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.

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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.

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 .

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(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

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.

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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

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.

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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.6

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

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

following reasons: -

Retirement

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

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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.

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

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>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

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 Day10

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

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.

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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

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 12

3) http://www.ilo.org/dyn/natlex/docs/WEBTEXT/48055/66265/E55mys01.htm#c18

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