Kate Loo, Legal Manager, JC Corporate Malaysia, brings clarity to the matters on the rights and prerogatives of employers and employees in the two Asian markets.
It is undeniable that Hong Kong had one of the most stringent travel requirements in the past two years due to the COVID-19 pandemic. Now that the borders have reopened and that quarantine is no longer mandatory, there is a steady increase in the trend for local Hong Kong companies looking to establish their presence overseas, particularly in Southeast Asia and more specifically Malaysia, be it the incorporation of a local subsidiary, representative office, or branch. The logistics of doing so can be daunting especially since the entities will be located in different jurisdictions, which means the laws and regulations vary, and consequently, matters pertaining to employment are often overlooked.
Whilst both former British colonies have adopted a common law system, the nitty-gritty on the procedure of governing actions is non-identical. To make matters more perplexing, Malaysia has, over a year ago, passed the Employment (Amendment) Bill 2021 with a view to improve protection offered to employees in Malaysia, thereby enacting the Employment (Amendment) Act 2022 (“EA Amendment”) which came into effect on 1 January 2023. Foreign businesses entering Malaysia may well be confused with the current and upcoming regulations around employment matters, and this article is written with a hope to bring clarity on this matter.
When does the Employment Law apply in Malaysia?
In the absence of a contract of service between an employee and an employer, the rights and prerogative of each employee and employer shall be governed and prescribed under the purview of the relevant employment law, i.e., Employment Act 1955 (“EA 1955”) and its amendments thereof.
This does not necessarily mean that the employer could provide less favourable terms to its employee in the contract of service, as any term which is viewed as less favourable to an employee than a term prescribed by EA 1955 would be considered as void and of no effect (Section 7 of the EA 1955).
Despite that, any entitlement in excess of what have been prescribed by the relevant employment laws are fortunately valid as the government authorities adopts a laissez-faire attitude allowing the employer to do as it sees fit.
Employees under the Purview of the EA 1955
The Employment Ordinance (Cap. 57) (“EO”) applies to most employees in Hong Kong with several exceptions, whilst the EA 1955 originally only covers employees that are gainfully employed in Peninsular Malaysia (employees from all other states such as Sabah and Sarawak shall follow their own legislations, i.e. Sabah Labour Ordinance or Sarawak Labour Ordinance which are substantially similar to EA 1955) who receive monthly salaries of RM2,000 and below (as well as other specified categories of workers). This denotes employees with salaries above RM2,000 per month are unable to rely on the statutory law and can only resort to the terms and conditions set out in their employment contracts.
Providentially, this has recently been revised with the implementation of the Employment (Amendment of First Schedule) Order 2022 on 1 September 2022 whereby the EA 1955 is now applicable to all employees irrespective of wages by virtue of the recent amendment to its expansion of the definition of ‘employee’. However, those earning above RM4,000 per month shall be exempted from certain provisions in the EA 1955, including:
- Section 60(3) – Overtime rates for employees working on rest days
- Section 60A(3) – Overtime rates for work outside of normal working hours
- Section 60C(2A) – Shift work allowance
- Section 60D(3) – Overtime and allowance for work on public holidays
- Section 60D(4) – Overtime for work on holidays on half working days
- Section 60J – Termination, lay-off, and retirement benefits
In Hong Kong, under Section 12 of the EO, a female employee who is employed under a continuous contract of not less than 40 weeks (approximately nine months) immediately before commencement of maternity leave, having given notice to her employer of her pregnancy, is entitled to a continuous period of 14 weeks (approximately 98 days) paid maternity leave or as specified by the terms and conditions of the employer, whichever is more favourable.
Conversely in Malaysia, pursuant to Section 37 of the EA 1955, only a female employee who is employed under a continuous contract of not less than 90 days over the nine months from her confinement period and employed by her existing employer within the four months leading up to the confinement period, is entitled to a continuous period of 60 days paid maternity leave. This shall change upon the enforcement of the EA Amendment by which the entitled maternity leave shall no longer be 60 days but 98 days in Malaysia.
Although the employment laws in Malaysia are late to change, it should be highlighted that even before the EA 1955 was amended to be made applicable to all employees, the overall maternity protection provided under EA 1955 was generous to be made available to every female employee regardless of her wages (Section 44A of the EA 1955).
A breakthrough moment for employment law in Malaysia happened with the new Section 60FA of the EA 1955 following the implementation of the EA Amendment, whereby fathers are entitled to seven days of consecutive paid paternity leave subject to being married to the mother in question, being employed by the same employer for at least 12 months, and having had notified the employer at least 30 days from the expected confinement.
This is not always the case as unlike the EO in Hong Kong, EA 1955 does not confer any paternity leave to fathers with new-born in Malaysia. The EO on the other hand entitles a male employee in Hong Kong who has been continuously employed for a period of not less than 40 weeks (approximately nine months) immediately before the date of commencement of his paternity leave a period of not less than five days of paid paternity leave or as specified by the terms of the employer, whichever is more favourable.
The employment laws in Malaysia are oftentimes portrayed as being more favourable to the employees as opposed to Hong Kong, where the general consensus is that the EO works in the best interest of the employers. This, however, may not be completely true as when EA 1955 is set side by side with the EO, EA 1955 simply requires additional steps in dismissing an employee.
For instance, to dismiss an employee in Malaysia without any legal repercussions on the side of the employer, the employer is required to provide a justified reason as to why he or she is dismissed. The reason given by the employer must be of ‘just cause and excuse’, meaning the employer must provide a valid reason otherwise the employee may lodge an unfair dismissal claim at the Industrial Court (Section 20(1) of the Industrial Relations Act 1967 (“IRA 1967”)) through which the said employee may be entitled to termination benefits and awards which include reinstatement to his/her position, back wages, or both.
In the case of Ireka Construction Berhad v Chantiravathan Subramaniam James  2 ILR 11 (Award No. 245 of 1995), the Industrial Court held that:
"It is a basic principle of industrial jurisprudence that in a dismissal case the employer must produce convincing evidence that the workman committed the offence or offences the workman is alleged to have committed for which he has been dismissed. The burden of proof lies on the employer to prove that he has just cause and excuse for taking the decision to impose the disciplinary measure of dismissal upon the employee. The just cause must be, either a misconduct, negligence or poor performance based on the facts of the case."
This adds additional burden to the employer since the onus is on the employer to prove, on balance of probabilities, ‘just cause and excuse’ at the Industrial Court as opposed to the ex-employee proving that he or she had been dismissed unfairly, noting that the said employee will be the one initiating the claim to the Industrial Court.
‘Just cause and excuse’ itself is not defined in the statute, thus, any valid reasons for dismissal including gross misconduct, negligence, and poor performance on the part of the employee, or redundancy shall suffice, and what exactly constitutes ‘just cause and excuse’ is also dependent on the circumstances of each case.
Aside from special reasons, i.e., gross misconduct, any termination of employee by the employer must be done in a procedurally fair manner by providing the employee sufficient notice as prescribed by Section 12(2) of the EA 1955. An employee may be dismissed by an employer without due notice in the event of misconduct, but the employer is required to conduct an inquiry before dismissing the employee on the grounds of misconduct. Although it is not fatal to disregard the conduct of a domestic inquiry when dismissing an employee with notice upon providing ‘just cause and excuse’, it is always advisable to err on the side of fairness.
Flexible working arrangements
Prior to COVID-19, remote and hybrid working arrangements had not been prevalent in Asia. Now, the Hong Kong government encourages employers to implement flexible working arrangements for employees. The new EA Amendment in Malaysia also provides for flexible working arrangements. This is crucial for the post-pandemic business landscape, with modern work models now becoming more common.
Following the new Section 60P and 60Q of the EA 1955, employees may apply in writing for flexible work arrangements from employers where employers will be given 60 days to respond with a decision, and in cases of rejection, reasons must be given to employees.
In Hong Kong, employees employed under a continuous contract are entitled to a minimum of between seven days and 14 days of annual leave (depending on the length of continuous employment) for each period of 12 months’ employment.
In contrast, employees in Malaysia are entitled to paid annual leave which, like Hong Kong, is also dependent on the length of continuous employment, but ranges from a minimum of between eight days and 16 days.
Also in Malaysia, ‘probation’ is not defined in the EA 1955, thus a probationer enjoys the same rights as a permanent or confirmed employee such as annual leave, holidays, minimum wage etc. as prescribed under the relevant employment laws or the contract of service, as well as the right to lodge an unfair dismissal claim with the Industrial Court pursuant to the IRA 1967.
The Minimum Wage Ordinance (Cap. 608) provides that the statutory minimum wage in Hong Kong shall be HKD40 per hour, whereas the minimum wage stated in Malaysia’s Minimum Wages Order 2022 effective 1 January 2023 will be RM1,500 per month and RM7.21 per hour.
Similar to Hong Kong, Malaysia’s employers and employees are subject to an equivalent of Mandatory Provident Fund (MPF), namely the Employees Provident Fund (EPF), whereby employers are required to contribute at least 12-13% of the employees’ salaries to their EPF savings. This differs from Hong Kong as employers in Hong Kong are required to contribute at least 5% of the employees’ salaries into their respective MPF savings.
Notable Amendments to EA 1955
The working hours will also be revised by reducing from a maximum weekly working hours of 48 hours per week to 45 hours per week.
Aside from what have been discussed above, one of the prominent changes which employers in Malaysia will have to take note is the amendment made to Section 60K of the EA 1955, which covers the employment of foreign workers. Previously, employers who hire foreign employees were merely required to inform the relevant authorities of new foreign employees along with details within 14 days of employment. With the EA Amendment, employers are now required to obtain prior approval in order to hire foreign employees.
Other matters to ponder in Malaysia
Foreign businesses looking to branch out into the Malaysian market shall also take into consideration other laws and regulations, namely:
- Minimum Retirement Age Act 2012
- Immigration Act 1959/63
- Employees Provident Fund Act 1991
- Employment Insurance System Act 2017
- Employees’ Social Security Act 1969
- Income Tax Act 1967
- Pembangunan Sumber Manusia Berhad Act 2001
- Trade Unions Act 1959
- Employment (Termination and Lay-Off Benefits) Regulations 1980
- Employment (Part-time Employees) Regulations 2010, applicable to any part-time employees they intend to employ.
In essence, generally, the employment laws in Malaysia and Hong Kong do not have a substantial discrepancy. Malaysia’s employment laws may be illustrated to be more well-balanced in the eyes of the employees and require scrutiny when it comes to terminating an employee from the perspective of the employers. Nevertheless, foreign employers in Malaysia are advised to be prudent in ensuring compliance with the EA 1955 and the recent amendments.
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