As Malaysia begins to recover from the COVID-19 pandemic, it is now faced with another potentially disruptive phenomenon – The Great Resignation.
At the time of writing, this resignation tsunami seems to have gained more traction in the west. However, countries in the Asia Pacific region have started to feel its ripple effects with projects from western countries being transferred to the east to fill the exodus.
In light of this, Malaysia expects an influx of IT outsourcing in the years to come. This is evidenced as Malaysia retains its third spot on the 2021 Kearney Global Services Location Index, behind only India and China (“Kearney’s 2021 Index”).
However, several questions fall for consideration surrounding supply and demand in the ever-evolving digital and tech-savvy world, and the battle between financial attractiveness and digital resonance. It is believed Malaysia’s prospect is quite promising.
The 12th Malaysian Plan
The recent unveiling of the 12th Malaysian Plan (the “12th Plan”) on 27 September 2021 is timely. Amongst the four catalytic policy enablers identified to achieve the three themes of the 12th Plan are “developing future talent and accelerating technology adoption and innovations”.
Under these catalytic policy enablers, the government plans to elevate the quality of education and leverage on emerging technologies such as virtual reality, augmented reality and artificial intelligence. Further, the government is committed to promote digital infrastructure, adopt and apply digital and advanced technology and enhancing digital connectivity.
With the focus on shifting towards more a more digital-centric environment and promoting digital infrastructure, Malaysia will be able to adapt and meet the needs of the new world.
BP outsourcing has increased significantly over the last decade, notwithstanding the pandemic. It is reported in a local newspaper that the BP outsourcing market in Malaysia is set to surpass USD1.4 billion in 2021.
There also seems to be a shift as companies now incorporate global business services (GBS) into their businesses to provide integration of governance, location and business practices. Further, the aspect of GBS commonly associated with the capacity of delivering high value functions into the business process (eg, data analytics and consulting) is a driving factor for companies preferring this service-delivery model over conventional shared services.
The importance of technology and digitisation became clear during COVID-19. It is unequivocal that technology has played a pivotal role in enabling companies to adapt to this new normal, particularly AI and cloud computing services. Thus, it is no surprise that while Malaysia was seemingly paralysed due to the pandemic, the development and implementation of technology in the workplace grew.
Whilst the implementation or roll-out of new technology in a company is associated with high initial costs, new technology has proven to increase efficiency, productivity, quality and, over time, lower costs. This inevitably affects the outsourcing market in Malaysia as traditionally the services offered were more manual or simpler in nature.
The government has rightly identified that to support the growth of global services, digital infrastructure and connectivity are vital, both set to be boosted by the implementation of the Malaysia Digital Economy Blueprint. In this regard, 5G network and cloud storage services will be a catalyst for enhancing Malaysia’s attractiveness as a destination for companies. With these initiatives, it is hopeful that Malaysia will continue to successfully tap into IT and BP outsourcing demand by producing digitally savvy professionals.
With increasing accessibility due to the use of new technologies, local regulators such as the Securities Commission and the Central Bank of Malaysia (BNM) are constantly kept on their toes to issue guidelines, rules and/or regulations to regulate these new technologies especially those that concern currency, ie, cryptocurrency.
There is no one specific “parent” statute that regulates or governs outsourcing in Malaysia, but there are many industry-specific statutes that imply restrictions, controls or regulations on outsourcing, eg, the Communication and Multimedia Act 1998 (CMA) and the Employment Act 1955 (EA).
Further, certain industries, such as capital markets and financial services, have strict guidelines or regulations in place that affect the outsourcing of services associated with capital markets or the provision of financial services.
For example, the Licensing Handbook (the “Handbook”), issued by the SC, regulates outsourcing activities by market intermediaries under the Capital Markets and Services Act 2007 (CMSA), and the Policy Document on Outsourcing, issued by the BNM, regulates outsourcing activities for financial institutions under the Financial Services Act 2013 (FSA), the Islamic Financial Services Act 2013 (IFSA) and the Development Financial Institutions Act 2002 (DFIA).
The CMA regulates the increasingly convergent communications and multimedia industries in Malaysia. It does not expressly provide for restrictions on the outsourcing of related services but does put in place a mechanism that effectively restricts outsourcing.
For example, Section 36 of the CMA provides that the grant of an individual licence is personal to the licensee, and the individual licence cannot be assigned or transferred to another party without the prior written approval of the Minister. This effectively prohibits the outsourcing of licensed telecommunications services to third parties where it relates to licensable activities.
The EA is the principal act that regulates and governs the labour industry in Malaysia. It provides for a minimum statutory benefit that must be afforded to workers by employers. Pursuant to an amendment in 2012, Section 33A was inserted into the EA, recognising the role of contractors for labour in the employment landscape. A contractor for labour means a person who contracts with a principal, contractor or sub-contractor to supply the labour required for the execution of any work, ie, supplying workers (particularly foreign workers) to any trade or business. It is noteworthy that Section 33A only applies to the agriculture industry (Section 2 of the Employment (Exemption) Order 2012).
Section 33A imposes a legal obligation that a contractor for labour who intends to supply or undertakes to supply any employee must registers with the Director General of Labour Department within 14 days before supplying the employee. The provision also mandates that the contractor for labour must keep or maintain a record of information relating to the supply of employees for the inspection and investigation of the relevant authority.
The purport and intent of Section 33A is to ensure that workers who are employed under contract for labour are protected and enjoy rights and minimum benefits as provided for under the EA, because an employer must enter a contract of service with the employee in order to be afforded the benefits. This contract is non-existent if the employees are supplied by contractors for labour. This system (commonly known as labour outsourcing) involves the conclusion of a contract for service between the principal and a contractor – thus, no contract of service is executed between worker and owner, which would be most detrimental to the protection and benefit of the workers who technically would not fall under the applicability of the EA.
With the new amendment, the Director General will be informed of the particulars of the contractors and their employees, enabling the Ministry of Human Resources and other relevant authorities to trace any irresponsible contractors, keep up to date with the statistics of contract labourers, and protect the contract labourers.
The Handbook was issued pursuant to Section 377 of the CMSA and sets out guidelines pertaining to licence applications and licensing regimes and obligations.
The Handbook applies to all Capital Market and Services Licence (CMSL) holders which covers entities that carry out regulated activities provided under Schedule 2 of the CMSA, including:
Chapter 10 of the Handbook sets out the requirements for outsourcing processes, services or activities provided by CMSL holders. Chapter 10 of the Handbook does not apply to investment banks unless stipulated in any laws, regulations or guidelines.
The Handbook distinguishes between material and non-material outsourcing arrangements. A CMSL holder must notify the SC within two weeks of signing the service level agreement for any material outsourcing arrangement.
The outsourcing of the following functions by a CMSL holder are considered as material outsourcing arrangement and can be outsourced to the following service providers:
A CMSL is not allowed to outsource any back office function that involves:
Other than the material functions set out above, other outsourcing arrangements will also be considered as material outsourcing arrangement in the following circumstances:
Additional measures can be required depending on the parties involved and the individual circumstances.
Examples of non-material functions that do not require notification are human resource (eg, payroll, performance of appraisal, employment of personnel) and accounting and financial matters.
Internal audit, compliance and risk management functions cannot be sub-contracted.
A CMSL who is also a participating organisation or a trading participant must concurrently forward a copy of the notification to the stock exchange or derivatives exchange, as the case may be.
Chapter 10 of the Handbook provides that a CMSL holder must select an appropriate and efficient service provider as well as monitor the outsourcing arrangement on a continuous basis to ensure that it does not lead to business disruption and negative consequences for the CMSL holder's clients.
Policy Document on Outsourcing (the “Policy Document”)
On 23 October 2019, the BNM issued the Policy Document which came into effect on the same date. The Policy Document superseded its predecessor, the policy document on outsourcing issued on 28 December 2018.
The Policy Documents sets out the scope of arrangements relevant to the outsourcing policy, and the requirements and expectations on financial institutions to maintain appropriate internal governance and outsourcing risk frameworks, including those relevant to the protection of data confidentiality. The requirements also serve to ensure the BNM’s continued ability to carry out effective supervisory oversight over financial institutions in relation to their outsourced activities.
The Policy Document is applicable to all financial institutions. Financial institution is defined under the Policy Document as “a licensed person and a prescribed development financial institution”.
A licensed person is:
A “development financial institution” under the DFIA is an institution which carries on any activity, whether for profit or otherwise, with or without any government funding, with the purpose of promoting development in the industrial, agricultural, commercial or other economic sector, including the provision of capital or other financing facility; and for the purposes of this definition, "development" includes the commencement of any new industrial, agricultural, commercial or other economic venture or the expansion or improvement of any such existing venture.
Material outsourcing arrangement
The Policy Document provides for its own definition of a “material outsourcing arrangement” as an arrangement which:
In assessing whether an outsourcing arrangement is material, a financial institution shall have regard to the following factors:
Any arrangement involving internal control functions (ie, risk management, internal audit and compliance) would generally be considered as a material outsourcing arrangement.
Regulatory and approval process
A financial institution must obtain the BNM’s written approval before:
A financial institution is not required to obtain the BNM’s prior written approval:
An outsourcing arrangement must be governed by a written agreement that is legally enforceable. The outsourcing agreement must, at a minimum, provide:
The outsourcing agreement must also contain provisions which:
Responsibilities of the board and senior management
The board must:
The senior management must:
A comprehensive assessment on a potential service provider must cover the following:
Thereafter, the findings and outcomes from the due diligence exercise will need to be documented and escalated to the board.
Outsourcing arrangements outside Malaysia and involving cloud services
The Policy Document acknowledges where service providers are located, or performs the outsourced activity outside Malaysia, or via cloud service provider, there is an inherent added risk with regards to data accessibility, confidentiality, integrity, sovereignty, recoverability and regulatory compliance.
A financial institution should have appropriate controls and safeguards to manage these additional risks in place.
Personal Data Protection Act 2010 (PDPA)
Data processing or data security in Malaysia is governed by the PDPA, which regulates the processing of the personal data involved in commercial transactions. The PDPA applies to the processing of personal data by persons established in Malaysia (or by any other person employed or engaged by a person established in Malaysia), and to the processing of personal data by persons who are not established in Malaysia but use equipment located in Malaysia to process personal data (other than for purposes of transit through Malaysia). The PDPA does not apply to the processing of personal data outside Malaysia, unless the personal data is intended to be processed further in Malaysia.
Principles under the PDPA
Pursuant to the PDPA, every data user has to comply with the seven Personal Data Protection Principles, namely the following.
The PDPA on cross-border transfer of data
The PDPA imposes cross-border restrictions, with the general rule being that personal data may not be transferred to locations outside Malaysia unless somewhere specified by the Minister.
The Personal Data Protection Commissioner (the “Commissioner”) of the Ministry of Communications and Multimedia Malaysia issued a Public Consultation Paper entitled Personal Data Protection (Transfer of Personal Data to Places Outside Malaysia) Order 2017 (the “Proposed 2017 Order”), which sought feedback from the public on the Commissioner’s draft Whitelist of countries to which personal data originating in Malaysia may be freely transferred without having to rely on the exemptions of Section 129 of the PDPA. The Proposed 2017 Order never came to fruition.
Subsequently, the Commissioner issued a Public Consultation Paper No 01/2020 entitled Review of Personal Data Protection Act 2010 (the “Consultation Paper No 01/2020”). In Consultation Paper No 01/2020, the Commissioner acknowledged that the whitelist seems to curb and set barriers for data user to transfer personal data to places outside Malaysia. Further, the Commissioner observed that a clear provision and the conditions for transferring personal data to places outside Malaysia are essential to facilitate e-commerce transactions and free trade agreements. As such, the Consultation Paper No 01/2020 seeks feedback on its proposal to remove the whitelist provision of the PDPA.
General Data Protection Regulation (GDPR)
The GDPR came into effect on 25 May 2018 in the European Union (EU) and is directly applicable to all EU member states. This new set of rules is designed to give EU citizens more control over their personal data and aims to simplify the regulatory environment for businesses so that both citizens and businesses in the EU can fully benefit from the digital economy.
The GDPR applies not just to organisations within the EU but also to organisations outside the EU that offer goods or services to individuals within the EU.
The penalties for the breach of each law are outlined below. “Person” includes an individual, corporation, statutory body, local authority, society, trade union, co-operative society, partnership and any other body, organisation, association or group of persons, whether corporate or unincorporate.
the suspension or cancellation of the individual licence (Section 37(b) of the CMA). Failure to comply with suspension or cancellation is deemed an offence punishable, on conviction, with a fine not exceeding MYR500,000 or imprisonment for a term not exceeding five years, or both (Section 41 of the CMA).
A contractor for labour who supplies employees without registering with the Director General as required under subsection (1), or who fails to keep or maintain any register or make any register for available inspection as required under subsection (2), commits an offence and shall, on conviction, be liable to a fine not exceeding MYR10,000 (Section 33A of the EA).
if any person fails to comply with the Handbook, they are deemed to have committed a breach. The SC may take one or more of the following actions (Section 377 of the CMSA).
The Policy Document
The Policy Document provides for “standard” and “guidance” applicable to financial institutions. It is noteworthy that the “standard” and “guidance” are defined as:
Although neither the Policy Document nor the FSA defines “enforcement action”, BNM has clarified that “enforcement action” is synonymous with administrative actions as provided for under Part XV, Division 2 of the FSA.
If an errant financial institution breaches a standard imposed by BNM, BNM is empowered to take any one or more of the following administrative actions:
Contractual terms effecting the seven principles of the PDPA are included in contracts.
There is no standard supplier customer model in Malaysia for outsourcing contracts. Thus, organisations are free to select a suitable contracting model, negotiate its terms and conceptualise bespoke outsourcing contracts that best fit their outsourcing needs. Large organisations may have a fixed, existing template of outsourcing contracts.
Whilst outsourcing contracts are generally bespoke, the models generally used are as follows.
Single Outsource Service Provider
As its title suggests, the customer contracts with a single outsource service provider to provide the outsourced services to the customer. This is the most common and direct outsourcing model, suitable for a single-faceted outsourced service.
Contrary to the above, multi-sourcing simply means the customer contracts with numerous outsource service providers. Each outsource service provider’s job scope would be mutually exclusive and independent of one another, but cumulatively provides for a total solution for the customer.
This is the evolution of shared services and BP outsourcing. Instead of operating numerous shared service centres and managing outsourcing vendors independently, GBS provide integration of governance, locations and business practices to all shared services and outsourcing activities across the enterprise. The catalyst for growth of GBS in Malaysia were the government’s initiatives, including the Malaysia Digital Economy Blueprint, the National Fourth Industrial Revolution and the National Digital Network. According to the SSON State of the Shared Services Market report 2020 – Malaysia, GBS is the predominant model in Malaysia and a large segment is already moving towards digitised GBS.
In recent trends, Malaysia seems to be inclined in favour of this contract model for developing public infrastructure projects such as toll highways, railways, ports and bridges. It is noteworthy that the viability of a BOT project to private investors depends on fundamental legal issues such as enforcement of contracts, private ownership, security arrangements, taxes, remittance of foreign exchange and profits. Amongst the successful BOT projects in Malaysia are the North South Highway Project (ProjekLebuhraya Utara Selatan), Lekir Bulk Terminal, Shah Alam Expressway, Tanjung Pelepas Port, East Coast Expressway, Tun Salahuddin Bridge and Johor Eastern Dispersal Link Expressway. The key advantage to this contract model in a developing country like Malaysia is information and expertise transfer.
Joint Venture or Partnership
These contract models may be seen to go against the grain of conventional outsourcing as the customer may be directly involved in the provision of what was intended to be an outsourced service.
According to the SSON State of the Shared Services Market report 2020 – Malaysia, four out of ten Malaysian-based centres have more than a decade’s worth of experience behind them. Another 40% of those surveyed are in the planning or early implementation stage.
Malaysia as a hub for shared services centres is evidenced when in 2018, global insurers, AXA announced the establishment of its new AXA Shared Services Centre in Puchong Financial Corporate Centre (PFCC) – the latest MSC Cybercentre and an iconic corporate landmark in Puchong. AXA is set to generate an approximate 200 jobs across different technologies and capabilities by the end of 2018. In August 2019, Tricor Group announced the official opening of the Shared Service Centre located in Kuala Lumpur, known as Tricor ace. Tricor ace functions as the centre of excellence and provide support across the group’s financial accounting, payroll, IT, corporate services and other shared service centre functions.
As shared services centres mature, they shift from single function to multi-functional activities to a more holistic end-to-end process life cycle and subsequently to GBS, where shared services focus on innovation management and competence centres by providing more complex services.
Customer falls under the definition of “consumer” under the Consumer Protection Act 1999 (CPA). The CPA provides for the protection of consumers and promotes a fair, accessible and sustainable marketplace for consumer products and services.
The main customer/consumer protections with regards to goods include the following guarantees:
The main customer/consumer protections with regards to services include the following guarantees:
The remedies available to the consumer against the supplier where any goods or services fail to comply with the above-mentioned guarantees are as follows:
Courts and Tribunals
Where the Court or Tribunal for Consumer Claims comes to the conclusion that a contract or a term of a contract is either procedurally or substantively unfair or both, they may declare the contract or the term of the contract as unenforceable or void and the Court may grant judgment or the Tribunal may make an award as provided for under the CPA (Section 24G(1) of the CPA).
The Court or the Tribunal may, in proceedings before it, raise an issue as to whether a contract or its terms are unfair, even if none of the parties has raised the issue in its pleadings (Section 24F of the CPA).
A contract or a term of a contract is procedurally unfair if it has resulted in an unjust advantage to the supplier or unjust disadvantage to the consumer on account of the conduct of the supplier or the manner in which or circumstances under which the contract or the term of the contract has been entered into or has been arrived at by the consumer and supplier (Section 24C(1) of the CPA).
A contract or a term of a contract is substantively unfair if the contract or the term of the contract is in itself harsh, oppressive, unconscionable, excludes or restricts liability for negligence or excludes or restricts liability for breach of express or implied terms of the contract without adequate justification (Section 24D(1) of the CPA).
Parties may enter into an agreement to govern their relationship, including terms as to when the contract may be terminated. Depending on the terms agreed by the parties, termination may be for convenience or for default (also known as for cause).
The customer or supplier may terminate the contract when one party breaches a condition to the contract. A condition is a stipulation that is essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated (Section 12 of the Sale of Goods Act 1957).
The principal act that deals with loss suffered due to a breach of a contract is the Contracts Act 1950 (CA). Section 74 of CA provides that an aggrieved party is entitled to receive compensation from the party that breaks the contract for any loss or damage that arose naturally in the usual course of things from the breach, or which the parties knew was likely to occur when they made the contract (Section 74(1) of the CA). This compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach (Section 74(2) of the CA).
In Malaysia, there is a distinction between direct and indirect loss. The plaintiffs/claimants are entitled to claim losses that were the natural consequence of the defendant’s breach, or losses that were within the contemplation of both parties at the time they made the contract. Losses that are too remote or not within the contemplation of the parties may not be claimable.
The general rule in Malaysia for a party seeking substantial damages is that said party has the burden of proving the liability, the remoteness of the damage (foreseeability) and the actual damage suffered (quantum) based on clear and sound evidence; failure to do so may entail the award of only nominal damages.
It is worth highlighting that there was a recent development on the law pertaining to liquidated damages clause in a contract. In the case of Cubic Electronics Sdn Bhd v Mars Telecommunications Sdn Bhd  2 CLJ 723 where the Federal Court succinctly laid down guidelines (see Federal Court Judgment, page 56, No 74).
Loss of Profit
As a general rule, the Court may not be inclined to order an award of damages for loss of profit in fear of causing a windfall in favour of the plaintiff. With that being said, cases in Malaysia (SPM Membrance Switch Sdn Bhd v Kerajaan Negeri Selangor  1 CLJ 177; Bank Bumiputra Malaysia Bhd. Kuala Terengganu v Mae Perkayuan Sdn. Bhd. & Anor.  2 CLJ 295) have held that loss of profit may be regarded as a head of damages in specific circumstances. In this regard, Section 74 of the CA still applies. Therefore, as long as the damage suffered for loss of profit is deemed to be a natural result of the breach or within the contemplation of the breaching party, nothing precludes the Court from ordering substantial damages for loss of profit in favour of the aggrieved party.
Loss of Goodwill
Case law in Malaysia has regarded loss of goodwill as a head of damages (Taiping Poly (M) Sdn Bhd v Wong Fook Toh, Wong Che Leong and Wong Su Fah (t/a Kong Wah Trading Co)  1 MLJ 798). Although it would be impossible to quantify the actual loss suffered with regards to loss of goodwill, the Courts have held that the applicable principle in determining loss of goodwill is by utilising the “best means” test, whereby the Court must assess what is a fair and temperate sum for the plaintiff, by the best means it can. The rationale for this is that the law assumes that damages will result if the goodwill of a man’s business has been interfered with by the passing off of goods. The Federal Court upheld the finding of the Court of Appeal in Taiping Poly and held that it was trite law that damages for loss of goodwill and reputation was presumed and the sum to be awarded was a matter of the court’s discretion. In that case, RM50,000 was deemed fair and reasonable.
In brief, the quantum of award in respect of goodwill is a matter of Court discretion, depending on the facts of the particular case. Factors that the Court consider in determining this include the plaintiff’s reputation and the length of time of the defendant’s wrongful act.
In recent years, Malaysian Courts seem inclined to be guided by intellectual property valuation reports when determining the quantum of damages for loss of goodwill. In this regard, the Intellectual Property Commission of Malaysia (IPCM) provides training and even certification to certify an individual as a registered IP Valuer with IPCM.
The general rule is that parties are bound by what they sign. For the purposes of contract interpretation, where the words used in the contract are plain and unambiguous, the Court is to adopt its natural and ordinary meaning.
The Malaysian Courts will not intervene to rewrite or audit the bargain between the parties, and will instead hold them to the contract, agreement or instrument they made for themselves by giving effect to the clear and unequivocal words of the terms.
However, in a situation where there are two competing interpretation of clauses in a contract, the one which makes more commercial sense should be preferred if the natural meaning of the words is unclear.
There are no fixed implied terms that are relevant to outsourcing contracts in Malaysia. This is in tandem with the fact that a myriad of services may be outsourced, so the terms would vary depending on the nature of the outsourcing contract.
With that being said, there are three ways in which a term can be implied:
With regards to an implied term by the courts, the test is two-fold: the business efficacy test and the officious bystander test. Therefore, there is no hard and fast rule with regards to implied terms for a contract, including an outsourcing contract. Should a term fulfil both the tests, the Court may imply said term into the outsourcing contract.
It is a deeply entrenched principle in industrial jurisprudence that employers have managerial prerogative to transfer their employees. The Court would normally not interfere when this prerogative is exercised, unless there is a contract to the contrary.
However, the power to transfer employees is subject to the following well-recognised restrictions:
Furthermore, consent is usually required (unless provided otherwise in the employment contract), as case law has shown that, in some cases, the transfer of an employee to another legal entity without their consent could potentially result in a claim of constructive dismissal, especially if the employee is transferred to the service provider and the employee’s job scope differs significantly. Transfer without consent may also be deemed a violation of the Federal Constitution, as the employee has the right to be employed by an employer of their choice. Therefore, compelling an employee to work for a particular employer without affording him a choice in the matter has been interpreted to constitute one form of forced labour: Barat Estates Sdn Bhd & Anor v Parawakan A/L Subramaniam & Ors  4 MLJ 107.
To avoid any claims for constructive dismissal, an employer should ensure that any transfer:
Workers council do not exist in Malaysia. Trade unions are governed under the Industrial Relations Act 1967 (IRA) and the Trade Unions Act 1959 (TUA).
Neither the IRA nor the TUA mandates for consultation with a trade union prior to outsourcing. However, employers ought to be wary and peruse a collectively agreement thoroughly as the requirement for consultation may be provided in collective agreements.
Further, it is noteworthy that there is the Code of Conduct for Industrial Harmony (the “Code”) which is an agreement between the Ministry of Human Resources, the Malaysian Council of Employers and the Malaysian Trades Union Congress. The Code provides that an employer should regularly provide its employees with as much information as possible on matters affecting then, which includes organisational and management changes which affect employees.
The Code is merely a guideline and has no legal force. Nevertheless, Section 30(5A) of the IRA provides that the industrial court in make its award, may take into consideration any agreement or code relating to employment practices between organisations representative of employers and workmen respectively where such agreement or code has been approved by the Minister.
It is standard practice in Malaysia that in the event of a transfer of business which will entail the transfer of employee from the transferor to the transferee, the transferor will issue a notice of termination to the employees. This is followed by the transferee’s offer to continue the employment of the employee at terms no less favourable than the previous employment contract.
The EA governs the length of time of the notice of termination:
Upon issuing the notice of termination, the transferee, within seven days of the change of ownership may make an employment offer to the employees under the same employment terms or terms that are not less favourable (r. 8(1) of the Employment (Termination and Lay-Off Benefits) Regulations 1980).
In the event the transferee does not make an offer within seven days of the change of ownership, the employment contract with the transferor is deemed terminated and the transferor will be liable for the payment of termination benefits to the employees.
However, if the transferee does make an offer and the offer is accepted, the process of transfer of employees is completed and the transferor will be absolved from any liability against the employees. The change of employer from transferor to transferee will be deemed as a continuing employment and will not constitute a break in the continuity of period of his employment.
The employee may also refuse the offer by the transferee. In such a situation and if reasonable grounds are canvassed by the employee, the transferor may be liable to pay the termination benefits.
There are no general terms or standard contracts governing the transfer of assets in outsourcing agreements in Malaysia. Such terms are entirely transaction specific and thus will be a matter for negotiation.
With that being said, Malaysian law imposes formality requirements in the transfer of certain assets; for example, the following.
Movable property and other assets are not generally subjected to any formalities but a written agreement is advisable for clarity and evidential purpose.