Legal considerations when hiring employees in Malaysia


Employment contract

Following the previous post — What Malaysian employers need to know about employment law — which was an introduction to this series, this is the first in a three-part series on employment law. This post focuses on hiring employees.

Many employers see the key to optimising productivity and success as having employees with the appropriate qualifications, personality, and ultimately the practical application to get the job done well.

Often, when a company finds the right candidate, employment documentation is seen as a mere administrative formality.

However, even the sweetest of relationships, can be soured by time and circumstances. By the time things go wrong, it is too late for an employer who realises he is insufficiently protected by a shoddily-prepared employment contract.

This post highlights the key issues an employer should bear in mind when hiring employees.

Pre-hiring considerations

Even before an employee is hired, there are some issues to be considered when going through the hiring process, which generally encompasses advertising, conducting interviews, and making a hiring decision.

There are no strict rules regarding job criteria. Employers can specify criteria such as gender, minimum academic qualifications, and even physical attributes or abilities, provided they are relevant to the job. For example, it seems reasonable to specify that a consultant in a female beauty centre be a female, or that an executive have certain degree-level qualifications.

The key is to ensure the criteria are relevant to the job, and do not expose the employer to the risk of being accused of being unfairly discriminatory.

The Malaysian market has yet to mature in this area, and the law has not developed to meet market needs. Unlike some jurisdictions, there are no specific restrictions in Malaysia when it comes to conducting background checks on potential employees by accessing publicly-available information such as those available on Facebook and other social media.

Documenting the employment relationship

The first point of meaningful contact between an employer and employee is usually the interview.

Besides the standard evaluation process, all employers should use the interview as an opportunity to make clear the scope of the role that the applicant is applying for.

Basic information such as the volume of work involved, and requirements in terms of reporting structures, timelines, and key performance indicators, should be communicated.

The purpose of relaying this information is to establish a clear communication of expectations from the start, which may assist in any future disputes.

Once a decision has been made to hire an applicant, a company will issue a letter of offer of employment, which the applicant is invited to accept. This is where the practice of some employers differs, as there are several options when it comes to documenting an employment relationship.

  1. Letter of Offer: This is a simple letter (usually no more than three pages), which in its most basic form would set out information such as position, salary, leave, and termination.
  2. Employment Contract: There are several ways this is documented. Some employers set it out like a full commercial contract, particularly for the most senior roles. Others use a letter format, giving it the appearance of a very lengthy letter of offer. An employment contract generally includes additional information such as various employee benefits, bonus calculations, performance review processes, and confidentiality clauses.
  3. Employee Handbook: Larger corporations would have a standard employee handbook (or manual) in place, sometimes with all-inclusive terms and conditions, or with different handbooks for different classes of employees. These can be very comprehensive, and would even include sections on the corporate ethos and work culture. This may not be suitable for employers who tailor employment terms and conditions for specific individuals or smaller classes of employees.

The line separating the above documents may not be very clear, and what is important is not the type of document being put in place, but its contents.

It may seem common sense that an employer should not stop at the basic letter of offer stage, but many do.

Employers who choose not to document the detailed employment terms and conditions often say that the terms and conditions would be based on the ‘standard practice’ of the company. This is a common mistake, which has caused losses to many employers when there is a dispute on what an employee is entitled to.

The terms of employment obviously depend on the individual employer, employee, job scope, and industry. It is impossible to provide a definitive list of must-have clauses here.

The most common provisions which should be included in most employment contracts are the job description (position, brief description of role, and basic salary and statutory deductions), term (probation, retirement, or fixed term), termination (who can terminate, and how), leave entitlements (annual, emergency, medical, and unpaid), additional remuneration (allowances, bonuses), targets, performance reviews, confidentiality, and any other benefits.

As an employer, if there is some element of the employment relationship which you may wish to enforce or rely on in future, you must ensure that it is properly documented from the very beginning of the employment relationship.

The best way to avoid a messy dispute is to get things done right, from the start.

This series of posts was originally published in The Edge Financial Weekly.

3 thoughts on “Legal considerations when hiring employees in Malaysia

  1. Graeme Laird 29 June, 2022 / 3:29 pm

    Can a Malaysian company ask a candidate for bank statements prior to employment? Is this not an infringement of privacy when not a financial institution or a government department?

Leave a Reply

Your email address will not be published. Required fields are marked *