An employment contract in Malaysia is an important agreement for employers to have in the employment context.
This article explains the usual terms to be included including termination clauses, amendments, and resolving disputes from the employment agreement.
Understanding Employment Contracts in Malaysia
An employment contract in Malaysia states the terms and conditions of an employment relationship between employers and employees. It is different from a contract for service in Malaysia, which is for hiring an independent contractor.
All contracts in Malaysia must comply with the laws. In the employment context, the employment act in Malaysia is the Employment Act 1955 (‘Act’).
This Act applies to all employees in Malaysia except for some provisions which do not apply to certain categories of employees. The employers must ensure compliant employment contracts, that is, the contract fulfils the legal requirements to ensure enforceability.
Nature of Employment Agreement
Under Section 10 of the Act, any employment lasting more than 1 month must be in writing. Without a written contract, it breaches the law and confuses parties on the terms and conditions.
There are a few types of employment contracts in Malaysia, with the common ones being permanent, fixed-term, and apprenticeship contracts.
Key Elements of an Employment Contract
Under section 7 of the Act, the terms of employment contracts in Malaysia must be equal to or more favourable than those under the Act.
Usual employment terms in employment contracts include the following:
Parties’ details: The names and identification details of the employer and employee
Employment scope: This includes job title, work duties, and workplace location. Depending on the employment arrangement, some may include key performance indicators (KPI)
Probation period: This is the period where the employer assesses the suitability of the employee for the role. The resignation periods during probation may differ after the probation is confirmed.
Salary structure: An employment agreement also includes basic salary and other payments such as allowance and bonus. It also includes payroll details, such as the wage payment period.
Under the Minimum Wages Order 2022, the minimum wage standards in Malaysia have been increased to RM 1,500 per month, and the employment agreement has to comply with this.
Working schedule: It includes working hours, days, rest days, and if there is any rotation in the schedule.
Employee rights: The other employment terms are employee rights to leave entitlements such as:
Annual leave: Minimum 8 days per calendar year
Public holidays, and
Sick leave: Minimum 14 days per calendar year
7. Contribution: Employers have to ensure compliant workplace by both parties contributing to provident fund and social security under the Employees Social Security Act 1969.
8.Termination Clauses: Usually there are 2 ways for employment termination, that is:
Through notice: It will state the required termination or resignation periods, which may differ depending on years of employment.
There are no minimum notice periods as it depends on the parties’ arrangement. Once they agree on the notice period, one may terminate earlier by paying compensation/early termination penalties.
Breach of terms: Both employers and employees can also terminate the employment agreement when either party breaches the main terms of the contract such as misconduct or non-payment of wages.
9. Confidentiality clause: Some labour contracts may include this to prevent disclosure of confidential information by the employees and this clause is commonly found in non-disclosure agreements in Malaysia
Although the above terms are common in a robust employment agreement, copying all the terms and conditions from an employment contract sample in Malaysia is not advisable.
Ultimately, it is up to the employers to ensure compliant contracts to ensure they are legally binding.
After the employment contract is signed, both employers and employees can modify and amend it in Malaysia by ensuring those amendments are written down.
Resolving Contract Disputes
Both parties, employers and employees can resolve their differences by negotiation. For example, if there is any mass termination, they can agree on a voluntary separation scheme and the minimum severance payments that are acceptable for both parties.
If the discussion fails, they can enforce their rights through different ways, such as tribunals and court proceedings in Jabatan Tenaga Kerja, Industrial Court of Malaysia, and civil courts, to seek compensation.
Conclusion
An employment contract Malaysia should contain terms that suit the parties’ arrangements and also comply with the law. If you need any help or looking for a law firm in Kuala Lumpur for this, do contact us and we will assist you.
Frequently Asked Questions
1. What is an employment contract in Malaysia?
An employment contract in Malaysia states the employment relationship between employers and employees. It contains clauses like employment scope, salary structure, working schedule, and termination clauses.
2. What is the difference between employee and contract worker in Malaysia?
The difference is that for contract workers, it is a fixed-term contract starting when the employment will end. However, for usual employees, the ending date is determined by the parties giving the required termination or resignation periods according to the termination clauses.
3. How do I terminate my employment contract in Malaysia?
You can terminate an employment contract Malaysia by giving the required resignation periods according to the employment contract or paying the required compensation in place of.
4. What is the notice period in Malaysia?
It depends on the arrangements between employers and employees. If there is no arrangement, then it depends on the years of employment, with the notice period for employment less than 2 years being 4 weeks.
