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MODULE 2: MALAYSIAN EMPLOYMENT LAW

QUESTION:
A FOREIGN INVESTOR, PLANNING TO INVEST IN A LARGE
MANUFACTURING PLANT IN SENAWANG, SEEKS YOUR
ASSISTANCE, BEING A LABOUR CONSULTANT TO SIMPLIFY THE
EMPLOYMENT ACT 1955. DISCUSS THE PERTINENT AREAS OF
EMPLOYMENT ACT 1955 FOR THE INVESTOR TO UNDERSTAND.

INTRODUCTION

Malaysian Employment Act 1955 and Malaysian Labour Law provide a minimum
standards guides to Malaysian employers and foreign investors in Malaysia. The
Employment Act is applicable to lower income group, however its provisions and
regulations could be regarded as the minimum standard applicable to everyone under
employment. Both employer and employee can however execute an employment
contract with terms and conditions higher than that provided in the act.

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EMPLOYMENT ACT 1955

First Schedule Section 2(1) EA 1955-

1] any person, irrespective of his occupation, who has entered into a contract of service
with an employer under which such person’s wages do not exceed RM 1500 per month

2] any person who irrespective of the amount of wages he earns in a month, has
entered into a contract of service with an employer in pursuant of which :-

(a) he is engaged in manual labour including such labour as an artisan or apprentice:

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

(b) he 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) he supervises or oversees other employees engaged in manual labour employed by

the same employer in and throughout the performance of their work.

(d) he is engaged in any capacity in any vessel registered in Malaysia and who:-

i] is not an officer certificated under the Merchant Shipping Act of the United Kingdom
as amended from time to time;

ii] is not the holder of a local certificate as defined in Part VII of the Merchant Shipping
Ordinance 1952; or

iii] has not entered into an agreement under Part III of the Merchant Shipping
Ordinance, 1952; or

(e) he is engaged as a domestic servant

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OBJECTIVES
The objectives of the Employment Act are;

• To provide minimum standards in respect of hours of work and overtime, rest

days, public holidays, annual and sick leave, maternity benefits, termination and
lay-off benefits and others.
• To protect employees in respect of payment of wages in legal tender, deductions,
priority of wages, protection of female employees.
• To provide an avenue to employees or employers to claim or settle the amount
due under the contract or the Act.
• To provide for administration or enforcement of the Act and punishment of
offenders.

APPLICATIONS OF THE ACT

There are three general circumstances under which this Act may be applicable

➢ Where an organization commence business and hire the first employee. The
provisions relate to contract of service, payment of wages, and the minimum
benefit due to the employee
➢ Where an organization under restricting, merger and acquisition, and relocation.
The provisions relate to termination, lay-off and retirement benefits
➢ Where an organization is put under receivership by the financial institution or has
been wound up by the court. The laws relate to the retrenchment benefit and
priority of payment.

TERMS & CONDITIONS STIPULATED UNDER EMPLOYMENT ACT

1955
➢ Hours of work

Agreed hours of work should be as followings;

 not more than five consecutive hours with a period of rest not less than
30 minutes

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  not more than 8 hours in one day

 not more than 10 hours in a “spread-over” period

 if the work is of a continuous nature, it can be 8 consecutive hours with

a period of rest (paid) of not less than 45 minutes.

 not more than 48 hours in a week.

However, emergency work allowed only for ;
 in case of accident, actual or threatened.

 urgent work to be done to machinery or plant

 an interruption of work impossible to foresee

➢ Overtime

Overtime means work done in excess of the “normal hours of work”. Rates for
overtime work are as follows;

 Overtime on normal working days- 1 ½ time the normal hourly rate of

pay
 Overtime on Rest Days– 2 time the normal hourly rate of pay

 Overtime on Public Holidays– 3 time the normal hourly rate of pay

However, overtime could not exceed ;

 104 hours per month, unless exempted by the Minister under Section
2B
 Not more than 12 hours of work (including normal hours in a day)

➢ Notice of probationary period, termination of employment or wages in lieu

The probationary period is for the employer to test the suitability of the employee for
the job assigned to him. The employer may test the aptitude, attitude, ability or
adaptability of the employee for the job. He may also take into consideration other
factors like behaviour, conduct, co-operation, and responsibility of the employee. If
the employee is found to be lacking in a few of the above attributes, it is advisable
for the employer in a cordial manner, with a view to improving him.

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An employer may extend the initial probationary period to a further period of 1-3
months. In such an event, the employee should be informed, in writing, before the
end of the probationary period, that his probationary period is being extended. He
should also be informed of the specific areas where improvement is expected.

The employer could terminate the services of an employee on probation, if the

employee does not measure up to the employer’s satisfaction. But the satisfaction
must be reasonable. If an employee on probation has reasons to believe that
terminations of his service was mala fide, he may seek reinstatement under Section
20 of the Industrial Relations Act. An employee may also quit the job if he
dissatisfies with the job, even without waiting for the end of the probationary period.

Whereas termination contract Of Service is where either party to a contract of

service may at anytime give to the other, notice of his intention to terminate such
contract of service. The period of notice required by either party is usually in
accordance with the provision in the contract of employment.

In the absence of a provision for period of notice made in the contract, the period of
notice of termination shall be based on the provision of the Employment Act as
follows:-

 less than 2 years- at least 4 weeks

 2 years or more- at least 6 weeks

 5 years or more- at least 8 weeks

However, an employer may terminate an employee’s services for any of the

following reasons: -

 Retirement
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  Section 14(1) IRA- misconduct
 Wilful Breach of Contract
 Retrenchment
 Criminal Offence
 Frustration of Contract
 Repudiation of Contract
 Effluxion of time [contract of service for specific period]
 Termination for poor performance

Dismissal after due inquiry can be done when an employer may on the ground of
misconduct dismiss an employee. However, it should be noted that the dismissal is
valid only after due inquiry has been done.

➢ Entitlement of annual leave

An employee is entitled to annual leave only after 12 months of continuous service;

 < 2 years of service – 8 days for each year

 > 2 years or more but < than 5 years – 12 days for each year
 > than 5 years – 16 days for each year

The paid annual leave does not include public holidays and an employee must take
his annual leave not later 12 months after the end of every 12 months of continuous
service. If he fails to do so, his annual leave will be forfeited. The whole or part of the
untaken annual leave may be substituted for payment at the request of the employer
and with the written consent of the employee. An employee’s annual leave also can
be forfeited if he absents himself from work without permission, or without any
reasonable excuse for more than 10% of the total number of working days during the
twelve months of continuous service for which his entitlement is accrued.

If an employee’s service is terminated (for reasons other than misconduct) or if he

resigns by giving due notice, he is entitled to the ordinary rate of pay in lieu for the
completed months of service.

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If an employee who is on annual leave falls sick, or is on maternity leave, the
employee is entitled to sick leave or maternity leave as the case may be and the
annual leave already taken by him/her becomes cancelled.

➢ Entitlement of Sick Leave

An employee is entitled to paid sick leave only under the following circumstances:

 he has obtained a certificate from a registered medical practitioner duly

appointed by his employer; or
 he has obtained a certificate from a dental surgeon; or
 if no such medical practitioner is appointed, or the services of such a
practitioner are not obtainable within a reasonable time or distance, then
other registered medical practitioners or government medical officers will
be accepted; and
 he has informed or has attempted to inform the employer of his sick leave
within 48 hours of the commencement of the sickness.

The number of days of paid sick leave which an employee is entitled to in each
calendar year is as follows:

 < than 2 years – 14 days

 >2 years but < than 5 years – 18 days
 >5 years or more – 22 days

If hospitalization is necessary, the amount of paid sick leave can be extended by up

to 60 days per calendar year.

If there is a company appointed doctor or panel of doctors, the employee should

seek medical treatment from such doctors. However, in case of emergency (when
the company appointed doctor is not readily available or the clinic is too far away)
the employee can seek treatment from any registered medical practitioner. All such

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cases are to be decided depending upon the circumstances and nature of the illness
or injury.

➢ Public Holiday
Every employee is entitled to 10 out of any of the following gazetted public holidays
and any day declared as a public holiday by the Federal or State Government under
section 8 of the Holidays Act 1951 in any one calendar year:-

Federal Public Holiday

 Hari Raya Puasa
 Chinese New Year
 Workers’ Day
 Wesak Day
 Birthday of YDPA
 Hari Raya Haji
 Awal Muharram
 National Day
 Birthday of Prophet Muhammad
 Depavali
 Christmas Day

State Public Holidays

 New Year’s Day
 Federal Territory Day
 Thaipusam
 Israk & Mikraj
 Nuzul Quran
 Good Friday
 Pesta Keamatan
 Hari Dayak
 Birthday of State’s Sultans / Rulers

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Compulsory gazetted Public Holiday
 National Day
 The King’s Birthday
 Birthday of Sultans/ Head of State or Federal Territory Day
 Workers’ Day

If any of the ten chosen gazetted public holidays falls within the period during which
the employee is absent due to sick leave, annual leave, temporary disablement
under the Workmen’s Compensation Act 1952 or under the Employees’ Social
Securities Act 1969, the employee is entitled to another day as a paid holiday in
substitution for such public holiday.

➢ Duration of wage period

Wage period is defined as the period in respect of which wages earned by an

employee are payable. The employment contract may specify the wage period, but it
cannot specify a wage period exceeding one month. However, if the wage period in
a contract is silent, then the wage period will be taken as one month.

➢ Time of payment of wages

Every employer shall pay to each of his employees not later than the seventh day
after the last day of any wage period the wages, less lawful deductions, earned by
such employee during such wage period. But if the Director General is satisfied that
payment within such time is not reasonably practicable, he may, on the application
of the employer, extend the time of payment by such number of days as he thinks fit.

CONCLUSION
The above serve as the minimum terms that is required to be in writing, however
additional terms may be included, depend on the individual organizations,
professional firms or institutions.

It is important to note that no employer can enter into an agreement with his
employee to contract out of the minimum provision of the EA. Any contract of service

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which contains terms and conditions of service less favorable than those stipulated
in the EA is null and void to the extend and the relevant provisions of the EA will
automatically substitute the less favorable terms (Section 7 & 7A).

However, employers and employees are free to agree upon more favorable terms
than those in the EA, either directly or through the process of collective bargaining
which will eventually lead to the compilation of a Collective Agreement whereby an
employer cannot in any way restrain an employee from joining a Registered Trade
Union, or participating in the activities of a registered Trade Union or organizing the
formation of a Trade Union.

Source:

1) http://www.investmentinmalaysia.com/search/label/malaysian%20labour%20law
2) www.azminias.com/MALAYSIAN LABOUR Lw.doc
3) http://www.ilo.org/dyn/natlex/docs/WEBTEXT/48055/66265/E55mys01.
htm#c18

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