Unpredictable implementation of amendments means full compliance with Employment Act proving problematic for Malaysian employers

The Malaysian government this week urged all employers to ensure compliance with the revised Employment Act (“EA”). This is following the wide-ranging amendments to the EA which came into force on 1 January 2023.

While the comments from Human Resources Minister V. Sivakumar were targeted at the reportedly widespread non-compliance with the reduced 45-hour weekly working hour limit (down from 48 hours/week), it brought into focus the widely-known reality that many employers are in fact not in complete compliance with the amended EA.

However, while some irresponsible employers are being unfair to employees and blatantly delaying making changes, to some extent there may be some justification for this non-compliance when it comes to the EA in general.

Haphazard and unpredictable implementation of the EA amendments by the government

The Human Resources Minister has been reported as saying that the government would not accept excuses from non-compliant employers, as they had ample time and notice to prepare for the changes.

However, in reality, the implementation of the very wide-ranging changes to the EA has been haphazard and unpredictable.

The much-anticipated Employment (Amendment) Bill was tabled for its first reading in Parliament in October 2021 and was passed together with its second reading in March 2022. However, when this Bill was passed, there was widespread confusion over the future scope of the EA, as the First Schedule to the EA was not amended at the same time. The government also offered no clarification on the intended scope of the revised EA.

The First Schedule was only amended when the Employment (Amendment of First Schedule) Order 2022 was gazetted on 15 August 2022, upon which it became clear that the EA would generally apply to all employees, marking a very significant change from its then-existing scope.

The gazetting of the Order prompted a scramble among employers to ensure (to the extent reasonably possible) that they were in compliance with the revised EA in time for the implementation date of 1 September 2022. Many employers had to review and revise existing employment contracts and policies, particularly to address the major changes involving reduced weekly working hours and the widened overtime entitlement scope.

The haphazard nature of the implementation of these significant amendments continued as, days before 1 September 2022, the government announced that the implementation would be deferred to 1 January 2023.

It is also worth noting that in the months-long gaps (March-August and then September-December 2022) while waiting for the original and then deferred implementation date, there was no effort made by the Human Resources Ministry to educate employers and the general public on the practical effect of the EA amendments. There were no FAQs, infographics, media briefings, or even a social media education/information campaign.

As the deferred implementation date of 1 January 2023 approached, there was of course further confusion and unpredictability, as the general elections were called and held on 19 November 2022. The current Human Resources Minister was only appointed on 3 December 2022, and between his appointment date and 1 January 2023 barely commented about implementation of the amendments.

There was some expectation — bearing in mind the change in government and the lack of public comment or public education/information efforts — that the implementation would be deferred again. But this did not happen, and the amendments officially came into force on 1 January 2023. Since then there has still been hardly any information forthcoming from the Human Resources Ministry.

Compliance with some provisions in the Employment Act may be impractical or impossible

Setting aside the disorderly manner in which the government introduced the EA amendments, when it comes to compliance moving forward, it appears that employers may in fact find it impractical or impossible to fully comply with the revised EA.

The reason the practical effect of the amendments is so significant is that most of the EA used to be irrelevant to the majority of employers and employees. Prior to the amendments, the vast majority of the EA only applied to a very narrow band of employees — mostly those earning up to RM2,000/month or involved with manual labour. Because of this narrow scope, most employers may never have had to consider the EA at all.

With the reversal of the way the EA scope is defined, employers suddenly find themselves having to consider and comply with requirements which can at times be confusing and cumbersome.

The drafting style of some of the EA provisions (this is after all a 1955 statute) can also be very dense, impractical, and certainly not in line with modern business realities. It’s not clear whether the lawmakers truly appreciated the gravity and practical reality of the changes which were proposed and passed, beyond the headline changes such as reducing working hour limits, increasing maternity leave, and granting paternity leave.

There are too many examples to list in this article, but here are a few obvious examples of some of the problematic EA provisions which have come up:

  • Right to carry forward annual leave: The EA now grants all employees (this used to only apply to “EA employees”) a minimum annual leave entitlement of 8-16 days, depending on length of service. However, the EA also states: “The employer shall grant and the employee shall take such leave not later than 12 months after the end of every 12 months continuous service” — which means that employees are entitled to carry forward their annual leave entitlement for 12 months. It is very rare for employees to be allowed to carry forward their annual leave entitlement for 12 months. Any carry-forward rights usually come with conditions such as a limit on the number of days which can be carried forward, and a condition that the carried-forward leave must be used by a certain deadline (for example, within the first quarter). Will employers who do not allow their employees to carry forward their unused annual leave entitlements be in breach of the EA?
  • Requirement to maintain employee register, in Bahasa Malaysia: The EA requires employers to maintain registers containing employee information, and make these available for inspection if requested. Unfortunately, several requirements in relation to these registers mean that it is very likely most employers are technically in breach of the EA. Firstly, the “register” is defined as being “a book or separate cards” — this means it must be a physical copy, and does not include data stored electronically. Secondly, the list of information required to be maintained is very extensive and impractical — and this information must be kept for six years. And thirdly, the information — which includes the details of the terms and conditions of employment — must be in Bahasa Malaysia.
  • Final wages to be paid on the termination date: The EA provides that the wages of an employee whose employment contract has been terminated must be paid no later than the termination date. This is not in line with the usual market practice, which is usually to pay either at the end of the month or together with the next payroll cycle. In some cases, this payment must also be withheld pending the issuance of a tax clearance letter.

What happens now?

In light of the above, what happens now regarding compliance with the EA?

It may well be that the government has not realised the impracticality of requiring all employers to be in complete compliance with all the many requirements of the EA, some of which have not been updated to reflect commercial realities.

It is therefore entirely possible that the government will only focus enforcement on the obvious and pressing issues — such as the reduction of weekly working hour limits and the payment of overtime compensation to eligible employees — and quietly ignore the more peripheral requirements.

It is also unclear when the authorities will start taking action against employers who have not complied with these more material provisions of the EA, bearing in mind that there was also a very long (and ongoing) delay in taking any action against employers who did not comply with the minimum wage requirements.

With all this uncertainty, employers and employees in Malaysia will continue to be left guessing regarding some of their obligations and rights under the EA. What is required to comply? And will there be any repercussions from non-compliance with some of the more obscure and impractical provisions?

For now, employers may well have to satisfy themselves with doing the best they can to comply with as much of the EA as possible, but accepting that they may be “technically non-compliant” with some requirements.

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