Employment law in Malaysia – an overview/recent developments

In Malaysia, employment issues are governed primarily by statute and contract. In respect of enterprises with large scale workforces, which would include the financial, manufacturing, industrial and plantation sectors, collective agreements between employers and registered trade unions are important in regulating the employment relationship between the parties.

The main statute which provides for minimum terms and conditions of employment for individual employees is the Employment Act 1955 (revised 2012). This Act is applicable to designated categories of employees who come within the scope of the Act including, those who earn a minimum wage amount of RM2,000 or less. These minimum terms and conditions of employment include wages and rate of wages, permissible deductions, maximum hours of work and provide for all forms of leave that maybe taken by such employees including, annual leave and maternity leave.

In the main however, the most common form by which terms and conditions of employment are governed is the contract between the relevant parties. In practice, such terms and conditions of employment are usually preset by the employer when making the offer of employment.

The main statute governing employment disputes between employer and either trade unions or individual employees, is The Industrial Relations Act (IRA) 1967. The Industrial Court is the adjudicatory body empowered under the IRA 1967 to deal with all disputes arising under the Act including, the settlement of terms and conditions of a collective agreement where parties are in dispute over such terms. The Industrial Court also deals with the important issue of determining whether a dismissal of an employee is without ‘just cause or excuse,. If the Industrial Court holds that a dismissal has been ‘without just cause or excuse,, it may order reinstatement of a dismissed employee to his previous employment position together with an award of backwages from the date of his dismissal to the date of the award.

In this regard, it may be of some importance to emphasise that several material provisions in the IRA 1967 were amended in January 2021 with the aim of streamlining and expediting the resolution of disputes which arise under the Act. The general principle which guides the Industrial Court in such disputes is that the employer has the burden of establishing that it acted ‘fairly and reasonably, when exercising management prerogatives and invoking contractual terms.

This is particularly so in claims for unfair dismissal where the employer is required to show both that there was a reasonable basis for the dismissal and a fair process was adopted before any decision was taken with regards to such dismissal.

The main amendments to the IRA 1967 which would be of interest would include the following:

  1. ensuring the early resolution of trade disputes between an employer and a trade union by providing for compulsory conciliation within specified time frames and thereafter, by referral to the Industrial Court for adjudication if no settlement is reached.
  2. enhancement of powers of the Industrial Court by allowing the provision of full and adequate compensation where appropriate; and for determination of issues relating to such compensation including, the date from which such compensation should start to run and the awarding of interest where awards of the Industrial Court have not been complied with.
  3. the provision for a special appeal process to challenge an award of Industrial Court by way of direct appeal to the High Court. The previous practice in challenging an Industrial Court award was for a party to apply for an order of judicial review in the High Court to quash the award sought to be challenged. This necessarily required a two stage process of obtaining leave from the High Court to challenge the award before the substantive motion for judicial review could be heard.
  4. the new appeal process is designed to expedite the resolution of challenging Industrial Court awards by a procedure which is similar to appeals in civil proceedings. Hence, the High Court would now be entitled to consider all aspects of the hearing in the Industrial Court in deciding whether to uphold the award. This is unlike the previous practice under a judicial review application where the High Court was limited in its review of the awards to considering whether the traditional grounds of judicial review had been met ie the grounds of ‘illegality, irrationality, impropriety or breach of natural justice’.
  5. it is expected that these amendments will have a significant impact on various aspects of industrial adjudication and the courts at all levels will continue to play a pivotal role in determining the relevant legal principles applicable by virtue of the new amendments.

Recent developments

As a result of the Covid-19 pandemic, the Malaysian Government implemented a ‘Movement Control Order’ (MCO) in early 2020. Since then, two further MCO’s were implemented in 2021 which has resulted in the suspension of business operations in many sectors during that period.

From the initial MCO to date, a total of seven economic stimulus packages have been introduced by the government to mitigate the impact of the pandemic on employment enterprises which include wages subsidy programmes to small and medium size companies for payment of salary to eligible employees.

Further, employment enterprises have found it necessary to reinvent themselves by moving towards leaner organisational structures, reducing financial packages made out to employees (which would need to be with the consent of such employees), placing employees on unpaid leave, adopting digitalisation and reduction of utilisation of physical workspace where possible.

There has also been a noticeable increase in the engagement of independent contractors as employers seek to outsource much of their non-core business processes to leverage on lower labour and operational costs. In some employment enterprises, senior management contracts are being converted into fixed term contracts to save on fringe benefits, foster productivity and import greater flexibility in the engagement and termination process.

The current economic environment has been recognised by the courts when dealing with employment issues which come before it. By way of illustration, the Industrial Court in a recent award did not accede to a request for an increase on bonus and salary adjustment under a collective agreement given the effect of the pandemic on the profitability and sustainability of the employer.

Similarly, to reinforce the issue of security of tenure of employment, the Federal Court has decided that a fixed term contract which has been renewed consecutively would be regarded as permanent employment. This has been extended to employees who work in Malaysia on a work permit, including non-citizens.


Given the fast-evolving landscape arising from these recent developments, it is anticipated that new measures and possibly further amendments to relevant employment statutes would be enacted to meet what has, effectively, been an unprecedented challenge to all parties in the employment sector.