With the deepening of globalization, when enterprises expand their business in multiple countries, cross-border labor compliance has become one of the most complex and severe challenges. To help enterprises systematically address this issue, we have collaborated with top labor lawyers from over 50 major jurisdictions worldwide (all recommended by Chambers, The Legal 500, or equivalent institutions) to jointly compile a Chinese-English labor & employment compliance guide exceeding 1 million words, and we will continuously update relevant key points.

This article publishes the key points of labor & employment compliance by September 2025 in Malaysia. 

01 Overview of the Labor Law System

1.Legal System

Malaysia is a federation of states with the Federal Constitution as the supreme law of the land. The common law of England and the rules of equity apply generally but is subject to laws enacted on matters within the legislative powers of the federation and the constituent states. Islamic laws enacted within the jurisdiction of the states apply only to persons professing Islam while enacted native customary law applies to the native peoples of the Bornean territories of Sabah and Sarawak.

2.Resources and Agencies

The principal statute that generally stipulates the minimum terms and conditions of employment of all employees and obligations of employers is the EA 1955.

02 Employment Qualifications and Classification

1.Employment Age

Under the CYPA 1966, a child (i.e., a person under the age of 15) and young person (i.e., a person who has attained the age of 15 and under the age of 18) can only carry out employments expressly permitted by the CYPA 1966.

2.Qualifications for Employment

A foreign business may technically hire employees locally without establishing a local entity such as a subsidiary or branch. Such an employee of an unregistered foreign company will however be confined to the non-business activities.

3.Classification of Employment

There is only one type of employment relationship, i.e., one entered into under a contract of service between an employer and an employee. There are several ways a person may be employed: permanent or regular, part time or fixed term for a specified period.

4.Foreign Workers

There are two categories of foreigners who are permitted to work, i.e., foreign workers and expatriates who may be referred to as blue-collar workers and white-collar workers respectively.

03 Recruitment and Employment Contracts

1.Background Examination

Background checks on applicants for jobs are not prohibited. However, due regard must be accorded to the Personal Data Protection Act 2010 (“PDPA 2010”).

2.Contract Types

Employment contracts can be fixed-term, permanent (non-fixed-term), part-time, or casual, depending on the how an employer decides on the work arrangements for his business. Fixed-term contracts are used for project-based or temporary roles, while permanent contracts cover ongoing employment. Part-time and casual contracts suit irregular hours of work.

3.Probationary Period

The maximum period permitted by law is only 3 months. An employee may not be placed on probation more than once with the same employer for the same type of work. The probationary period must be stated in writing in the employment contract. If it is not stated, the employee is considered permanent from the first day.

04 Working Standards

1.Remuneration and Statutory Benefits

The typical remuneration structure includes a basic monthly salary, often supplemented by allowances, discretionary bonuses and performance incentives. A contractual 13th-month salary may also be included.

2.Social Security and Employment Taxes

A state retirement plan is established by the EPFA 1991. It is administered by the EPF Board, a federal statutory body under the purview of Malaysia's Ministry of Finance.

3.Working Hours

Statutory working hours are governed by the EA 1955 and the Sabah LO and Sarawak LO which sets the legal limit at 8 hours per day and 45 hours per week. While flexible or irregular working hours systems are permitted, they must adhere to these statutory limits, and an employee generally cannot opt out of these protections.

4.Rest and Leave

Under the EA 1955, every employee in Malaysia is entitled to at least one statutory rest day each week, which must be a full 24-hour period. While this rest day is commonly scheduled on a Sunday, employers may fix it on other days depending on the nature of the business or industry. Statutory annual leave ranges from 8–16 days depending on length of service.

05 Occupational Health and Special Protection

1.Occupational Health and Security

Employers must comply with minimum occupational health and safety standards under the OSHA 1994. In the event of a work-related injury or death, employers must report the incident to the Department of Occupational Safety and Health. Compensation for work-related injuries or deaths is primarily governed by the ESSA 1969.

2.Special Protection

Women are entitled to maternity leave of at least 98 days. They are protected against termination of employment during pregnancy and confinement, including by reason of illness arising out of pregnancy other than on the grounds of misconduct or closure of the employers business and may be required to commence maternity leave earlier if a doctor certifies that, due to the advanced stage of pregnancy, they are unable to perform their duties satisfactorily.

06 Personal Information and Privacy

1.General Rules

The PDPA 2010 imposes obligations on employers to inform the employee of the personal data that is being processed and obtain the consent of the data subject where data is collected, processed or disclosed. Consent must be explicitly obtained if sensitive personal data is being processed.

2.Transnational Transfer

For the transnational transfer of employees’ personal information in Malaysia, the transfer must have a lawful basis, such as explicit employee consent, performance and compliance with the PDPA 2010.

07 Anti-Discrimination and Anti-Harassment

1.General Rules

Employers are obliged to maintain workplaces that are free from discrimination, harassment, and bullying. Although Malaysia does not have a single all-encompassing anti-discrimination legislation, there are several statutes which prescribe protection and remedies. Harassment is also a common law tort.

2.Protective Characters

There is no general anti-discrimination law specifically identifying protected characteristics. Legislation such as the EA 1955, MRAA 2012 and the PWDA 2008 however do provide protection for persons with characteristics such as sex, age and disability.

08 Internal Policies

1.Applicability

It is regular for employers to manage workers through internal policies. However, policies cannot override statutory rights under the EA 1955 or other labour laws, terms and conditions of employment in employment contracts and in the case of unionized employees, collective agreements which will take precedence over internal rules.

2.Validity

Internal policies from a parent company, whether domestic or foreign, can be applied directly. Staff should be duly informed of their applicability, and they ought not to take effect retrospectively.

3.Whistleblowing

The Whistleblower Protection Act 2010 (“WPA 2010”) is an act designed to provide protection to a whistleblower who discloses improper conduct to an enforcement agency.

09 Transactions

1.Employment Relationship

The continuity of an employee’s contract post-M&A depends on the structure of the transaction. An M&A may consist of purchase of shares/equity or of business or assets of a company.

2.Compensation

In an M&A deal by sale of shares/equity of a company, where the employment of employees of the vendor is terminated, the latter will be liable to pay termination benefits to their employees, but only in respect of non-exempt employees. Such benefits will not be payable to employees if the purchaser offers to continue to employ the employee under the terms and conditions not less favourable than those under the vendor and the employee unreasonably refuses the offer.

10 Termination of Employment

1.Termination Grounds

An employer cannot dismiss an employee at will and the termination must be with “just cause or excuse” under the IRA 1967.

2.Termination Procedure

The required notice period is either as stated in the employment contract. Where this is not stipulated, the statutory minimum under the EA 1955 will apply. Notice of 4 weeks for service under 2 years, 6 weeks for 2–5 years, and 8 weeks for 5 years or more is required. Employers may opt to make payment in lieu of notice equivalent to wages for the notice period.

The law allows the employer to dismiss an employee immediately, without the need for notice or notice allowance, if the employee commits a serious misconduct.

3.Severance and Compensation

The minimum severance is: 10 days' wages for each year of service if employed for less than 2 years; 15 days' wages for each year if employed for 2 to 5 years; and 20 days' wages for each year if employed for 5 years or more, with proportionate payment for incomplete years.

4.Wrongful Termination

Wrongful termination is a cause of action under the common law for the breach of the termination provisions of an employment contract. This can be pursued in the civil courts where damages may be awarded.

5.Mass termination and Layoffs

Mass terminations or layoffs are subject to special rules under the Employment (Termination and Lay-Off Benefits) Regulations 1980 and guided by the Agreed Practices annexed to the Code of Conduct for Industrial Harmony 1975. Employers must have a genuine business reason for retrenchment, apply fair selection criteria, and engage in consultation with employees or their representatives.

11 Confidentiality, Non-Compete, and Non-Solicitation

1.Confidentiality

It is common practice for employers to include a confidentiality clause in all employment contracts. Employers may commence civil claims against employees or former employees who breach these obligations.

2.Non-Compete

Non-compete clauses which constitutes restraint upon a person carrying on his trade or profession is generally void under Section 28 of the Contracts Act 1950 (“CA 1950”). They are lawful only when such clauses are agreed upon in the sale of business goodwill or in partnership agreements prior to dissolution or during continuance of partnerships.

12 Work Representation and Trade Unions

1.Work Representation

Employee participation in workplace matters is primarily exercised through trade unions, which are regulated by the TUA 1959 and the IRA 1967.

2.Trade Unions

Once recognized by an employer under the IRA 1967, a union qualifies to engage in collective bargaining and to conclude collective agreements that are binding on employees within its scope.

13 Dispute Resolution

1.Procedures & Enforcement

Employment disputes are decided at the first instance by specialist tribunals and adjudicatory bodies. Parties dissatisfied with the decisions of these tribunals or adjudicatory bodies may appeal to the High Court.

2.Waiver & Enforcement

An employer may not stipulate terms and conditions contrary to statutory rights when entering into a contract of employment. Terms and conditions of service in a contract of service which are less favourable than those statutorily prescribed under the EA 1955 shall be void and of no effect.

14 Others

1.Latest Development & Trends

In 2025, Malaysia is undergoing significant labor and employment reforms that international investors should monitor. Key developments include:

· Minimum Wage Increase

· Retirement Age Proposal

· EPF for Foreign Workers

· Investor Pass Introduction

2.Cultural and Religious Considerations

International investors should respect the country's multi-ethnic and multi-religious society, where Islam is the official religion and all other religions may be practiced in peace and harmony.

* To avoid ambiguity, this article should not be regarded as legal advice.

Authors

Lim Heng Seng, a Consultant at Lee Hishammuddin Allen & Gledhill, ranked as an “Eminent Practitioner” by Chambers Asia-Pacific 2026, and leads the Employment & Industrial Relations Department, known for its “value and commitment”. Before entering private practice, he served in various capacities with the Malaysian Judicial and Legal Service, including a seven-year spell as Chairman of the Industrial Court, where he also served as Chairman of the Social Security (SOCSO) Appellate Board. 

Translator

Zhou Hao, Master of Laws, Associate at Anli Partners. Areas of expertise: Labor Law, Dispute Resolution, ESG Compliance.