Industrial Relations (Amendment) Act 2020
The Industrial Relations (Amendment) Act 2020 introduced several amendments to the Industrial Relations Act 1967, most of which came into effect on 1 January 2021.
The following are some of the key amendments that came into effect:
Service Charges Are Excluded from the Computation of Minimum Wages
In March 2021, the Federal Court finally answered the question as to whether service charge received by hotels can be used to supplement the monthly salaries paid to hotel workers, to meet the statutory minimum wage.
In the case of Crystal Crown Hotel & Resort Sdn Bhd (Crystal Crown Hotel Petaling Jaya) v Kesatuan Kebangsaan Pekerja-Pekerja Hotel, Bar & Restoran Semenanjung Malaysia  MLJU 385, the Federal Court held that the hotel may not use the service charge paid by its customers to fulfil the minimum wage requirement. The Federal Court held that the purpose of the minimum wage legislation is to increase the basic wages of workers. For that purpose, service charges do not form part of the “basic wages”, and therefore cannot be included in the calculation of minimum wages paid to the employees.
Pembangunan Sumber Manusia Berhad Act 2001
The Pembangunan Sumber Manusia Berhad Act 2001 was amended in March 2021, expanding the types of businesses required to pay into the Human Resources Development Fund (HRDF) to 48 new industries.
The amendment streamlined Malaysian companies' eligibility criteria across all industries, resulting in all industries being covered by HRDF training except for the federal and state governments, as well as NGOs involved in social welfare activities.
Extension of SOCSO and EIS to Domestic Workers
The Social Security Organisation (SOCSO) and Employment Insurance System (EIS), vide gazetted orders, have extended their coverage to include domestic workers, with effect from 1 June 2021.
On 23 October 2020, the Malaysian government gazetted the Temporary Measures for Reducing the Impact of the Coronavirus Disease 2019 (COVID-19) Act 2020 (COVID-19 Act). The purpose of the Act was to provide temporary measures to ease the impact of COVID-19 on various sectors and industries in Malaysia. However, the COVID-19 Act has had limited employment-related repercussions. In this regard, only Sections 39 and 40 of the COVID-19 Act provide for the extension of limitation periods under the Industrial Relations Act 1967. Only the period from 18 March 2020 to 9 June 2020 is excluded from the computation of the statutory limitation periods, specifically:
The subsequent extensions of the operations of the COVID-19 Act was not applicable to the foregoing sections.
The government of Malaysia rolled out financial relief in stages to employers who have met the requirements. These reliefs are only temporary in nature and are of a one-off nature. The current applicable reliefs are:
Employees in Malaysia are broadly separated into two categories: employees protected by the Employment Act 1955, and employees outside the purview of Employment Act 1955.
Generally speaking, the provisions of the Employment Act 1955 apply to all employees in Peninsular Malaysia whose monthly wages do not exceed MYR2,000 (approximately USD470). The Employment Act 1955 does not apply to Sabah and Sarawak, where there are separate employment ordinances.
Employees under the purview of Employment Act 1955 are entitled to the minimum standards of legal protections as set out under the said Act, whereas for employees outside the scope of the said Act, their terms of employment are governed by their individual employment contracts or any applicable collective agreement.
Insofar as employment laws are concerned, legal protection in Malaysia does not distinguish between “blue-collar” and “white-collar” workers. Nonetheless, employees who are engaged in manual labour or direct supervision of the same, automatically fall under the purview of the Employment Act 1955, irrespective of the quantum of their wages. Other categories of employees who are protected by the Employment Act 1955 include those who are engaged in the operation or maintenance of any mechanically propelled vehicle, engaged in any capacity in any vessel registered in Malaysia, or engaged as domestic servants.
For foreign workers, depending on their skills, different work permits will be issued by the Immigration Department of Malaysia. The government draws a distinction between:
In Malaysia, employers may engage workers under two main types of contract:
For engagement made under items contracts of service, the workers are recognised as “employees” who are protected by the labour and employment laws of Malaysia – such as protection against unfair dismissal – whereas engagement under contracts for services is considered as non-employment (ie, those involved have independent contractor status) and the relationship is purely contractual.
For employment contracts, the different arrangements which may be entered into include:
There is no legal requirement that employment contracts must be in writing in order to be valid. There are also no specific formalities that are required by the law to formalise an employment contract. In fact, the Employment Act 1955 recognises “any agreement whether oral or in writing and whether express or implied, whereby one person agrees to employ another as an employee and that other agrees to serve his employer as an employee”. The exception to the foregoing is Section 10 of the Employment Act 1955, which provides for the requirement of an employment contract to be in writing where it is for a fixed term or for a specific piece of work that lasts for a specific period exceeding a month.
Nonetheless, as best practice and for practical reasons, employment contracts are generally in writing. Salient terms of employment that are included in the employment contract include:
For employees under the purview of the Employment Act 1955, Section 60A (1) of the Act provides that an employee shall not be required to work:
For employees outside the purview of the Employment Act 1955, the hours of work will be determined by the contract of employment and there is no legal regulation of the same.
The Employment (Limitation of Overtime Work) Regulations 1980 limits the total hours of overtime to be of 104 hours in a month. The Employment Act 1955 prescribes that the minimum rate of pay for overtime work is 150% of the hourly rate of pay.
For employees outside the purview of the Employment Act 1955, there are no specific regulations on overtime work.
Minimum Wage Requirements
Section 23 of the National Wages Consultative Council Act 2011 grants power to the Minister to gazette minimum wages orders to prescribe for the minimum wages for a given time.
At the time of writing, the order in effect is the Minimum Wages Order 2020, which came into force from 1 February 2020. Pursuant to the Minimum Wages Order 2020, the minimum wage for areas under the categories of City Council or Municipal Council are MYR1,200 per month, whereas for the remaining parts of Malaysia, the minimum wage is MYR1,100 per month.
It is worth noting that failure to pay the minimum wage constitutes an offence under the National Wages Consultative Council Act 2011. On conviction, the employer shall be liable to a fine of not more than MYR10,000 for each employee.
Bonuses and 13th Month Pay
Payment of bonuses, or “13th month pay”, to employees is not mandated by the law or policy, unless the same are provided for as a term of employment. It is common for employers to grant a discretionary bonus to employees, where payment of the same is subject to, inter alia, the employees’ individual performance and the business’s overall performance.
Similar to bonuses, there is no law or policy mandating any form or scale of increment of salaries of employees. Unless the same is provided for as a term of employment in the individual employment contract, increments are generally granted on a discretionary basis and are not considered as an “as of right” entitlement of the employees. However, where there is a collective agreement in place, it will often provide for mandatory salary increments.
Employment Act Leave
The Employment Act 1955 provides for the minimum requirements for several leave entitlements, as follows.
Section 60E of the said Act provides for the minimum number of days of annual leave, depending on the length of service of each employee, as follows:
Section 60F of the Employment Act 1955 provides that where it is certified by a registered medical practitioner, employees are entitled to the following minimum number of days of sick leave in each calendar year:
Where hospitalisation is necessary, an employee shall be entitled to 60 days of sick leave in the aggregate in each calendar year
Section 60D of the Employment Act 1955 provides that employees shall be entitled to a total of 11 days of gazetted public holidays per calendar year, of which five days shall be:
On top of that, employees shall also be entitled to any day declared as a public holiday under Section 8 of the Holidays Act 1951.
The foregoing are only applicable to employees who are under the purview of the Employment Act 1955 and they are merely the minimum standards set by the law. There is nothing in law preventing employers from providing terms or benefits that are more favourable than the foregoing standards.
For those who do not fall within the scope of Employment Act 1955, their leave entitlements would be dependent upon their contractual terms.
Maternity leave and other familial leave
Maternity protection is provided for under Part IX of the Employment Act 1955, where under Section 37 of the said Act, every female employee shall be entitled to maternity leave for a period of not less than 60 consecutive days. It is worth noting that despite being provided for by the Employment Act 1955, this part of the Act extends to all female employees irrespective of whether they fall under the purview of the Employment Act 1955.
Other types of familial leave – such as parental, child-care and adoption leave – are not mandated by the law, and are relatively uncommon in Malaysia. Similarly, paternity leave is not mandated by law and is not common in Malaysia.
Implied Terms of Employment
Apart from the express terms and conditions that are provided for in the contract of employment, the common law also imposes various implied terms of employment into an employment relationship.
The relationship between employer and employee has been described as a relationship of master and servant, where there is an implied duty to maintain the mutual trust and confidence between the employer and the employee. This is also described as the duty of fidelity, which requires the employee to faithfully serve the employer and provides that the former must not act against the interests of the employer.
Examples of these duties include a duty on the employee to protect the confidential information and trade secrets of the employer and a duty to not damage the reputation of the employer. In fact, the courts have repeatedly upheld the principle that any breach of mutual trust and confidence as well as the good faith obligation, which is likely to damage the reputation of the employer, may constitute gross misconduct and will lead to disciplinary action up to and including dismissal.
As a general rule, non-compete clauses in any agreements, including employment agreements, are not enforceable in Malaysia. This is because, unlike other jurisdictions, Section 28 of the Contracts Act 1950 provides that any agreement to restraint the exercise of a lawful profession, trade, or business of any kind, is void under the law. The purpose of this section is to promote free trade and the free movement of labour.
Pursuant to Section 28 of the Contracts Act 1950, the common law test of reasonableness does not apply in Malaysia. Similarly, the courts have no discretion but to declare a non-compete clause void and unenforceable. Nonetheless, in practice, this clause is often included in employment contracts for deterrent purposes.
However, where it relates to the protection of confidential information, the employee will still be bound by any confidentiality provisions stated in their employment contract. Even in absence of any confidentiality provisions, there is also an implied duty of confidentiality imposed on the employee. The duty of confidentiality extends beyond the employment – ie, the employee is still obliged to keep confidential the confidential information and trade secrets to which they was exposed in the course of their employment.
Non-solicitation of Customers/Business Relations
These clauses are in principle valid and protected under the confidentiality law. Therefore, such a clause would be enforceable if the employer is able to prove that the customers or business-related information are the confidential information of the business. The duty of confidentiality extends perpetually until such information becomes available in the public domain.
In practice, however, it may be difficult for the employer to prove that such customers or business information are the confidential information of the company, or that such information has been misappropriated by the ex-employee during the course of their employment, and subsequently divulged by the ex-employee to the company's competitor. Nonetheless, such clauses may have a deterrent effect on the employee.
Non-solicitation of Employees (Non-poaching)
Generally, this is not enforceable as employees are not protected as "confidential information" of the employer. Nonetheless, in practice, this clause is often included in employment contract for deterrent purposes.
The main legislation governing the protection of personal data in Malaysia is the Personal Data Protection Act 2010 (PDPA). The PDPA imposes certain obligations on data users in processing the personal data of data subjects. In the context of employment law, employers are usually the “data users”, whereas the employees whose personal data will be processed represent the “data subjects”.
Under the PDPA, employers must obtain the consent of their employees prior to collecting and processing their personal data. Where “sensitive personal data” is involved, explicit consent should be obtained.
The employees must be provided with a personal data notice that is issued in both English and the Malay language. Essentially, in the notice, employees must be notified on the nature and purpose of the collection of their personal data, to whom it will be disclosed, and that the employee has a right to access and correct their personal data.
In terms of managing the personal data, the employer shall take practical steps to protect the personal data from any loss, misuse, modification, unauthorised or accidental access or disclosure, alteration or destruction. There is also a duty on the employer to take reasonable steps to ensure that the personal data is accurate, complete, not misleading and kept up to date (having regard to the purpose for which the personal data was collected and further processed).
The PDPA also provides that the personal data shall not be retained for a period longer than is necessary for the fulfilment of the purpose of its collection, and shall be permanently destroyed or deleted if it is no longer required. In this regard, employers should be mindful in relation to retaining the personal data of employees after the cessation of employment. Nonetheless, employers should also bear in mind that Section 61 of the Employment Act 1955 provides that there is a duty on the employers to retain the register of employees’ information for a period of at least six years.
Failure to comply with the PDPA 2010 constitutes an offence which, on conviction, is punishable by a fine not exceeding RM300,000 or imprisonment for a term not exceeding two years, or both.
Foreign workers are only allowed to work in certain sectors in Malaysia. These include manufacturing, construction, plantation, agriculture and services.
Apart from the above, it should be noted that foreign workers are only permitted to work for one employer and to be stationed at one work location, as per the name and address of the employer on their respective work passes. Employers are not entitled to assign these foreign workers to any subcontractor, party, or sector other than those specified on their work passes.
The type of work permit issued by the government depends on the skill of the foreign applicant, as well as the remaining quota for that sector. It is a requirement for employers to apply for and obtain approval from the relevant government agencies prior to hiring foreign workers.
There are three types of employment permits for which foreign workers can apply in Malaysia, and the differences between each of these passes are summarised below.
Employment passes (EP)
The EP is a work permit that allows an expatriate to work under a contract of service for a Malaysian company and is further classified into three categories, depending on the expatriates’ positions and salaries.
The employer has to request approval to hire the applicant through the expatriate committee (EC) or another authorised approval agency. This is referred to as applying for an expatriate post. Once the expatriate post application is approved, the employer must submit the employment pass application at the Immigration Department of Malaysia.
Temporary employment passes (TEP)
The TEP is issued to semi-skilled or unskilled workers in certain approved sectors. There are two categories of TEP, those for:
Professional visit pass (PVP)
Foreign talents with acceptable professional qualifications or skills are issued a PVP. The PVP is different from the other types of Malaysian work permits because such an individual would not actually be employed by a Malaysian company or organisation.
Under Article 10 of the Federal Constitution of Malaysia and Section 4 of the Industrial Relations Act 1967, all workers or employers in Malaysia have the right to form or join trade unions and to participate in their lawful activities.
Malaysia has several active workers’ trade unions, the largest of which are the Malaysian Trade Union Congress (MTUC), the National Union of the Teaching Profession (NUTP), the National Union of Plantation Workers (NUPW) and the National Union of Bank Employees (NUBE).
A trade union is defined under the Trade Union Act 1959 as any association of workmen or employers within particular or similar establishments, trades, occupations or industries with one or more of the following objectives:
Once a trade union is established, Section 8 of the Trade Union Act 1959 requires any organisation that meets the requirements to apply for union registration within one month of its establishment. The Registrar of Trade Unions may extend this period at their discretion, but such extension may not exceed six months.
The process of registration of trade unions is provided for in Section 10 of the Trade Union Act 1959. The following steps are to be taken in order to form and register a trade union:
In these circumstances, Section 12 of the Trade Union Act 1959 empowers the Director General to register the Trade Union. After registering a trade union under Section 12, the Director General shall issue the trade union a certificate of registration in the prescribed form, and that certificate, unless proven to have been cancelled or withdrawn, shall be conclusive evidence for all purposes that the trade union has been duly registered under the Act. It should also be noted that, according to Section 59 of the Trade Union Act 1959, a union is prohibited from engaging in any activity until the Director General issues a registration certificate.
Notwithstanding the foregoing, Section 12 also gives the Director General the authority to refuse to register a trade union for one of the following reasons:
The Industrial Relations Act 1967 (IRA 1967) defines a “collective agreement” as an agreement in writing concluded between an employer or a trade union of employers on the one hand, and a trade union of workmen on the other, on matters relating to the terms and conditions of employment and work of workmen or concerning relations between such parties; whereas “collective bargaining” is defined as “negotiating with a view to the conclusion of a collective agreement”.
The steps taken to enter into collective bargaining and form a collective agreement are summarised below.
The process by which an employee trade union seeks official acceptance from the employer to act on behalf of the employees who fall under the scope of its representation is known as “Union Recognition”. The aim of securing such “Union Recognition” is to enable the trade union of employees to act on their behalf and commence collective bargaining. Without an order of recognition, the trade union has no locus standi to represent the employees within the scope of its representation for the purposes of collective bargaining.
Invitation to Commence Collective Bargaining
Once a trade union is recognised by an employer, Section 13 of the IRA 1967 provides that the trade union would have the automatic right to enter into contract negotiations as a principal with the employer on the terms and conditions of employment to be contained in a collective agreement. In these situations:
This invitation must be in writing and must include the proposals for a collective agreement. Upon receipt of such invitation, the invitee must respond in writing (to the inviter) within 14 days, indicating acceptance or rejection of the invitation. The collective bargaining must commence within 30 days of the receipt of the acceptance.
If an invitation is rejected or is not accepted within 14 days, or if collective bargaining does not commence within 30 days, the inviter may file a formal complaint with the Director General. The Director General has the authority to compel parties to commence collective bargaining. If collective bargaining does not take place, a trade dispute is deemed to exist.
Once collective bargaining has commenced, the parties must negotiate the provisions that will be included in the collective agreement. In this respect, any proposals or counter-proposals from either party must be in writing and the ultimate outcome of a successful negotiation is the collective agreement.
Malaysia does not recognise “at will employment” – ie, employers cannot simply terminate an employee for any reason. Termination of an employee’s services can only be carried out provided that it is justified, done in good faith, and done in a fair and reasonable manner. This principle is reflected in the Industrial Relations Act 1967, where Section 20 of the Act provides that where a dismissal was done “without just cause or excuse”, the employee would have the right to file an unfair dismissal representation to the Director General of Industrial Relations.
Under the common law, the grounds for termination which are accepted as “just cause or excuse” include:
Depending on the grounds of dismissal, different procedures ought to be adopted to ensure procedural fairness.
For a dismissal on the grounds of misconduct, due inquiry ought to be conducted before determining the guilt of the employee. In fact, Section 14 of the Employment Act 1955 also requires that due inquiry be conducted before disciplinary action (including termination) can be taken against the employee. A domestic inquiry is not a legal requirement when enquiring into an allegation of misconduct of an employee – what is required is that the employee is accorded the opportunity to explain, for example, by way of a show cause letter.
For a dismissal due to poor performance, the employee must first be warned about their poor performance and be given sufficient opportunity to improve. This can be done by way of a performance improvement plan. If the employee does not show the expected improvement within the stipulated time, the employer can then proceed with the dismissal.
For redundancies, the Code of Conduct for Industrial Harmony provides guidance on conducting a retrenchment exercise. Nonetheless, the courts have repeatedly held that the provisions of the Code do not have the force of law. Therefore, departure from the same does not necessarily mean that the retrenchment is unfair. Once it is established that there is a redundancy situation, the next step is the selection of employees to be retrenched. Under Section 60N of the Employment Act 1955, foreign employees must be retrenched first before retrenching Malaysian employees. Thereafter, the default selection is based on the principle of “last in, first out” (LIFO), but the employer may depart from the LIFO principle by using its own selection criteria, as long as the same can be shown to be fair and reasonable.
For a collective dismissal, it is recommended that the employer should give a warning as early as practicable. Where the employees are represented by a trade union, the employer is advised to consult with the union and ensure that they comply with any applicable collective agreement. The employer may also offer mutual or voluntary separation schemes to the employees for amicable departure of the employees.
It is compulsory for an employer to submit a report on retrenchment to the Department of Labour office Malaysia in the relevant form. Under Section 63 of the Employment Act 1955, failure to do so will constitute an offence and the employer shall be liable to a fine of MYR10,000.
There is no statutory prescribed notice period. Employers and employees are free to agree upon the length of any notice period to be binding on both parties. In the absence of any agreed notice period in writing, Section 12 of the Employment Act 1955 provides for the minimum notice periods, which are:
The agreed notice period should be put in writing as a term of employment as a matter of best practice. Generally, the term of notice period is also accompanied by the agreement between parties to accept salary in lieu of such notice period.
Summary dismissal is an action of immediate dismissal where the employer does not give the employee any notice of termination or salary in lieu of notice. This can only be done in the event that the employee has committed gross misconduct.
There is no statutory definition of gross misconduct, but, generally, it can be understood as actions or behaviour that are so serious in undermining the mutual trust and confidence between the employer and employee, that they justify the punishment of instant dismissal.
Prior to carrying out a summary dismissal, the employer should first conduct investigations into the matter, and thereafter due inquiry into the allegation of such gross misconduct. As explained in 7.1 Grounds for Termination, domestic inquiry is not mandated by law. However, the employee must be given a chance to respond before the decision to dismiss them is made.
Where the employer is of the view that the presence of the employee at the workplace would hamper or prevent any investigations, the employee may be suspended.
When the employee is asked to provide their response to the allegation(s), whether by way of issuing a show cause letter or a domestic inquiry, the employee must be made aware of the nature of allegations against them. The employee should also be given reasonable time to respond to the charge(s).
If the employer is unsatisfied with the employee’s explanation, and after taking all circumstances into account, reasonably believes that the employee is guilty of a gross misconduct, the employer should then decide whether the gravity of the misconduct justifies a summary dismissal. If in the affirmative, the employer should issue a written letter of dismissal to the employee. The reason for dismissal should be made known to the employee.
Failure to adopt a fair dismissal procedure could expose the employer to potential liabilities. If the employee believes that they have been terminated without just cause or excuse, they can file a complaint with the Industrial Relations Department under Section 20 of Industrial Relations Act 1967 seeking the remedy of reinstatement and back wages of up to 24 months (or up to 12 months for probationers).
As discussed in 7.1 Grounds for Termination, there is no “termination at will” in Malaysia. All termination must only be carried out with just cause and excuse.
However, employers can offer mutual separation schemes (MSS) or voluntary separation schemes (VSS) to their employees, which involve the parties voluntarily bringing the employment relationship to an end by entering into an MSS or VSS agreement.
A VSS is a mechanism where the employer offers its employees the choice to terminate the contract of service voluntarily. The VSS offer is generally accompanied by a compensation package offered by the company.
On the other hand, an MSS is a mechanism where the employer identifies the particular employees to whom to extend such offer of separation. Generally, the employer and employee can negotiate the compensation package of the MSS and the employee can then decide whether to accept or reject that offer.
The fundamental element of a mutual/voluntary separation is that the employer agrees to a monetary payment in exchange for the employee agreeing to voluntarily resign. The agreement, however, must be entered into voluntarily and not through use of force, subtle or otherwise, or by coercion or under duress in any form or by any unfair labour practice. In this regard, if the court determines that one of the aforementioned elements was present in the formation of the agreement, the court may hold that this was, in fact, a dismissal and the employer would be obliged to show just cause or excuse.
Section 37(4) of the Employment Act 1955 provides that a female employee shall not be terminated during the period in which she is entitled to maternity leave except on the grounds of closure of the employer’s business.
Section 5(1)(d) of the Industrial Relations Act 1967 provides that employers shall not dismiss or threaten to dismiss an employee by reason that they propose to become or persuade others to become involved in a trade union or participate in the formation, promotion or activities of a trade union.
An employee who considers themselves to have been dismissed without just cause and excuse has the right to file a representation to the Director General of Industrial Relations, who would subsequently take steps to resolve the dispute amicably. If the parties are unable to reach a settlement, then the Director General of Industrial Relations shall refer the representation to the Industrial Court for adjudication.
Where an employer is unable to prove “just cause and excuse” for a dismissal, such dismissal will be deemed as “unfair”. In such circumstance, the Industrial Court may grant the following remedies to the employee.
However, where an employee chooses to file their claim for breach of employment contract before the civil courts, the common law provides that the damages that the employee is entitled to are limited to the wages due during the notice period. An employee is not entitled to damages for loss of earnings or injured feelings. This is set out in the case of Fung Keong Rubber Manufacturing (M) Sdn Bhd v Lee Eng Kiat & Ors  1 MLJ 238.
Article 8 of the Federal Constitution prohibits any form of discrimination against citizens on the grounds of religion, race, descent, place of birth or gender. Notwithstanding the foregoing, the Federal Court, in the case of Beatrice AT Fernandez v Sistem Penerbangan Malaysia & Anor  3 MLJ 681, held that Article 8 of the Federal Constitution only applies to the legislature, government authorities and Parliament, and does not extend to the private employment sector.
In this regard, employees in the private sector may rely on the following provisions, which prohibit workplace discrimination.
Aside from the above provisions, employees may also pursue civil tortious claims for unfair discrimination. The following elements must be present for an employee to claim unfair discrimination under the scope of this tort.
The burden of proof for tortious claims for unfair discrimination, like other civils claims, is on the balance of probabilities, and legal remedies for this claim are often pecuniary damages to be paid to the victim as compensation for loss or injury.
The Industrial Court is a statutory tribunal that was created to hear matters relating to the Industrial Relations Act 1967, such as unfair dismissal claims, trade disputes or trade union recognition. Generally, all employees (excluding independent contractors) are eligible to file their claim before the Industrial Court.
Section 27 of the Industrial Relations Act 1967 provides for representation before the Industrial Court. Briefly, parties may represent themselves by appearing personally (or in the case of an employer, any duly authorised officer of the company), be represented by their trade union representative or by a lawyer.
The Labour Court is established to hear any dispute or claim relating to the provisions of the Employment Act 1955 and its regulations, as well as certain contractual claims.
The Labour Court only has the power to hear complaints from two categories of workers:
An arbitration clause is rarely seen in employment contracts, but in the presence of any, the same will be enforceable and there is nothing to stop parties from arbitrating employment-related disputes.
Nonetheless, as the amount involved in employment disputes is generally quite low in comparison to the costs of an arbitration, arbitrations are not the usual choice of forum to resolve employment-related disputes as the costs do not justify the quantum claimed.
On the other hand, mediation is a more common ADR process to resolve employment-related disputes. This is because the Industrial Court also plays a relatively active role in encouraging/assisting parties in mediation in order to resolve their dispute.
Costs are not awarded at the Industrial Court. Each party will bear their own legal fees, irrespective of whether they win or lose the case.
On the other hand, it is common for costs to be awarded to the winning party by civil courts. Nonetheless, the costs awarded are determined by the court and most of the time, will not cover all legal fees.
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Legal Issues Concerning Employment Management in Malaysia
COVID-19 has ravaged many businesses across the globe. Businesses have had to resort to downsizing and/or retrenchment exercises to stay afloat. Whilst this option may resolve immediate financial problems for many, failure to manage departures of personnel may present mid and long-term issues for businesses seeking to recover.
In this regard, it goes without saying that trade secrets and goodwill are key components of any sustainable enterprise. When employees leave, it is inevitable that they will take with them trade secrets to which they were exposed during the course of their employment.
Therefore, businesses must be mindful and implement proper policies to protect the loss of their trade secrets, and to prevent and/or manage leakages by former and/or current employees in three key areas of law:
Duty of confidentiality owed by employees to their employers/former employers
The duty of confidentiality between an employer and employee is clearly set out in the case of Faccenda Chicken v Fowler which has been adopted and applied extensively by the Malaysian courts. The relevant principles in summary are as follows.
In light of the above-mentioned principles, employers who have in their contract of employment clauses restricting disclosure of confidential information can rely on such clauses to bring an action in the event there is a breach of such a contractual term by their ex-employee. If there is none, employers can still be assured that confidential information belonging to the company which is of a sufficiently confidential nature so as to amount to a trade secret is protected. However, if there is any confidential information that does not amount to a trade secret but which the employer does not wish to be disclosed after the termination of employment, this has to be expressly provided for in the contract of employment. Otherwise, the employer will have no recourse in that regard.
It should be noted that use by an employee of personal knowledge and experience accumulated over the years of employment is not a breach of confidentiality. Furthermore, the fact that an ex-employee does business with customers of the former employer or sets up a competing business is not wrong legally, save where such competition is pursued by wrongful utilisation of confidential information.
Dismissal of employee for breach of confidentiality
It is settled law in Malaysia that employers must have "just cause and excuse" in order to terminate the employment of an employee. A few causes that justify termination of an employee include:
An employee’s breach of express confidentiality obligations or their implied duty of fidelity amounts to misconduct and would give rise to just cause and excuse for an employer to terminate their employment.
However, besides having just cause and excuse for the termination, employers have to also ensure that any termination be procedurally fair. Otherwise, the employee will be able to challenge the dismissal under Section 20 of the Industrial Courts Act 1967. In this regard, employers ought to clearly stipulate the reason for termination in the termination letter and comply with the company’s dismissal procedure if there is one. Furthermore, while an inquiry is not mandatory to demonstrate that a dismissal was done fairly, it is advisable that employers give employees a reasonable amount of time to respond to any allegations of misconduct against them and conduct an inquiry into the allegations before making the decision to terminate.
It should be noted that should employees succeed in proving that a dismissal was unfair, the Industrial Court can order the employee to be reinstated (or award compensation if reinstatement is inappropriate) as well as order the employer to pay back wages of up to 24 months.
After the departure of employees, it is common for business owners to find their confidential information and/or trade secrets to have been leaked during the course of the employment and thus abused in the form of a competing business.
In such situations, intellectual property laws are applicable to provide protection and relief to business owners who have suffered damages due to leaked confidential information and/or trade secrets abused by their former employees.
To establish an action for breach of confidence, the celebrated case of Coco v AN Clark (Engineers) Ltd – cited with approval in the Malaysian Federal Court case of Dynacast (Melaka) Sdn Bhd & Ors v Vision Cast Sdn Bhd & Anor – is instructive.
The Coco Case ruled that the three key elements for a successful claim based on breach of confidence are:
Pending the disposal of the action, business owners may apply for an injunction on an urgent basis to restrain former employees from making use of the leaked confidential information and/or trade secret. In the case of Keet Gerald Francis Noel John v Mohd Noor bin Abdullah & Ors, the court ruled the following elements would be considered in deciding whether to grant an ex-parte injunction pending the disposal of the action:
In the event business owners are successful in establishing an action for breach of confidence, the court may grant the following reliefs:
Another angle for business owners to consider to is to engage protection accorded to sensitive information by data privacy laws, including the Personal Data Protection Act 2010 (PDPA 2010) in Malaysia.
Malaysia – the offence of unlawfully collecting or disclosing personal data
The PDPA 2010, which was introduced by the Malaysian government to regulate the processing of personal data in commercial transactions and protect the personal data involved therein from being misused, provides for the offence of unlawfully collecting personal data in Section 130 thereof. Several defences are available under Section 130(2) of the PDPA 2010, including when it is necessary to prevent or detect a crime or when it is required under any law or by order of a court.
Pursuant to Section 130 of the PDPA, any person (eg, an employee or former employee) who, without the consent of the data user (eg, an employer or former employer), collects or discloses personal data held by the data user or procures the disclosure of personal data commits an offence and may be subject to criminal prosecution.
Section 130(1) of the PDPA 2010 states as follows:
“130. Unlawful collecting, etc., of personal data
(3) A person who collects or discloses personal data or procures the disclosure of personal data in contravention of subsection (1) commits an offence.”
Enforcement action by the Malaysian data protection watchdog?
In Malaysia, there has not been any enforcement action by the Personal Data Protection Commissioner by virtue of Section 130 against employees who misappropriate their employers’ confidential information which falls within the definition of “personal data” under the PDPA 2010.
Nevertheless, as expounded below, Section 55(1) of the then Data Protection Act 1998 of the United Kingdom (now Section 170 of the Data Protection Act 2018 (DPA 2018)) provides for the offence of unlawfully obtaining or disclosing personal data, and its wordings are in pari materia with Section 130(1) of the Malaysian PDPA 2010.
UK – the offence of unlawfully obtaining or disclosing personal data
By virtue of Section 55 of the then DPA 1998, subject to several defences as outlined in Subsection 2, it is a criminal offence for any person (eg, an employee or former employee) to knowingly or recklessly obtain or disclose personal data without the permission of the data controller (eg, an employer or former employer).
Section 55(1) of the then DPA 1998 provides as follows:
“55 Unlawful obtaining etc. of personal data
(1) A person must not knowingly or recklessly, without the consent of the data controller—
(a) obtain or disclose personal data or the information contained in personal data, or
(b) procure the disclosure to another person of the information contained in personal data.
(3) A person who contravenes subsection (1) is guilty of an offence.”
The DPA 1998 was later superseded by the DPA 2018, which encapsulates a similar offence as Section 55 of the DPA 1998 in Section 170 thereof, albeit with a wider scope to cover the offence of knowingly or recklessly retaining personal data (which may have been lawfully obtained) without the consent of the data controller. In particular, Section 170(1) of the DPA 2018 reads as follows:
“170 Unlawful obtaining etc of personal data
(1) It is an offence for a person knowingly or recklessly—
(a) to obtain or disclose personal data without the consent of the controller,
(b) to procure the disclosure of personal data to another person without the consent of the controller, or
(c) after obtaining personal data, to retain it without the consent of the person who was the controller in relation to the personal data when it was obtained.”
Enforcement action by the UK data protection watchdog
The successful prosecution brought by the United Kingdom data protection watchdog, the Information Commissioner’s Office, pursuant to Section 55 of the then DPA 1998 demonstrates that criminal liability may be imposed on an employee who has misappropriated confidential information relating to their employer’s or former employer’s customers.
The salient facts of the aforesaid enforcement action are as follows. Mr Mark Lloyd worked at a waste management company in Shropshire. As he was leaving to start a new role at a rival company, Lloyd sent the details of 957 clients by way of email to his personal email address. The documents in question encompassed the contact details and purchase histories of customers as well as commercially sensitive information.
Mr Lloyd pleaded guilty to Section 55 of the then DPA 1998, and was fined GBP300, ordered to pay GBP405.98 costs and a victim surcharge of GBP30.
While the offence is only punishable by way of a fine under the then UK DPA 1998, Section 130 of the PDPA 2010 carries grave penalties: a fine not exceeding MYR500,000 or imprisonment for a term not exceeding three years or both.
Looking at the successful prosecution of Mark Lloyd in the United Kingdom, employees are reminded that collecting or disclosing personal information pertaining to their employers’ customers without the consent of such employers may give rise to criminal prosecution in Malaysia.
An ounce of prevention is worth a pound of cure
In order to enhance the protection of confidential information and prevent misappropriation of valuable corporate information by employees or former employees, employers may consider adopting express non-disclosure and confidentiality provisions in their contracts of employment, which, inter alia, outline the employees’ duty of confidence, the types of information that continues as confidential information even after termination of the employees’ employment and the penalty in case of any breach of these provisions.
Furthermore, employers should also comply with their obligation under the security principle as embodied in the PDPA 2010 and protect the personal data (including confidential information), collected from any misuse and/or unauthorised access by their employees or former employees, by considering implementing the following precautionary steps as set out in the Personal Data Protection Standard 2015.
Given the above, it would be prudent for employers to seek legal advice and assistance in crafting internal training programmes as they endeavour to provide confidentiality awareness training to their employees so as to (i) emphasise the importance of safeguarding the confidentiality of certain information, and (ii) highlight the duty of confidence imposed on employees and their data protection compliance obligations as well as their potential criminal liability under Section 130 of the PDPA 2010 if such duty or obligation is breached.
In the event of a breach of confidence by existing and/or former employees, there are many ways in which business owners may seek relief. Thus, it is best to involve lawyers in the early stages of any dispute so that the best possible strategy can be formulated to protect the business.