Employment Contract Rights in Malaysia: What Your Employer Cannot Do

Your employment contract is the foundation of your working relationship with your employer. In Malaysia, employment contracts are governed by the Employment Act 1955, the Industrial Relations Act 1967 and common law principles. While employers have the right to set terms and conditions of employment, there are clear legal boundaries that cannot be crossed. Many employees unknowingly agree to contract terms that are unenforceable or contrary to law. This guide highlights the key rights that Malaysian employees have under the Employment Act and identifies the terms and practices that employers cannot lawfully impose.

Minimum Standards Under the Employment Act 1955

The Employment Act sets minimum standards that apply to all employees in Malaysia, regardless of what their contract says. These minimum standards cannot be contracted out of, meaning any contract term that provides less than the statutory minimum is void and unenforceable. Key minimum standards include:

• Working hours: The maximum normal working hours are 8 hours per day or 45 hours per week. Overtime must be paid at 1.5 times the hourly rate for work on normal days, 2 times on rest days and 3 times on public holidays.
• Rest days: Every employee is entitled to one rest day per week.
• Annual leave: Minimum of 8 days for employees with 1-2 years of service, 12 days for 2-5 years and 16 days for over 5 years.
• Sick leave: Minimum of 14 days per year (or 60 days if hospitalisation is required) for employees with less than 2 years of service, increasing with tenure.
• Maternity leave: 60 days of paid maternity leave for employees covered by the Act.
• Minimum wage: Employers must pay at least the minimum wage prescribed by the National Wages Consultative Council.

Unlawful Contract Terms to Watch For

The following contract terms are either void or unenforceable under Malaysian law:

• Waiver of overtime pay: An employer cannot require you to agree to work overtime without additional compensation. Any clause purporting to waive your right to overtime is unenforceable.
• Forfeiture of earned wages: An employer cannot lawfully deduct from your salary or withhold earned wages as a penalty or disciplinary measure, except as permitted under Section 24 of the Employment Act.
• Unlimited non-compete clauses: While reasonable restrictive covenants may be enforceable, overly broad or lengthy non-compete clauses that unreasonably restrict your ability to earn a livelihood may be struck down by the court.
• Waiver of statutory rights: Any clause that asks you to waive your rights under the Employment Act, including rights to leave, overtime and termination benefits, is void.
• Indemnity clauses shifting employer liability: An employer cannot contractually transfer its legal obligations to the employee, such as liability for workplace injuries under the Employees' Social Security Act 1969.

What Your Employer Cannot Do

Malaysian employment law prohibits employers from engaging in the following practices:

• Terminate without notice or payment: Except in cases of serious misconduct warranting summary dismissal, an employer must give proper notice or payment in lieu of notice.
• Discriminate: The Federal Constitution and employment legislation prohibit discrimination on the grounds of religion, race, descent, place of birth or gender. The Employment Act also provides specific protections against dismissal during maternity leave.
• Force resignation: Forcing an employee to resign under threat or duress constitutes constructive dismissal and can be challenged in the Industrial Court.
• Retaliate against whistleblowers: The Whistleblower Protection Act 2010 provides protection for employees who report workplace misconduct or illegal activities.
• Withhold EPF and SOCSO contributions: Employers are legally required to make monthly contributions to the Employees' Provident Fund (EPF) and SOCSO on behalf of their employees. Failure to do so is a criminal offence.

Remedies for Breach of Employment Rights

If your employer has violated your employment rights, the following remedies are available:

• Labour Department complaint: You may file a complaint with the Department of Labour for violations of the Employment Act, including unpaid wages, illegal deductions and failure to provide statutory benefits.
• Industrial Court claim: For unfair dismissal, you may file a representation under Section 20 of the Industrial Relations Act within 60 days of termination. See our guide on the Industrial Court process.
• Civil court action: For breach of contract claims not covered by the Employment Act or Industrial Relations Act, you may file a civil suit in the appropriate court.
• EPF and SOCSO complaints: You may report non-payment of contributions to the EPF or SOCSO directly.

Probationary Employee Rights

Probationary employees in Malaysia are entitled to the same statutory protections as confirmed employees, including minimum wage, overtime pay, annual leave and protection against unfair dismissal. The misconception that probationary employees can be terminated without cause is incorrect. An employer must still have a valid reason for terminating a probationary employee and must follow proper procedures. If you are a probationary employee who has been unfairly dismissed, you have the same right to file a Section 20 representation as a confirmed employee.

How Messrs S K Song Can Help

The employment law team at Messrs S K Song advises employees on their contractual rights, reviews employment contracts and represents clients in Labour Department complaints and Industrial Court proceedings. We also assist employers in drafting compliant employment contracts and policies. Contact our Johor Bahru office for a consultation.