MALAYSIA LABOR ACT 2023

Employment (Amendment) Act 2022 and Employment (Amendment of First Schedule)

Order 2022.

Introductory

The Employment Act in Malaysia has recently undergone several revisions that will
substantially impact both businesses and employees as the rationale of this gazette is to
improve the current workforce in this country. Earlier in 2022, the Malaysian government
gazzetted the Employment (Amendment) Act 2022 (“the Amendment Act). The gazette leads to
much confusion with regards to the extensive of the Employment Act (EA) scope once it comes
into force. Due to the fact that the government did not amend the First Schedule at the same
time the Amendment Act was passed, the confusion of the people is fuelled moreover when the
government repeatedly stating that the scope of EA would be expanded to all employees
regardless of their salary income among which includes the benefits and protections of the
worker. Apart from that, a lot of industry experts shares the view that such expansion, for some
reasons, would be impractical. However, before discussing this matter any further, it must be
noted that this amendments come into force in 1 January 2023. With the gazetting of the
Employment (Amendment of First Schedule) Order 2022 (“First Schedule Amendment Order”)
on 15 August 2022, it can be said that there finally is a clarity on the scope of the EA.

Landscape of the Malaysian Employment Law

The process of resolving disputes between employees and employers is done through
Industrial Court. Therefore the legal framework to the Malaysian employment and industrial
relations ecosystem is provided by the Employment Act 1955 and the Industrial Relations
Act 1967 as well as numerous other subsidiary legislation and regulations, including
the Employment (Termination and Lay-Off Benefits) Regulations 1980. Still, the main
provisions for the minimum statutory benefits and entitlements for the employees is provided
under the EA. Starting this year, from 1 January 2023, the EA acts will be applied to all
employees or in other words any person who has entered into a contract of service. In an effort
to comprehend the practical effect of the Malaysian industrial relations regime, the basic idea of
the foundational principles behind the law must be gone through. Primarily, the employment law
in Malaysia aims to find a balance between two principles which are the security of tenure
principle and managerial prerogative principle. The ‘security of tenure’ principle underlines the
rights of employees to continue to keep their jobs that is to say the livelihood of the worker
whereas the managerial prerogative principle focuses on the right of an employer to make
commercial decisions on how to run their businesses such as optimising effectiveness by
reorganisation, ceasing unprofitable activities, or implementing cost-cutting measures. As a
consequence of this balancing act, employers are allowed to decide how to manage their
businesses, including dismissing or reorganizing employees, without interference from the court
by acting reasonably and in good faith.

Comparison to American Labor Law

To compare, American labor law is applying the at-will employment principle which is
distinguishable from the Malaysian approach. The principle adopted by the Americans generally
allows either party to end the employment relationship with no liability. Thus, an employee can
be dismissed by the employer at any time without having to provide a reason for dismissal and
likewise, an employee can dismiss himself by quitting at any time if he so chooses. However,
the harshness of the principle adopted by the American government must be satisfied by some
exceptions like breach of procedure, fixed-term contracts, discrimination, public policy or other
general requirements of good faith. With the Malaysian approach, an employer must prove that
the actions of dismissing employee were substantively justified and procedurally fair. In plain
terms, this means that, as long as an employer can show that he has treated the employee
fairly, the courts and the law, do not place an unreasonable burden on the employer.

Amendments of the Employment Act 1955

The main legislation governing employment in Malaysia that came into force in Malaysia
on 1 June 1957 is The Employment Act 1955 [Act 265] (hereinafter referred to as EA). The EA
only applies to employees that falls within the scope of the First Schedule. Enforcement of the
amendments to Malaysia’s Employment Act 1955 [Act 265] has begun earlier this year on 1
January 2023, instead of 1 September 2022 as initially planned. The most far-ranging changes
to the Employment Act, which were actually enacted under the separate Employment
(Amendment of First Schedule) Order 2022, concern the expansion of the scope of application
of the Act to all employees in Peninsular Malaysia.

To see the differences in the expansion of the scope before the latest amendments were
made, we must compare the application of the EA. Previously, the EA covered employees
receiving monthly wages up to RM2,000 as well as the following employees irrespective of
wages, employees engaged in or supervising manual labour and employees operating or
maintaining mechanically-propelled vehicles. Following the First Schedule Amendment Order
which had come into force on 1 January 2023, the way the EA scope is defined has been
reversed. While it previously only applied to employees earning up to RM2,000/month with
some specific sections applying to all employees, it will now apply to all employees irrespective
of wages, with some specific sections not applying to employees earning more than
RM4,000/month. There is also an introduction of employer legal entity requirements, pre-
employment considerations, options for engagement, employment contracts, policies, and other
documentation (probationary periods, other employment policies), minimum wage, minimum
employment rights, and standard terms and conditions (hours of work, overtime payments,
public holidays, annual leave, sick leave, maternity leave, paternity leave, minimum retirement
age), flexible working arrangement, data privacy, employee transfers in sale of assets/business
transactions, termination of employments (termination notice, severance payments),
retrenchment/redundancy, poor performance dismissals, mutually-agreed separations, post-
terminations restrictions, and unfair dismissal claims,

Employment (Amendment) Act 2022 enacted by the government of Malaysia is an Act

to amend the Employment Act 1955. According to Section 1(2) of this act, it comes into force
on a date to be appointed by the Minister by notification in the Gazette and the Minister may
appoint different date to operate different provision of this act. Based on that, it can be seen that
this Act was initially made to be operated on 1 September 2022. However, due to the lack of
readiness of many parties as most believed there needed more time to ensure compliance with
the relevant laws, in late August 2022, the government announced that the implementation date
would be deferred to 1 January 2023. There are many amendments made in the EA that is laid
down in this Amendment Act. Having said that, there are few key points that are established
under this amendment act. The following key points will be discussed under:

i) Scope of Employee - Employment (Amendment of First Schedule) Order 2022

Prior to the new amendment, the vast majority of the Employment Act only applies to
employees earning up to RM2,000 regardless of any occupations. Regardless of pay, any
employee that performed certain vocations, including manual labor, those who supervised
manual laborers, and those who drove mechanically propelled vehicles can also apply the EA.
However, after the Employment (Amendment) Act 2022 comes into force, the provisions of the
Act will be applicable to anybody who has signed an employment or service contract. Certain
elements, however, such as pay for work performed on rest days and public holidays [Section
60D(3)], overtime payments [Section 60A and Section 60A(3), termination and layoff benefits
[Section 60J] and many more, would only be applicable to a specific class of workers earning
RM4,000 and lower.

ii) Flexible working arrangements

Employees may now apply in writing for flexible working arrangements under the
Employment Act to change their hours, days, or place of employment. The provisions of the
flexible working arrangement in the amendment act is provided under Section 27. After the
application, the employer must approve or reject any application in writing within 60 days and
provide a reason for the decision as stated in Section 60Q. This section can be seen in the new
part added in the principal act which is Part XIIC. With regards to the uncertainty of the legal
framework, it must be noted that only some jobs qualify for flexible working arrangements while
some require physical presence. By nature, all business should develop and try to implement a
flexible working policy moreover after the Covid season which had hit the people in the recent
years. This is because the marketability and competitiveness of such positions will be increased
if there is a flexible working policy.

iii) Maximum Working Hours

In the Employment Act, it is stipulated that the weekly maximum working hours is reduced from
48 hours to 45 hours as a result for the amendment of Section 60A (EA). The amendment can
be seen in Section 20(b) of the amendment act where the word “forty-eight” is to be changed
wherever the word “forty-five” appears. The intention for the reduction of Malaysian working
hours is to safeguard the health and safety of the employees. Apart from that, it could enable
the employee to maintain a fair work-life balance. Thus, the employers and workers must be
familiar with the applicable requirements in ensuring the law to be compliant.

iv) Sick Leave

Changes with regards to sick leave is also made by getting rid of the first proviso in Section
60F of the principal act. This can be seen in Section 22 of the Employment act where the rule
of the total amount of sick leave and hospital stays cannot add up to more than 60 days is
deleted. Thus, the employees are entitled for 60 days of sick leave if they need to stay in the
hospital in addition to their normal sick leave allotment.

v) Maternity & Pregnancy Protection

The maternity leave allotment has been expanded from 60 days of maternity leave to 98 days. It
is provided under Section 12(b) where the word “sixty’ is substituted to the word “ninety-eight”
with regards to the amendment of Section 37 of the Employment Act. This positive reform is to
comply with the international labour standards in ensuring the working moms to have enough
time for childcare and their own resting time. The new measures also makes it illegal for
pregnant or sick woman to be fired due to her pregnancy unless a contract of service has been
broken or any misconduct is displayed by the pregnant woman. This can be seen in Section 13
of the amendment act that provides the restriction on termination of pregnant female employee.
Under Section 13, the new Section 41A is added to the principal act. The new measures
extended is to give maternity protection for female employees.

vi) Paternity Leave

Next, aside from having provisions for the female employee, the Malaysian government has
also included a provision for male employee regarding paid paternity leave as provided under
Section 23 of the amendment act by amending an insertion of Section 60FA in the EA. The
amendment has increased the paternity leave for working fathers to seven days that must be
taken consecutively which marks a turning point in Malaysian Employment Act. Any married
employees are qualified for paternity leave if the employees have worked for the same employer
for at least a year prior to the start of the paternity leave. They are also qualified if 30 days’
notice from the due date of the anticipated pregnancy has been given to the employer or as
soon as possible after the birth. The new amendment has broaden the efforts in supporting
working parents in Malaysia as the government has recognized the vital role of fathers in raising
children and supporting their families besides promoting gender equality in the work place.

vii) Provision of Employment when there is no contract of service

A new provision of the employment when there is no contract of service can be seen in
Section 44 of the Employment Amendment Act 2022. Under Section 44, it stated that the
principal act is amended by adding Section 101C in determining the presumption of who is an
employee and who is an employer. In this section, if an employee does not have a written
contract of service, they are deemed to be an employee in any proceeding for an offense under
the act if their manner of work is subject to the supervision or control of another person; their
working hours are under the supervision or control of another person; they receive tools,
supplies, or equipment from another individual to do a task; their work is a crucial component of
another person's enterprise; their effort is made purely for another person's profit; and they
receive compensation for the task they perform on a regular basis, and this compensation
makes up most of their income. However, when the positions are reversed, one can be
assumed to be the employer.

viii) Sexual Harassment

Sexual harassment has been an on-going issues from then till now. Although we can never
make sure that this issue will be gone in the working environment, the Government of Malaysia
amended the principal act by creating a new section which provides for the matter of sexual
harassment that is Section 81H. The provision of this new section can be seen in Section 36
of the amendment act where the government oblige the employers to put up a notice on sexual
harassment in the workplace. In the notice, it must inform the types of behavior that constitute
sexual harassment, ways to report the incidents of harassment and also the consequences for
those who are engaged in the harassment. The purpose of having to put this notice in the
workplace is because the employee have the right to work peacefully in a sexual-harassment
free environment. Any incidents of harassment are encouraged to be reported to the employer
or any relevant authorities apart from seeking only support. There is also an amendment in
Section 81F of the principal act that is provided under Section 34 of the Employment
Amendment Act 2022 where a fine of RM10,000 is raised to RM50,000 for any employers that
do not look into the claims of the sexual harassment by their employee.

ix) Employment and Termination of Foreign Worker

Two sections regarding the employment and termination of foreign workers may be seen in
Section 24 and Section 25 of the amendment act. Section 24 amends the principal act by
substituting Section 60K. Previously, employers who hired foreign workers had to inform the
Director-General about their new hires and give details about them within 14 days. With the new
amendments, any employers that choose to hire any foreign workers must first have the
permission of the Director-General before presenting the details of the foreign within 14 days.
Without obtaining any approval, the employee may be fined of up to RM100,000 or up to five
years in prison or both. Section 25 discuss about the new added section in the principal act
which is Section 60KA. This section provides for the termination of foreign workers. In Section
60KA, any employer must inform the Director General about the termination of the foreign
workers within 30 days whether it is due to the case of expiry of employment pass, repatriation
or deportation. In the case where the foreign employee absconds from his place of employment,
the employee is provided with 14 days to inform the Director General.
 x) Discrimination

There are no clear or specific rules or punishments provided in the Employment Amendment
Act 2022. However, it does say that the Director General can look into any dispute or matter
involving discrimination between an employee and employer in the workplace. This is in line
with new section that is Section 69F where the Director General could take a decision in a
serious issue that can affect employees in Malaysia. This provision can be seen under Section
30 of the amendment act which provides for the discrimination in employment. Other than that,
Section 60F also provides that it is an offense for the employer to not follow any order from the
Director General. If found guilty, the employer will have to pay a fine of up to RM50,000 and if
the offence keeps on continuing after the conviction, the employer will have to pay a fine up to
RM1000 for each day the offence continues.

xi) Forced Labour

A new section is provided in the EA for forced labour prohibition which significantly impacts
both employees and employers in Malaysia. It is Section 90B and which can be seen under
Section 41 of the amended act. According to Section 90B, it is unlawful for any employer to
intimidate, lie to, or coerce an employee into doing labour or prevent them from leaving the
workplace. It is a protection for the employees from exploitation and abuse, and so that fair and
ethical employment practices are ensured inside the working environment. Section 90B also
provided that if any of these offence is committed by the employers, it will result them to face a
maximum punishment of RM100,000 and a maximum sentence of 2 years in prison, or both.