered under the Occupational Safety and Health Act 1994 (OSHA). Such safety and health officer is required to carry out certain duties and responsibilities, including but not limited to:
The employment relationship is presumed to be consensual. In other words, the employer is obligated by law not to discriminate against its employee based on any status or condition protected under the law.
When an employee is aggrieved by any decision, conduct or failure to act on the part of the employer, he/she may make an application or complaint to the Industrial Court or to the Labour Department in respect of his/her grievance.
Pursuant to the Employment Act 1955 (Employment Act), an aggrieved employee can file a claim in the Labour Court or the Industrial Court for breach of any provision of the Employment Act .
In addition, employers need to be aware that upon termination of an employee or an employee making a resignation, there is an obligation to send the employee for a medical examination.
Employers should also be in aware of its statutory obligation and the employee’s rights upon termination of service pursuant to the Employees’ Social Security Act 1969 (ESSA). Any matter that is unsettled by the Employer will be brought before the Tribunal for Claim for Unlawful Dismissal under the Industrial Relations Act 1967 where damages, reinstatement or compensation may be claimed.
Any grievance of an employee regarding the terms and conditions of employment or employment are subject to the jurisdiction of the Minister of Human Resources, Malaysia. The Minister is given the power to issue and make regulations for both local and foreign employees.
Employees are entitled to receive from his/her employer a certificate of employment upon cessation of employment. The Employment (Termination and Lay-Off Benefits) Regulations 1980 (Termination and Lay-Off Benefits Regulations) provides for the amount of termination and lay-off benefits to be paid to all employees, whether local or foreign. This regulation only applies to employees who have been employed for a minimum of 90 days.
Since foreign workers are allowed to provide their services only for a specific period issued with a work permit, the employer must ensure that an immediate termination notice is made to the Controller of Malaysia (Migrant Workers) or, in the absence thereof, a letter of withdrawal of employment is submitted together with a copy of the relevant employment contract.

Dispute Resolution in Labour Matters

The Industrial Relations Act 1967 (the "IRA") sets out the framework for the resolution of labour disputes in Malaysia. The Minister for Human Resources is given certain powers and discretion concerning the appointment of conciliators and members of the Industrial Court. There are several avenues for the resolution of disputes that fall under the jurisdiction of the Industrial Court namely, (a) conciliation pursuant to Part VA of the IRA; (b) an application for a trade union to be granted a certificate of recognition under Part VI of the IRA; and (c) to refer an issue to the Industrial Court to be determined in the event that conciliation efforts fail.
In the first instance, industrial matters should be landed at the doorstep of the Chief Assistant Registrar of Trade Unions in Ministry of Human Resources in Putrajaya. The Chief Assistant Registrar must issues directions as regards the trade union, employers and employees who should attend conciliation meetings which are the subject matter of negotiations between parties. It is expected that conciliation would result in an amicable settlement between parties.
If a settlement cannot be reached, the employee may refer his case to the Director-General of Industrial Relations who will cause an inquiry to be held before a conciliator over the alleged mischief of the employer. If the conciliator is satisfied that a prima facie case is made out, a certificate of referral shall be issued to the employee (or trade union) to commence proceedings in the Industrial Court.
The Director-General of Industrial Relations may also refer a case to the Industrial Court if he is satisfied that there is a prima facie case of industrial dispute between an employee and an employer or an employer and a trade union. This may arise in relation to trade disputes like the recognition of trade unions and dismissal without just cause.
The Industrial Court which is established under the IRA is the final arbiter for disputes that fall within the periphery of the IRA. While the scope of the jurisdiction of the Industrial Court is quite wide, the Industrial Court confine itself to matters that affect employment.
A recent trend has evolved pertaining to the determination of the minimum wage. On 5 July 2013, the Government of Malaysia promulgated the National Wages Council (Amendment) Bill 2012 (Act 735). The new provisions come into force on 1 January 2014 and they give rise to an obligation on Employers to pay Employees a minimum wage of RM900 per month.
The National Wage Council ("NWC") is tasked with the duty of assessing and recommending a review of the rates of wages for various categories of workers. However, the Monetary Penalty Order 2011 provides that where Employers fail to comply with the recommendations of the NWC, they shall be liable to compensate their Employees if the annual value of the gross wages payable to the worker does not amount to RM900.00. In addition to paying the outstanding salary, Employers must also pay a monthly penalty of 1% for each completed month until the outstanding amount is paid. The penalty is capped at 50%. Therefore, an Employer will ultimately be liable for an additional 50% of the amount failed to be paid to the Employee for failing to pay the legal minimum wage.

Updates to Malaysian Labour Law

In late 2017, the Industrial Relations (Amendment) Act 2017 (the Act) was passed by Parliament and Gazetted in January 2018. The amendments set out to further comply with what the Government quoted as international standards of the International Labour Organisation (ILO).
The amendments to the Industrial Relations Act 1967 (Act 177), concerning trade disputes and industrial actions are as follows:
(i) Prohibiting the Registrar of Trade Unions ("Registrar") from calling or summoning a meeting or hearing of a trade dispute referred to him under section 20 of the Industrial Relations Act 1967 ("Act 177") pertaining to the comments made about the Minister;
(ii) Prohibiting the Industrial Court from hearing an application under section 23 of Act 177 which is based on the complaint that the Minister’s actions or omissions in the exercise of his powers under Part VII of Act 177 has resulted in a delay over an application made under section 11 of Act 177 for over a period of six (6) months;
(iii) Making it a duty of the Minister to take any disciplinary or administrative action within a period of six (6) months from the date the application under section 11 of Act 177 is received by the Minister;
(iv) Making it an obligation of the Minister to hear and make a decision on an application under section 13 of Act 177 within three (3) months from the date of submission of the application.
(v) Penalising the Minister for failing to comply with (ii) , (iii) and (iv) above by way of making the Minister liable to pay legal costs in the event of the application proceeding to the Industrial Court. Such action must be taken by the Minister within six (6) months of the receipt of the application under section 11.
Proposed Amendments
The latest move published by the Department of Industrial Relations Malaysia on Mondaq dated 12th May 2018 highlights the Government’s proposed amendments to alter the age requirement under the Employment Act 1955 (Act 265). Currently, Section 2 of the act defines a child as any person under the age of 14 years.
It is suggested that the age requirement should be raised to be any person under the age of 15 years. This proposal leaves out any mention of young persons between the age of 15 years to 18 years. It is suggested that the definition be changed to define a child as any person under the age of 18.