Employment Law & Industrial Relations

Employment Law in Malaysia

Employment law in Malaysia is principally governed by the Employment Act 1955 and the Industrial Relations Act 1967. Together, these statutes establish the framework regulating the relationship between employers and employees, from minimum standards of employment to dispute resolution before the Industrial Court. The Employment Act 1955 sets out the baseline protections for employees, including provisions on wages, working hours, overtime, rest days, public holidays and leave entitlements. The Industrial Relations Act 1967 governs the relationship between employers, employees and trade unions, and provides the mechanism for resolving trade disputes and dismissal claims. At Messrs S K Song, our employment lawyers in Johor Bahru advise both employers and employees on their rights and obligations under these statutes and the broader body of Malaysian employment law.

Minimum Standards Under the Employment Act 1955

The Employment Act 1955 prescribes minimum employment standards that apply to all employees in Malaysia, regardless of whether they earn above or below the wage ceiling. As of the 2022 amendments, the scope of the Act was expanded to cover all employees regardless of wages, significantly broadening the protections available. The standard working hours are capped at eight hours per day and 45 hours per week. Employees are entitled to a rest day each week and paid public holidays. Overtime work must be compensated at rates of one and a half times the ordinary rate of pay on normal working days, double the ordinary rate on rest days, and triple the ordinary rate on public holidays.

Annual leave entitlements under the Act are graduated according to length of service: eight days for employees with fewer than two years of service, twelve days for those with two to five years, and sixteen days for those with five or more years. Sick leave entitlements range from fourteen days per year for shorter-serving employees to twenty-two days where hospitalisation is required. Female employees are entitled to 60 consecutive days of paid maternity leave, and the 2022 amendments introduced provisions for paternity leave. Employers who fail to comply with these minimum standards commit an offence and may be prosecuted by the Department of Labour.

Employment Contracts: Fixed Term and Permanent

Every employee in Malaysia is entitled to a written contract of employment setting out the terms and conditions of service. Employment contracts may be for a fixed term or of indefinite duration. A permanent contract continues until terminated by either party in accordance with the contract or the law, and provides the employee with greater job security. A fixed-term contract specifies a predetermined end date or is linked to the completion of a specific project. While fixed-term contracts offer flexibility, Malaysian courts have consistently held that employers cannot use successive fixed-term contracts to circumvent the protections that would otherwise accrue to a permanent employee. If a fixed-term contract is terminated before its expiry without just cause, the employee may have a claim for wrongful dismissal. Our lawyers advise on the drafting, review and enforcement of employment contracts to ensure compliance with the Employment Act and to protect the legitimate interests of both parties.

Wrongful Dismissal and the Industrial Court Process

Wrongful dismissal remains one of the most common employment disputes in Malaysia. When an employee is dismissed, the fundamental question is whether the dismissal was with just cause or excuse. Under the Industrial Relations Act 1967, a dismissed employee who is not satisfied that the dismissal was justified may make a representation in writing to the Director General of Industrial Relations within 60 days of the dismissal. The Director General will attempt to facilitate a settlement between the parties through conciliation. If conciliation fails, the Minister of Human Resources may refer the matter to the Industrial Court for adjudication.

The Industrial Court is a specialist tribunal that hears dismissal disputes and other industrial matters. The Court applies the principle established in the landmark case of Milton Samuels v. Pernas Chartering Sdn Bhd, which requires the employer to prove, on a balance of probabilities, that the dismissal was with just cause or excuse. The Court examines whether the employer followed due process, including conducting a proper domestic inquiry where warranted, gave the employee a fair opportunity to be heard, and imposed a proportionate sanction. If the Court finds the dismissal to be without just cause, it may order reinstatement with full back wages or, in appropriate cases, compensation in lieu of reinstatement.

Unfair Dismissal Under Section 20 of the Industrial Relations Act

Section 20 of the Industrial Relations Act 1967 is the specific statutory provision that governs claims for unfair dismissal. It applies to all employees regardless of their salary level, although workmen as defined under the Act receive particular protection. The scope of Section 20 extends to dismissals, retrenchments, constructive dismissals and non-renewal of fixed-term contracts where the employee contends the termination was without just cause. Constructive dismissal arises where the employer fundamentally breaches the employment contract, compelling the employee to resign. The employee must act promptly and clearly communicate that they treat the employer's conduct as a repudiation of the contract. Claims under Section 20 must be filed within 60 days of the dismissal, and failure to meet this deadline may result in the claim being time-barred. At Messrs S K Song, we guide clients through every stage of the Section 20 process, from the initial representation to conciliation and, where necessary, a full hearing before the Industrial Court.

Retrenchment and Redundancy

Retrenchment is the termination of employees due to redundancy arising from the restructuring, downsizing or closure of a business. Malaysian law recognises the employer's prerogative to reorganise its workforce, but this right must be exercised in good faith and in accordance with the principles set out in the Code of Conduct for Industrial Harmony. The Code, agreed upon by the Malaysian Trades Union Congress and the Malaysian Employers Federation, provides guidelines on the procedures to be followed during retrenchment, including the adoption of the last-in-first-out principle as the general rule for selecting employees to be retrenched, the obligation to notify the Department of Labour, and the payment of retrenchment benefits. Employers are expected to explore alternatives to retrenchment, such as redeployment, reduced working hours or voluntary separation schemes, before proceeding with compulsory retrenchment. Failure to follow proper procedures may render a retrenchment unjustified and expose the employer to a claim under Section 20 of the Industrial Relations Act.

Sexual Harassment in the Workplace

Sexual harassment in the Malaysian workplace has received increasing legislative attention. The Employment Act 1955 was amended to include specific provisions on sexual harassment, requiring employers to inquire into complaints of sexual harassment and take appropriate action. Under the Act, an employer who receives a complaint of sexual harassment must investigate the matter and, if the complaint is substantiated, take disciplinary action against the offender. Failure to do so constitutes an offence. The 2022 amendments further strengthened these protections and introduced clearer procedures for handling complaints. Employees who experience sexual harassment may also pursue civil remedies, including claims for damages. Messrs S K Song advises both complainants and employers on the proper handling of sexual harassment complaints, ensuring compliance with statutory obligations while protecting the rights and dignity of all parties involved.

EPF, SOCSO and EIS Compliance

Malaysian employers are required by law to make statutory contributions on behalf of their employees to three key social security schemes. The Employees Provident Fund (EPF), governed by the Employees Provident Fund Act 1991, mandates monthly contributions from both the employer and employee towards the employee's retirement savings. The Social Security Organisation (SOCSO), established under the Employees' Social Security Act 1969, provides social security protection including invalidity pensions, employment injury benefits and dependent's benefits. The Employment Insurance System (EIS), introduced under the Employment Insurance System Act 2017, provides financial assistance and re-employment placement services to employees who lose their jobs through retrenchment or closure.

Non-compliance with these statutory obligations is a serious matter. Employers who fail to make the required contributions commit an offence and may face prosecution, fines and imprisonment. Employees who discover that their employers have not made the required contributions can lodge complaints with the relevant authorities. Our firm assists employees in recovering unpaid EPF contributions and pursuing SOCSO-related claims, and advises employers on achieving full compliance with their statutory obligations.

Messrs S K Song: Employment Law Practice in Johor Bahru

Messrs S K Song has developed a niche employment law practice serving clients in Johor Bahru and across the southern region. Our lawyers handle the full spectrum of employment disputes, from wrongful dismissal and unfair termination claims before the Industrial Court to advisory work on employment contracts, workplace policies and statutory compliance. We represent both individual employees and corporate employers, bringing a balanced perspective that allows us to anticipate the arguments on both sides and to achieve the best possible outcome for our clients. Whether you are an employee who has been unfairly dismissed or an employer seeking to manage your workforce lawfully and effectively, contact our Johor Bahru office today for a confidential consultation.