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Chapter 27
MALAYSIA
Siva Kumar Kanagasabai, Selvamalar Alagaratnam,
Sharmila Ravindran and Foo Siew Li
*
* Siva Kumar Kanagasabai and Selvamalar Alagaratnam are partners, Sharmila Ravindran is a
senior associate and Foo Siew Li is an associate at Skrine.
I INTRODUCTION
Te basis of the employment relationship in Malaysia is the contract of employment
between the employer and the employee. Hence, the civil courts have jurisdiction to deal
with disputes between employer and employee, considering the matter purely from a
contractual point of view.
i Legislation
In order to provide the employees with additional protection, Parliament has enacted
various legislation. Te main legislation is as follows.
Te Employment Act 1955 (the EA)
Te EA prescribes minimum terms and conditions of employment for certain categories
of employees and provides a process that employees may use to make claims for breach
of contract or non-compliance with the provisions of the EA.
An EA employee refers to any person or class of persons who, irrespective of his
occupation, has entered into a contract of service with an employer and whose months
wages do not exceed 1500 Malaysian ringgit, or any person who, irrespective of the
amount of wages he earns in a month:
a is engaged in manual labour including such labour as an artisan or apprentice;
b is engaged in the operation or maintenance of any mechanically propelled vehicle
operated for the transport of passengers or goods or for reward or for commercial
purposes;
c supervises or oversees other employees engaged in manual labour employed by
the same employer in and throughout the performance of work;
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d is engaged in any capacity on any vessel registered in Malaysia and who is not
an ocer certied under the Merchant Shipping Acts of the United Kingdom as
amended from time to time, is not the holder of a local certicate as dened in
Part VII of the Merchant Shipping Ordinance, 1952, or has not entered into an
agreement under Part III of the Merchant Shipping Ordinance, 1952; or
e is engaged as a domestic servant.
Te Industrial Relations Act 1967 (the IRA)
Te IRA provides for the protection of rights of workers and employers and their trade
unions, the process by which a trade union may claim recognition, the process for
collective bargaining, the mechanism for resolution of trade disputes and protects against
the unjust dismissal of workmen.
A workman refers to any person, including an apprentice, employed by an
employer under a contract of employment to work for hire or reward and, for the
purposes of any proceedings in relation to a trade dispute, includes any such person who
has been dismissed, discharged or retrenched in connection with or as a consequence of
that dispute or whose dismissal, discharge or retrenchment has led to that dispute.
Te Trade Unions Act 1959 (the TUA)
Te TUA provides for the registration, constitution, rights, liabilities and management
of trade unions.
Te Employees Provident Fund Act 1991 (the EPFA)
Te EPFA provides for mandatory monthly contributions on the amount of wages to
be made by both the employer and the employee to a government-managed retirement
fund on a 12:11 percent of income ratio (the employer contributes 12 per cent of the
income and the employee contributes 11 per cent).
Te Employees Social Security Act 1991 (the SOCSO Act)
Te SOCSO Act provides for mandatory contributions to be made by both the employee
and the employer to a government-managed programme akin to an insurance scheme,
eectively for any employee who has ever earned less than 3,000 Malaysian ringgit a
month.
Te Occupational Safety and Health Act 1994
Tis Act focuses on preventive measures and the imposition of general duties on employers
to ensure the safety, health and welfare of persons at work.
ii Bodies
Te power and jurisdiction to enforce employment laws lies with the various bodies.
Te Director General of Labour
Te Director General of Labour has the general power to administer and implement
the provisions of the EA made thereunder. Tis includes, as stated earlier, the inquiry
into complaints made by employees for breach of contract or non-compliance with the
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provisions of the EA or the regulations made thereunder and has the power to enter and
inspect any place of employment to do so. Te Director General of Labour may also
investigate possible oences under the EA and compound such oences.
Te EA vests power and jurisdiction in the Director General of Labour to determine
any dispute between an employee and his employer in respect of wages or any other
payments due to such employee under any term of a contract of service between such
employee and his employer in relation to an employee earning up to 5,000 Malaysian
ringgit a month. A decision by the Director General of Labour may be appealed to the
High Court.
Te Director General for Industrial Relations
Te Director General for Industrial Relations generally has the duty to perform all
functions that may be necessary or expedient for the purposes of carrying out or giving
eect to the provisions of the IRA, including receiving representations on dismissals
and taking such steps as he may consider necessary or expedient so that an expeditious
settlement thereof is arrived at; or where the Director General of Industrial Relations is
satised that there is no likelihood of the representations being settled, he shall notify
the Minister accordingly. In addition, he shall consider any trade dispute reported to
him and take such steps as may be necessary or expedient for promoting an expeditious
settlement thereof, which shall include to the Industrial Court for conciliation.
Te Industrial Court
Te Industrial Court was created by the IRA to deal with the following types of claims:
a representations for reinstatement brought by a workman when the workman
considers himself to have been dismissed without just cause or excuse;
b trade disputes between an employer and his workmen which is connected with
the employment, non-employment, terms of employment or conditions of work
of any such workmen;
c claims of non-compliance by one party to an award handed down by the Industrial
Court or a collective agreement; and
d applications to interpret collective agreements.
Te Industrial Court derives its powers and functions from the IRA and operates as a
quasi-judicial body. It will issue an award in relation to the dispute or issue brought before
it, according to equity, good conscience and the substantial merits of the case without
regard to technicalities and legal form.
1
An award of the Industrial Court is binding
on the parties to a dispute, the successors, assignees or transferees of any employer or
trade union which is party to the dispute and all workmen who were employed in the
undertaking to which the dispute relates.
2

In relation to trade disputes, the Industrial Court shall have regard for the public
interest, the nancial implications and the eect of the award on the economy of the
1 Section 30(1) and (5) of the IRA.
2 Section 32 of the IRA.
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country and on the industry concerned, and also to the probable eect in related or
similar industries.
3

Te award of the Industrial Court may be challenged by way of a judicial review
application to the High Court on the grounds that, in making its award, the Industrial
Court has committed an error of law. Questions of law arising from the proceedings may
also be referred to the High Court under Section 33A of the IRA but such applications
are uncommon.
Te Director General of Trade Unions
Te Director General of Trade Unions is responsible for the general supervision, direction
and control of all matters relating to trade unions throughout Malaysia.
Te Employees Provident Fund Board
Te Employees Provident Fund Board shall have such powers and shall perform such
duties as are given or imposed under the EPFA, and may employ and pay agents, advocates
and solicitors, bankers, stockbrokers or any other persons, to transact any business or do
any act required to be transacted or done in the exercise of its powers or in the carrying
out of its duties or for the better carrying into eect of the purposes of the EPFA.
Te Social Security Organisation Board
Te Social Security Organisation Board has the power of general direction and
superintendence of the Scheme of Social Security administered by the Social Security
Organisation under the SOCSO Act.
II YEAR IN REVIEW
In 2009 and 2010, the government made signicant moves to amend the main labour
laws in Malaysia namely, the EA and the IRA. Among the proposed amendments to the
EA include provisions in relation to sexual harassment while the proposed amendments
to the IRA include a provision that precludes employees earning salaries above 10,000
Malaysian ringgit per month from seeking redress for dismissal without just cause or
excuse under section 20 of the IRA.
Tese proposed amendments have been met with resistance from various interest
groups and have yet to come to fruition. Te EA Amendment Bill which had been tabled
for reading before Parliament in 2010 was abruptly withdrawn, because several changes
were to be made to the Bill.
It is interesting to note that, from 2008 onwards, there has been a drop in the
number of cases referred by the Minister to the Industrial Courts under Section 20 of
the IRA for claims of unjust dismissal, i.e. from 2,346 cases being referred in 2007 to
665 cases in 2008, and 647 cases in 2009. Tis has occurred following the appointment
of a new Minister of Human Resources in 2008 who has encouraged settlement and
3 Section 30(4) of the IRA.
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conciliation before the Director General of Industrial Relations and careful scrutiny of
the merits of each unresolved representation.
Among the noteworthy hot topics for employment law in Malaysia in 2010, there
is the introduction of the Personal Data Protection Act 2010 (PDP Act) which was
passed by Parliament in June, but has not yet come into force. We anticipate detailed
guidelines or regulations to be issued by the Ministry with regard to this PDP Act in the
near future. At this stage, it is unclear whether the PDP Act would apply to employee
information.
In addition, the Whistle-blower Protection Act 2010, which seeks to combat
corruption and other wrongdoings by encouraging and facilitating disclosures of improper
conduct as well as protecting the persons making those disclosures (including employees)
from detrimental action, came into operation on 15 December 2010. However, at this
stage, it is still too early to comment on how eective the Act is going to be in achieving
its aims.
III SIGNIFICANT CASES
Te Federal Court case of Ranjit Kaur S Gopal Singh v. Hotel Excelsior (M) Sdn Bhd
4

concerned an executive in the Food & Beverage Department at a hotel who was
suspended pending a domestic inquiry into several charges levelled against her, including
her refusal to wear her uniform, her habitual lateness, her failure to submit medical
chits promptly on occasions when she took medical leave and her failure to inform her
immediate superior promptly that she had taken medical leave. She was found guilty of
the four charges and was dismissed.
Tis case is signicant because the Federal Court essentially claried two questions
of law that apply in most industrial relations matters. Firstly, the Federal Court held
that, where the ndings of the Industrial Court had been arrived at by taking irrelevant
matters into consideration, and failing to take relevant matters into consideration, such
ndings are always amenable to judicial review.
Secondly, the Federal Court also held that pleadings in the Industrial Court are as
important as in the civil courts, to prevent the element of surprise and to provide room
for the other party to adduce evidence once the fact or an issue is pleaded. Te Industrial
Courts duty to act according to equity, good conscience and the substantial merits of
the case without regard to technicalities and legal form under Section 30(5) of the IRA
does not give the Industrial Court the right to ignore the Industrial Court Rules 1967
made under the IRA.
In Dynamic Plantations Bhd v YB Menteri Sumber Manusia & Anor,
5
the Federal
Court decided two important points: (1) recognition to a trade union by the employer
can be given by conduct; and (2) once an employer is a member of the Trade Union
of Employers which has given recognition to a Trade Union of Employees and has
conducted collective bargaining with that trade union, it cannot claim that it has not
4 Ranjit Kaur S Gopal Singh v. Hotel Excelsior (M) Sdn Bhd [2010] 8 CLJ 629.
5 Dynamic Plantations Bhd v. YB Menteri Sumber Manusia & Anor [2010] 2 CLJ 525.
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recognised that trade union merely by ceasing to be a member of the Trade Union of
Employers.
In the case before the court, the employer, Dynamic Plantations was a member of
a Trade Union of Employers known as the Malayan Agricultural Producers Association
(MAPA).
MAPA had recognised and conducted collective bargaining with the National
Union of Plantation Workers (NUPW) and had entered into ve collective agreements
which were binding on its members including Dynamic Plantations. Dynamic Plantations
subsequently ceased to be a member of MAPA. When NUPW invited them to conduct
collective bargaining, Dynamic Plantations declined and said that they had not directly
recognised NUPW. Teir dispute with the NUPW over the collective bargaining was
referred by the Minister of Human Resources to the Industrial Court for adjudication
as a trade dispute.
Dynamic Plantations challenged the Ministers decision on grounds that in
the rst place, it had not even directly recognised NUPW and therefore, the issue of
conducting collective bargaining does not arise.
Te Federal Court held that Dynamic Plantations had by conduct recognised
NUPW as a trade union of its employees. Tis is because Dynamic Plantations was
expressly named as a consenting member of MAPA in the collective agreements and
there was not just one collective agreement but a series of ve in succession.
IV BASICS OF ENTERING AN EMPLOYMENT RELATIONSHIP
i Employment relationship
An employment contract can be made orally or in writing. In the case of EA employees,
Section 10 of the EA requires a contract of service exceeding one month to be in writing.
As for employees who fall outside the scope of the EA, a written employment contract is
recommended as it would better dene the relationship between the parties.
It is possible to have xed-term employment contracts. Tere is no legislation
mandating a maximum period for xed-term contracts but, in practice, they rarely exceed
three years. However, for the purposes of a claim for dismissal without just cause or
excuse, the Industrial Court will enquire into whether the xed-term contract is genuine
or a permanent contract disguised as a xed-term contract. In that regard, the purpose of
the xed-term contract, the nature of the work carried out by the employee, the status of
the employee and the number of renewals will, among other things, be factors that will
inuence the Industrial Court.
Save that the EA requires that every written employment contract must contain
a clause setting out the manner in which the contract may be terminated by either
party
6
, parties are free to set out such terms as they may agree in the written employment
contract.
In that regard, it is recommended that the employment contract should
stipulate in writing the essential terms, including job title, probationary period (if any),
6 Section 10(2) of the EA 1955.
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remuneration, manner of termination, transfer clause, hours of work, and benets such
as leave entitlements and retirement age (if any).
Also, any term or condition of a contract of service which provides a term or
condition of service which is less favourable to an EA employee than a term or condition
of service prescribed by the EA shall be void and of no eect, and the more favourable
provision shall replace it.
Te employment contract should be executed by the parties prior to the
commencement of the employment. However, the execution of the contract post-
commencement of employment will not be deemed invalid by that reason alone.
Te terms of employment may be varied by the mutual agreement of the employer
and the employee. However, as the agreement to amend or change the employment
contract or terms of employment constitutes a separate contract in itself, there has to be
consideration owing between the parties.
Te employer may not unilaterally impose changes that are detrimental to the
employee, even if it reserves the right to do so.
ii Probationary periods
Probationary periods are permitted under Malaysian law. Te law does not prescribe
a maximum probation period. In practice, a period of between three to six months is
common. Te agreement may also have provisions for an extension of the probationary
period where the employer may extend the initial probationary period for a further
period or periods.
An employee on probation enjoys the same protection from dismissal as a
permanent or conrmed employee in that he or she may make a claim for reinstatement
due to dismissal without just cause or excuse under section 20 of the IRA.
Te notice period for termination of an employee under probation would be as
stipulated in the contract of employment and often ranges from 24 hours to two weeks.
iii Establishing a presence
A foreign employer may hire employees to carry on business in Malaysia without being
locally incorporated or registering a branch oce. However, they should ensure that the
activities of the employee do not result in the foreign employer carrying on business in
Malaysia.
Foreign companies may recruit employees through an agency or other third
party.
A foreign employer that is not ocially registered in Malaysia may engage an
independent contractor to act on its behalf in Malaysia.
An independent contractor will not normally create a permanent establishment
of the foreign employer. Tis is particularly the case where the independent contractor
carries on business in its own name and charges a fee at arms length for the use of its
services by the foreign employer.
If the foreign employer is found to be carrying on business in Malaysia, then
it must either locally incorporate or register a foreign branch, otherwise it will be
committing an oence under the Companies Act 1965.
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Among the statutory benets that arise when an employer hires employees, there
is the mandatory monthly contributions on the amount of wages to be made by both
the employer and the employee to a government-managed retirement fund on a 12:11
per cent of income ratio pursuant to the EPFA. In addition, the SOCSO provides for
mandatory contributions to be made by both the employee and the employer to a
government-managed programme akin to an insurance scheme, eectively for employees
who have ever earned less than 3,000 Malaysian ringgit a month.
Taxes are deducted at source in accordance with the Schedule of Monthly Tax
Deductions or other methods approved by the Director General pursuant to Rule 3
Income Tax (Deduction from Remuneration) Rules 1994.
V RESTRICTIVE COVENANTS
Under the Contracts Act 1950, every agreement by which anyone is restrained from
exercising a lawful profession, trade or business of any kind, is to that extent void.
Terefore, it follows that non-compete clauses in an employment contract during the
post-contractual period are void in law, but these clauses are enforceable while the
employment contract subsists. Restrictive covenant clauses that state that an employee is
not to solicit clients and employees of his or her employer are likely to be enforceable if
they are reasonable.
VI WAGES
i Working time
Te EA provides that an EA employee shall not be required to work more than eight
hours a day or more than 48 hours a week or more than ve consecutive hours without
a break of at least 30 minutes. An EA employee who works less than eight hours in one
or more days in a week may be required to work in excess of eight hours (but not more
than nine hours) on the remaining days of the week provided his total working hours
in the week do not exceed 48 hours. Shift workers may be required to work more than
eight hours in a day or more than 48 hours in a week provided that the average number
of hours worked over any period of three weeks does not exceed 48 hours per week.
Nonetheless, no EA employee should be required to work more than 12 hours a day.
Every EA employee shall be entitled to one whole rest day in each week. In the
case of shift workers, a continuous period of not less than 30 hours shall constitute a rest
day.
EA employees may not contract out of these restrictions on working hours that are
prescribed by the EA. For non-EA employees, the working hours are subject to contract
between the parties.
Tere are no limits on the amount of night work that may be performed. However,
there is a provision in the EA that generally prohibits women from working in any
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industrial or agricultural undertaking between 10 p.m. and 5 a.m. or commencing work
for the day without having had a period of 11 consecutive hours free from such work.
7

ii Overtime
EA employees are by law entitled to overtime pay. For any overtime work carried out
in excess of the normal hours of work, the EA employee shall be paid not less than
one and a half times his hourly rate of pay irrespective of the basis on which his rate is
xed. Normal hours of work means the number of hours of work as agreed between an
employer and the EA employee in the contract of service to be the usual hours of work
per day. Such hours of work shall not exceed the limits of hours prescribed in the EA.
If an EA employee paid on a monthly basis works on his or her rest day, the
employee shall be paid as follows in addition to his or her normal remuneration:
a for any period of work which does not exceed half his normal hours of work,
wages equivalent to half the ordinary daily rate of pay for work done on that
day;
b for any period of work which is more than half but which does not exceed his
normal hours of work, one days wages at the ordinary rate of pay for work done
on that day; and
c for any work carried out in excess of the normal hours of work on a rest day at a
rate which is not less than two times his hourly rate of pay.
If an EA employee paid on a monthly basis works on a public holiday, the employee
shall be paid two days wages at the ordinary rate of pay, regardless of whether the period
of work done on that day is less than the normal hours of work. For any overtime work
carried out by a monthly-paid employee in excess of the normal hours of work on a
public holiday, the employee shall be paid at a rate which is not less than three times his
hourly rate of pay.
Te hourly rate of pay is calculated on the basis of an EA employees ordinary
rate of pay (ORP) divided by his normal hours of work. For employees paid on a
monthly basis, the ORP is calculated by dividing the monthly rate of pay by 26 days. Te
computation diers for employees engaged on a daily, hourly or other rate of pay.
Te maximum limit on overtime work is 104 hours in any month.
Payment for overtime work and the calculation of the same for non-EA employees
is not mandatory and is subject to the contract of employment.
VII FOREIGN WORKERS
Pursuant to the EA, an employer must prepare and keep one or more registers containing
information regarding each employee. Tese records have to be available for inspection
for not less than six years after their recording.
7 Section 34 EA.
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An employer who employs a foreign employee must, within 14 days of the employment,
furnish the Director General of Labour with the particulars of the foreign employee.
8

Whenever required to so do by the Director General, an employer must also
furnish returns of particulars relating to the employment of its foreign employees.
9

Tere are currently no numerical limitations and the number of foreign workers
that can be recruited would depend on various factors such as the capitalisation of the
employer and the availability of local workers.
A foreign worker is allowed to work in Malaysia, in the rst instance, for three
years. A subsequent extension of two years may be permitted upon application by the
employer. Tereafter, the employer has to send the foreign worker back to his or her
country of origin at the expense of the employer. Te permit of the foreign worker
should be renewed annually with the payment of a levy.
Section 55B of the Immigration Act 1959 provides that any employer who employs one
or more persons, other than a citizen, who is not in possession of a valid pass shall be
guilty of an oence and shall, on conviction, be liable to a ne of not less than 5,000
Malaysian ringgit or to imprisonment for a term not exceeding 12 months or to both,
for each such employee. If the employer has employed more than ve such employees,
the employer shall, on conviction, be liable to imprisonment for a term not less than six
months but not more than ve years and shall also be liable to whipping of not more
than six strokes. Where the oence is committed by a body corporate, any person who
at the time of the commission of the oence was a member of the board of directors, a
manager, a secretary, or a person holding a similar oce or position shall be liable to the
same punishment.
Pursuant to the Workmens Compensation Act 1952, employers must ensure that
foreign workers are insured with a designated insurer with respect of employment injury
and permanent disablement. Generally, employers do not have to contribute to the
Employees Provident Fund for foreign workers. However, if the foreign workers elect to
contribute, the employers share of their contribution is 5 Malaysian ringgit per month.
Foreign workers who leave Malaysia permanently are allowed to completely withdraw
their contributions when leaving.
For tax purposes, an individual is treated as a resident if he is physically present in
Malaysia in a particular calendar year for 182 days or more. However if his period of stay
is less he may still be resident if certain conditions are satised.
Te entire EA is equally applicable to foreign workers and local employees.
However, there are certain provisions that are specically in respect of employers with
foreign workers, for example, the issuance of the Certicate of Registration of Foreign
Workers pursuant to Section 60K EA and the prohibition of discrimination against
foreign workers or local employees pursuant to Section 60L EA.
8 Section 60K(1) EA.
9 Section 60K(2) EA.
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VIII GLOBAL POLICIES
Internal discipline rules are not required by law. If such rules are issued, employees do
not have to approve or agree to them and there is no requirement for the rules to be led
with or approved by government authorities.
Tere are no mandatory rules regarding discrimination, sexual harassment, or
corruption. However, there are codes such as the Code of Conduct for Industrial Harmony
and the Code of Practice on the Prevention and Eradication of Sexual Harassment in the
Workplace which, although not legally-binding, provide useful guidelines that employers
would be prudent to follow.
Tere is no requirement for these internal discipline rules to be written in the local
language (i.e., in Malay). However, it is recommended that they be written in Malay and
English when the employees do not have a good command of English.
Notication of the rules to the employee is sucient but it is recommended that
the rules be signed by the employee to indicate that they have received or been notied
of them.
Te internal discipline rules are often set out in a handbook distributed to all
employees. Where there is a recognised union, the rules are sometimes also provided for
in the collective agreement. Te rules may also be set out on the employers intranet but
it is important that there is evidence that the employee has been notied of these rules.
Te disciplinary rules may be incorporated into the employment contract.
Alternatively, they may be contained in a separate document.
IX EMPLOYEE REPRESENTATION
Employees are permitted to form trade unions which must be registered with the Director
General of Trade Unions. A member of a registered trade union must be above the age
of 16.
Te Director General of Trade Unions may refuse to register a trade union if
he is satised that there is in existence a trade union representing the workmen in that
particular establishment, trade, occupation or industry and if it is not in the interests of
the workmen concerned that there be another trade union in respect thereof. In addition,
the Director General of Trade Unions will refuse to register a trade union if he is of the
opinion that:
a the trade union is likely to be used for unlawful purposes or for purposes contrary
to or inconsistent with its objects and rules;
b any of the objects of the trade union are unlawful;
c the objects, rules and constitution of the trade union conict with any of the
provisions of the TUA or its regulations;
d the name under which the trade union is to be registered is identical to that of
any other existing trade union, or so nearly resembles the name of such other
trade union as, in the opinion of the Director General, is likely to deceive the
public or the members of either trade union or is, in the opinion of the Director
General, undesirable, unless the trade union alters its name to one acceptable to
the Director General.
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Te trade union needs to be recognised by the employer. Te purpose of a claim for
recognition is to enable the trade union of workmen to commence collective bargaining
with the employer or trade union of employers.
10
Any claim for recognition by a trade
union of workmen shall be substantially in a prescribed form and shall be signed by a
responsible ocer of such trade union.
11

No trade union of workmen whose membership consists of a majority who
are not employed in a managerial, executive, condential or security capacity may
seek recognition or serve an invitation for collective bargaining in respect of workmen
employed in any of the roles mentioned supra.
12

Tere is no ratio of representatives to employees required.
Te election procedures for representatives essentially follow the union
constitution. Te length of a representatives term is also in accordance with the union
constitution.
Section 5(1)(c) of the IRA prohibits any discrimination in regard to employment,
promotion, any condition of employment or working conditions on the ground that an
employee is or is not a member or ocer of a trade union. Hence the representatives
of a trade union do not have any additional rights. However, to protect trade union
representatives and members in the course of carrying out their duties, Sections 21 and 22
of the TUA provide that no legal proceeding shall be actionable in any civil court against
any ocer or member of a trade union in respect of any act done in contemplation or
in furtherance of a trade dispute or in respect of any tortious act alleged to have been
committed by or on behalf of the trade union.
Once the trade union is recognised, collective bargaining must be done with the
trade union and the employer must comply with the terms of the Collective Agreement.
An employer shall grant leave of absence to a workman intending to carry out his duties
or to exercise his rights as an ocer of a trade union if the duration of the leave applied
for is reasonable.
Te frequency that representatives must meet also depends on the union
constitution.
X DATA PROTECTION
i Requirements for registration
Te PDP Act recently passed by Parliament is not yet in force. At this point, employee
information has very limited data protection. It is unclear whether the PDP Act applies to
employee information and the following write-up is on the assumption that it applies.
Section 2 of the PDP Act provides that the Act applies to any person who
processes and any person who has control over or authorises the processing of, any
personal data in respect of commercial transactions. As the data must be in respect
of commercial transactions, there has been some debate as to whether the employer-
employee relationship will be covered by the PDP Act. Tis will only become clear once
10 Ibid, section 3(2).
11 Industrial Relations Regulations 2009, section 3(1).
12 Section 9(1) Industrial Relations Act 1967.
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the government provides further legislation or guidelines on this Act. For now, it would
be prudent to assume that the new data protection provisions apply to employment
contracts and it is on that basis that the information infra is provided.
As long as the employer processes any personal information of its employees
within the scope of the PDP, they are bound by the PDP. Te employer is required to
register with the PDP Commission if they fall within the class of data users required to
be registered as data users under the PDP Act.
Te employer is required to inform the data subject, in this case the employee,
of the particular information that is being processed, for example his name, address and
identication number.
Employee consent is necessary for the processing of his or her personal data save
in the following situations:
a the performance of a contract to which the data subject is a party;
b the taking of steps, at the data subjects request, with the view of entering into a
contract;
c compliance with any legal obligation to which the data user is the subject, other
than a contractual obligation;
d protecting the vital interests, namely matters relating to the life, death or security
of the data subject;
e the administration of justice; or
f the exercise of any functions conferred on any person under any law.
Te PDP Act also sets out certain parameters for the processing of personal data. It
provides that such data may not be processed unless:
a it is for a lawful purpose directly related to the activity of the data user;
b it is necessary for or directly related to that purpose; and
c the data is not excessive for that purpose.
Additional and more stringent conditions are imposed for the processing of sensitive
personal data,
An employer has to give the right of access to the employee in the event the
employee wants to view, update or correct his or her own information.
Te employer shall take practical steps to protect the employees personal data
from any loss, misuse, modication, unauthorised or accidental access or disclosure,
alteration or destruction by ensuring that there are adequate technical security measures
incorporated into the system where the personal data is stored.
ii Cross-border data transfers
Te PDP Act does not permit a data user to transfer any personal data to a place outside
Malaysia unless it is to such a place specied by the Minister and published in the
Gazette. Tere are certain circumstances specied in the PDP Act where personal data
can be transferred out of Malaysia, i.e., where the data subject has given consent to the
transfer, if the transfer is necessary for the performance of a contract between the data
subject and data user, or the transfer is for the purposes of legal proceedings or obtaining
legal advice.
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Employee consent is also needed for cross-border data transfers by the employer
unless an exception applies.
Safe harbour principles do not exist in the PDP Act. As such, there is no need for
employers to register or get recognition from the relevant authority to show that their
data protection policy is in compliance with safe harbour principles.
Employers do not need to have any joint-user agreements in place. Te onus is
on the employers to obtain consent from the employees for such transfer of personal
data. However, it is always advisable for the employers to ensure that the receiving
party provides a warranty that they will comply with any data protection undertaking
which the employers have given to their employees (including not to further transfer the
personal data to other third parties without obtaining consent from the employees) and
to require the receiving party to also provide an indemnity for such warranty.
Generally, personal data cannot be transferred out of Malaysia except in certain
circumstances. For instance, to a country which has been specied as permitted by the
Minister, where consent of the employee or data subject has been obtained, or where the
transfer is pursuant to a contract, etc.
Should there be continuous onward transfer after that, for instance from Malaysia
to the United States of America, and onwards to the United Kingdom, this has to be spelt
out in the notice and consent. Tis means that the employee has to be notied that his or
her data will be transferred out of Malaysia and then to the United States of America and
then to the United Kingdom, and the employee would have to consent to that.
iii Sensitive data
Sensitive data would include data on the physical, mental health or condition, political
opinions, religious beliefs or other similar beliefs of a data subject, the commission or
alleged commission of an oence by a data subject, and any other data declared by the
Minister to be sensitive personal data.
Te General Principle prohibits a data user from processing a data subjects
personal data except with the data subjects explicit consent. Additional and more
stringent conditions are imposed for the processing of sensitive personal data,
iv Background checks
Tere are no restrictions or prohibitions against background checks on prospective
employees. An employer or prospective employer may either conduct its own checks or
hire a third party to do so.
Generally, the employer may be able to do credit checks on an employee with
licensed Credit Reporting Agencies in Malaysia. On the other hand, criminal records
checks are more dicult to do because they require the cooperation and assistance of
the police.
Pursuant to the Banking and Financial Institutions Act 1989, no employer would
be able to obtain or access any information in relation to its employees nancial aairs.
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XI DISCONTINUING EMPLOYMENT
i Dismissal
Section 20 of the IRA provides a procedure which eectively requires an employer to only
dismiss an employee when there is just cause or excuse. Te failure to have just cause and
excuse for dismissal can result in the employer being ordered to reinstate the employee
with back wages or to pay the employee compensation in lieu of reinstatement. Te IRA
does not dene just cause or excuse but misconduct, breach of contract, redundancy,
retirement (pursuant to the terms of the contract) and closure can constitute just cause
or excuse for dismissal, if substantiated.
Te employer is only required to notify a government authority if the termination
is due to redundancy, voluntary separation scheme (VSS), temporary lay-o or closure
of business.
Te employer must notify the trade union if it is required to do so under the
collective agreement.
Tere is no social plan required. When the termination is due to redundancy,
the law requires that it be done as a last resort and where there is suitable alternative
employment, the employee ought not to be terminated. In the event that the employee
is retrenched, then the Code of Conduct for Industrial Harmony requires that employees
who are retrenched be given priority of engagement or re-engagement as far as possible
by the employer when he engages workers. Tere is no prescribed time limit on this
requirement, bur ordinarily one year is considered reasonable.
For EA employees, in the absence of a specic provision on length of notice or
where the employee is terminated due to redundancy, the minimum length of notice is
as follows:
a four weeks notice if the employee has been employed for less than two years;
b six weeks notice if the employee has been employed for more than two years but
less than ve years;
c eight weeks notice if the employee has been employed for ve years or more.
For non-EA employees, the notice period and payment in lieu of notice depends on the
terms of the employment contract.
As stated earlier, the IRA has created a procedure which eectively protects an
employee or workman from being dismissed save with just cause or excuse. Additionally,
the following sets out some additional protection given to certain categories of
employees.
A female EA employee may not be dismissed from employment on the grounds
that she has remained absent from work after the expiry of maternity leave (which shall
not be less than 60 days from the date of child birth) if her absence is due to an illness
certied by a medical practitioner arising from her pregnancy and connement. Tis
protection extends for 90 days after the expiry of her maternity leave period.
Section 5(1)(d) of the IRA provides that no employer may dismiss a workman
by reason that the workman is or proposes to become, or seeks to persuade any other
person to become, a member or ocer of a trade union or participates in the promotion,
formation or activities of a trade union.
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Section 10(2) of the IRA also provides that no employer may dismiss a workman
once a trade union of workmen has served a claim for recognition on the employer
except in limited circumstances such as dismissal on disciplinary grounds, medically
boarding out, or retirement.
Pursuant to section 59(1) of the IRA, it is also an oence to dismiss a workman by
reason that the workman is, or proposes to become, a member of a trade union or of an
association that has applied to be registered as a trade union; is entitled to the benet of
a collective agreement or an award; or has appeared or proposes to appear as a witness.
For EA employees, the Employment (Termination and Lay-O Benets)
Regulations 1980 provides for payment of termination benets upon termination for
any reason other than in limited situations, such as by way of retirement, on grounds
of misconduct and resignation. Tese regulations only apply to EA employees. Te
quantum payable is as follows:
a 10 days wages for each year of service where the employee has worked less than
two years; or
b 15 days wages for each year of service where the employee has worked for more
than two years but less than ve years; or
c 20 days wages for each year of service where the employee has been employed for
ve years or more; and
d pro-rated for any incomplete year of service.
As for non-EA employees, under the Code of Conduct for Industrial Harmony, the
employer should pay reasonable redundancy benets when retrenching an employee. In
Malaysia, the trend is generally to pay at least one months salary for each year of service
as a term benet.
Parties can enter into a settlement agreement. However, the employee may still
claim that he had been forced into the agreement and make a claim for dismissal without
just cause or excuse under Section 20 of the IRA. An employee is not estopped from
bringing a claim under Section 20 of the IRA on grounds that he has entered into an
agreement in full and nal settlement of all his claims with his employer.
ii Redundancies
To terminate an employee contract for redundancy, an employee must be shown to
be redundant, the selection must be in accordance with generally accepted procedure
and there must be compliance with the Code of Conduct for Industrial Harmony and
any collective agreement or term of contract. It does not make a dierence if there are
multiple redundancies (see sub-section (i), supra).
Te notication obligations, rights to rehire, notice requirements, severance
requirements and other aspects of dismissal are the same as for all dismissals, as set forth
supra.
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XII TRANSFER OF BUSINESS
In a transfer of business situation, Regulation 8 of the Employment (Termination &
Lay-O Benets) Regulations 1980 applies to EA employees. Regulation 8 of the said
Regulations provides as follows:
(1) Where a change occurs (whether by virtue of a sale or disposition or by operation
of law) in the ownership of a business for the purposes of which an employee is
employed or of part of such business, the employee shall not be entitled to any
termination benets payable under the said Regulations if, within seven days of the
change of ownership, the purchaser of the business oers to continue to employ
the employee on terms and conditions not less favourable than those under which
the employee was employed by the vendor and the employee unreasonably refuses
the oer.
(2) If the purchaser does not oer to continue to employ the employee in accordance
with paragraph (1), the contract of service will be deemed to have been terminated,
and consequently, the vendor shall be liable for the payment of all termination
benets under the said Regulations.
(3) Where an oer by the purchaser to continue to employ the employee is accepted by
such employee the period of employment of the employee under the vendor shall
for the purposes of the said Regulations be deemed to be a period of employment
under the purchaser and the change of employer shall not constitute a break in
the continuity of the period of his employment.
In the event that there is non-compliance with Regulation 8, the EA employees will
be entitled to the following minimum amount of termination benets payable under
Regulation 6 of the Regulations (to those who have been in employment for 12 months
or more):
a 10 days wages for every year of employment under a continuous contract of
service if he has been employed by that employer for less than 2 years;
b 15 days wages for every year of employment under a continuous contract of
service if he has been employed by that employer for 2 years or more but less than
5 years; and
c 20 days wages for every year of employment under a continuous contract of
service if he has been employed by that employer for 5 years or more.
Generally for administrative ease and to avoid any allegations of discrimination, non-
EA employees are often dealt with in the same manner as EA employees under this
method.
XIII OUTLOOK
With the introduction of the PDP Act, it would be prudent for organisations to begin
looking into compliance with the said Act as the eect of the Act is far-reaching and
would impact organisations and individuals alike.
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i Minimum Wage Bill
Te Minister of Human Resources has indicated that the Minimum Wage Bill is set
to be tabled in Parliament in 2011. Te introduction of a minimum wage appears to
be intended to raise the employees standard of living as well as support the economic
transformation plans which the government is currently undertaking.
ii Retabling of the amendments to the EA and the IRA
Te proposed amendments to the EA and IRA, including amendments on sexual
harassment and the protection of the rights of pregnant women and domestic servants,
are likely to be looked at again as pending Bills or fresh Bills are likely to be re-tabled in
the near future.
iii Talent Corporation to Fight Brain Drain
A Talent Corporation has been established under the Prime Ministers Oce as part of
the governments initiative to increase and retain talented and highly qualied and skilled
Malaysians within our countrys workforce.
.
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SKRINE
Unit No. 50-8-1, 8th Floor, Wisma UOA Damansara, 50, Jalan Dungun
Damansara Heights
50490 Kuala Lumpur
Malaysia
Tel: +60 3 2081 3999
Fax: +60 3 2094 3211
skrine@skrine.com
www.skrine.com
SIVA KUMAR KANAGASABAI
Skrine
Siva Kumar Kanagasabai is a Partner of Skrine. He was admitted to practise as an
advocate & solicitor of the High Court of Malaya in March 1995. He is the Head of
Skrines Employment practice group which has been ranked in tier 1 by the Legal 500.
He has wide experience in employment law, administrative law, maritime law and he
also handles civil cases. He has acted for clients in a number of important cases including
before Malaysias highest court. Kumar is listed in Chambers Asia 2008-2010 as a leading
lawyer for Employment Law.
Kumar has presented numerous papers at conferences and seminars. He is the
author of Halsburys law of Malaysia Industrial Law & Labour Law (published by
Lexis Nexis), the Employment Law Practice in Malaysia Chapter for Employment Law
Client Strategies in the Asia-Pacic (published by Aspatore), the Malaysian Chapter of
Restrictive Covenants and Trade Secrets in Employment Law (published by the American
Bar Association) and is a co-author of the Law of Dismissal (published by CCH).
SELVAMALAR ALAGARATNAM
Skrine
Selvamalar Alagaratnam is a partner in the Dispute Resolution Division at Skrine,
Malaysia and possesses extensive experience in the areas of administrative, employment
and industrial relations and employment-related immigration. Selvamalar was admitted
to practice as an Advocate and Solicitor of the High Court of Malaya in November
1994.
Selvamalar is listed in Chambers Asia 2009 and 2010 as a leading individual
for Employment Law. She is a Member of the Malaysian Bar Councils Industrial Law
Committee, Lawasias Labour Law Committee and the International Society for Labour
and Social Security Law Malaysian Chapters Protem Committee. Her publication
activities include having presented several papers at various local and international
conferences. Selvamalar was also a co-author of the Law of Dismissal, published by
Commerce Clearing House (CCH), Malaysia Court Forms Employment Law Section,
Labour Law Handbook, and the Legal Guide to Employee Dispute Malaysia.
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SHARMILA RAVINDRAN
Skrine
Sharmila Ravindran was admitted to the Malaysian Bar in January 2004 and is currently
a Senior Associate in the Dispute Resolution Division at Skrine. Sharmila Ravindran has
gained experience in various areas of civil and commercial litigation with a particular
focus on minority share holder disputes, land disputes, banking, tort and defamation.
FOO SIEW LI
Skrine
Siew Li is an associate in the Dispute Resolution Division of Skrine. She graduated with
an LLB (Hon) degree from Cardi University in 2008 and was called to the Malaysian
Bar as an Advocate and Solicitor of the High Court of Malaya in September 2010. Siew
Li focuses on all aspects of labour and employment related matters including employment
litigation and providing advice on employment contracts, voluntary separation schemes,
dismissals, employee investigations and industrial relations.