Five lawyers share their insights on the impact of the Employment Act amendments

The past three years has been a busy, tumultuous, and very interesting period for HR and employment and industrial relations professionals in Malaysia. While 2020-21 saw employment lawyers — like most of the world — being kept occupied by the effects of the pandemic, and collectively learning on our feet, 2022 also threw lots of new issues our way, as clients adjusted to the new post-pandemic norms.

In Malaysia, a hot topic in 2022 was the long-awaited amendments to the Employment Act (“EA”)(originally scheduled to come into force on 1 September 2022, but postponed to 1 January 2023). I have already shared my views on the wide-ranging impact of (and some on-going uncertainty caused by) these major amendments. In this article, I canvassed the views of five fellow Malaysian employment lawyers on the EA amendments. I invited Amardeep Singh Toor, Donovan Cheah, Janice Anne Leo, Selvamalar Alagaratnam, and Wong Keat Ching to share insights on the following with readers of The Malaysian Lawyer:

Their views on the EA amendments.
The key areas their clients have been focusing on to adapt to the changes.
Whether there is still non-compliance among employers.
What issues/trends will keep employment lawyers busy this year.

Q1. The big talking point in the Malaysian employment and industrial relations legal landscape for the past year has been the wide-ranging changes to the Employment Act (“EA”), which have now been in force since 1 January 2023. What is your view of the changes which have been made?

Amardeep: Overall, the amendments are welcome changes to the Malaysian labour landscape. It is encouraging to see steps being taken to strike a balance between the interests of employers and the welfare of employees. All private sector employees now benefit from the same minimum entitlements provided under the EA. There is also much to celebrate with improved protection and benefits afforded to pregnant women, and the removal of restrictions on female employees to perform night and underground work. These are progressive steps in the right direction, ensuring cohesion with International Labour Organisation standards. Flexible working arrangements, if well-enforced, will allow for personalised work arrangements, and hopefully lead to optimal worker productivity — all while also saving resources for both employers and employees. However, more thought could have been put into some of the amendments, for example, anti-sexual harassment measures. Although well-meaning, it may be a toothless tiger. Mere passive exhibition of a notice may not lead to actual change. Truly a missed opportunity that implementing anti-sexual harassment policies or establishing an in-house mechanism to prevent, handle and eradicate sexual harassment in the workplace was not made compulsory, as highlighted in the Code of Practice on the Prevention and Eradication of Sexual Harassment in the Workplace.

Donovan: The changes made to the EA are a step in the right direction as they provide improved and expanded protection for employees. However, the implementation of these changes has been lacking in certain areas. Historically, the EA was designed to protect vulnerable employees such as low-income workers and manual labourers. As a result, many of its provisions were not drafted with other types of employees in mind. Expanding the applicability of the EA to all employees has practical implications that require careful consideration. While the intention behind the changes is positive, the broad-brush approach adopted is not ideal and has caused some confusion and difficulties for employers in their attempts to be compliant. Certain changes to the EA also appear to be merely symbolic gestures or paying lip-service. For instance, the provision requiring employers to just display a notice to raise awareness about sexual harassment may not be perceived as a substantive measure to address the issue.

Janice: The changes made to the EA are a step into a right direction — recognising and promoting the rights of employees as well as enhancing the protection afforded to them. The EA now offers all employees, irrespective of wages, protection under the EA (with certain exemptions if an employee earns above RM4,000.00). It also seeks to give some certainty to a grey area — whether gig economy workers can access the protection afforded under the EA. This increased recognition of persons who come within the ambit of the EA is a positive one as it means more classes of persons can access the protection afforded under the law. The newly minted amendments to the EA also increase the protection afforded to employees by reducing the maximum hours of work, increasing the amount of maternity leave and introducing paternity leave, thus aligning Malaysian labour laws with international standards. Despite the many positive changes to the EA, more needs to be done in terms of preventing discrimination (race, religion, gender, sexual orientation) of job seekers and employees in the workplace. A more stringent framework must also be put in place to increase awareness of harassment (sexual or otherwise) as well as to prevent the same.

Keat Ching: I am of the view that the changes to the EA are commendable and a step in the right direction for Malaysia. The new provisions relating to discrimination, enhanced maternity leave, paternity leave, flexible work arrangement, forced labour etc. are all very encouraging for enhancing the welfare of employees. The most significant change is that all employees, irrespective of salary, are now governed under the EA. The EA now becomes the minimum threshold for terms and conditions of employment for all employees. This will push employers to be more aware of employee rights and obligations that must be complied with under the EA.

Selvamalar: The amendments do bring about certain changes that are welcome and perhaps long overdue e.g. introduction of paternity leave and enhancement of maternity leave together with better protection for pregnant employees. However, yet again, the amendments are made piece meal, and as we know, in reaction to a requirement to adopt international standards for commercial or trade reasons. It would have been far better, and perhaps a pipe dream, if a holistic review of the Act had been undertaken, not just to comply with international standards but also taking into account local challenges faced by both employers and employees; and certain practices that may be peculiar to our local landscape. Additionally, the amendments have not all been drafted in the clearest terms which has given rise to many questions from employer groups who are not at all sure of what the extent of their obligations are e.g. the requirement to display a notice to raise awareness on sexual harassment. There is no minimum content prescribed and neither are there any guidelines. There is also much uncertainty as to the ambit of the Director General’s powers e.g. what kind of orders may the DG make in response to a complaint of discrimination.

Q2. What are the key areas your clients/employers have been focusing on in the past few months to adapt to the revised EA?

Donovan: In addition to the “obvious” changes about overtime, working hours, and parental leave benefits, the expansion of the EA to cover all employees raises practical concerns that also require attention. Issues such as carrying forward annual leave balances, timelines for wage payments upon termination or resignation, maintaining employee registers in the national language, and proper wage deductions and set-offs all need to be addressed to ensure compliance with the revised EA and its regulations. I’ve seen some clients struggle with finding the right balance between technical compliance and commercial practicality.

Janice: Focus has been placed on aligning the terms and conditions of the contract of employment with the new EA provisions and evaluating whether an independent contractor may be construed as an “employee” under the EA pursuant to the newly added Section 101C.

Keat Ching: In their initiative to adapt to the revised EA, our clients/employers have sought our advice mainly on sexual harassment policies & training, the particulars of implementing the new weekly working hours, the overtime provisions for employees earning RM4,000 and below and generally comprehensive reviews of their employee handbooks to ensure all clauses are in compliance with the minimum standards of the EA.

Selvamalar: Thanks to the delayed coming into force of the Amendment Act, most of our clients had the benefit of making or planning, well in advance, for the main changes required such as reduction in working hours and the expansion of the category of employees who will be entitled to overtime wages. What most employers are grappling with now is understanding and streamlining changes to their contracts and practices as a result of the EA now applying to all employees. Many were not even aware until we pointed out that things payroll took for granted e.g. deduction of wages for certain reasons are no longer permissible for even management level employees. Additionally, questions like entitlement to annual leave in the first year and maximum allowable period for suspension have all been thrown into the mix. Many clients are also still in the midst of undertaking a full review of the standard employment contracts and internal policies to ensure compliance.

Amardeep: Clients are primarily focusing on direct amendments to the EA. These are amendments which are clearly spelt out. For example, the reduction in maximum weekly working hours, the requirement to make overtime payments to employees earning a salary of RM4,000 or less. There is a lack of awareness of the indirect consequences of the amendments to the EA. These indirect consequences arise from the expansion of coverage under the EA, whereby certain operational obligations have now been extended to all employees and employers. Certain operational obligations are contained in the subsidiary legislation implemented under the EA. For example, the requirement to furnish and keep certified copies of employment contracts, maintaining employee registers etc. These operational requirements may lead to some degree of anxiety or uncertainty for employers who did not indulge in such record-keeping practices prior to the amendments to the EA. In dealing with these amendments, clients have been focusing on amending their template employment contracts, contract for services, employment handbook and policies. Clients have also taken steps to implement policies to handle flexible working arrangements, on harassment / sexual harassment and on diversity, equity and inclusion.

Q3. Based on talk in the market, and the Human Resources Minister’s recent comments, there is still non-compliance with even some of the more obvious amendments, such as the reduction of weekly working hours. Is this consistent with your observations? There are also those who think that it may be impractical or impossible for some of the more obscure EA provisions to be complied with. Do you think most employers will be able to fully comply with the EA in the near future?

Janice: There have been concerns raised about the reduced number of working hours to 45 hours a week. The main concern is that the salary structure in place is for a 48 hour work week. However, there have been no changes to the salary structure. This effectively means that employers are now paying more for less work being done. Another concern is that overtime is now payable to employees who earn up to RM4,000 per month. Coupled with the reduction in the number of working hours, employers are now having to fork out more money than they did in the past for the same amount work to be done. As for employees who earn more than RM4,000 and are not entitled to overtime pay, this begs the question of whether these employees can refuse to work past 45 hours in a week, or if an employer ought to incentivise its employees to do so by paying them overtime as well. Having said that, when implementing these changes, it is important to bear in mind that productivity of a workforce is more important than the number of hours spent at work. Employers should move away from the notion that a higher number of working hours would result in higher productivity and instead, focus on improving systems in the workplace to increase the efficiency of a business.

Keat Ching: Fortunately, I have not observed any non-compliance of the revised EA from my clients so far. In my view, employers will need time and guidance to adapt and adopt these changes in the EA, just as they had adjusted to the minimum wage legislations. Many have said that there is no clarity in certain new provisions, for example, the new provisions that enables employees to lodge a complaint to the Labour Department regarding any discrimination. There’s no definition of what amounts to discrimination and many are asking what kind of orders the Labour Department can make to remedy any discrimination and whether it would be practicable. I think we can look at Section 20(3) of the Industrial Relations Act 1967 as an example of a simple provision on dismissal without just cause or excuse and how there’s no definition of what “just cause or excuse” is in the Industrial Relations Act. Notwithstanding this, a whole body of law has developed over the years on what amounts to dismissal with just cause or excuse. As such, I think the law will also develop with regard to some of the new provisions in the EA which may currently appear to be ambiguous.

Selvamalar: I am not aware of deliberate non-compliance on the part of my clients. Many were already prepared even for the earlier announced coming into force date of 1 September 2023. Our team was kept very busy in the second half of 2022 helping our clients with their practical needs. My feeling is that whatever non-compliance that continues presently is probably due to a lack of understanding of exactly how the changes impact. This is a real concern because the EA being made applicable to all employees (with the exception of certain carve out provisions) has turned many human resources practices on its head. I suspect that there are human resource practitioners who are unaware that some of their practices are in breach of some sub-section of the EA, until such time that it is pointed out to them. Typically, an employee who is impacted is the one alerting the employer to it. Yes, I do think that some of the minute provisions make it impractical to comply with in a today’s business setting, bearing in mind that these provisions were introduced many decades ago.

Amardeep: With regard to direct amendments to the EA, I do not foresee any issues with compliance of the same, albeit that it may take some time before full-blown compliance can be achieved. Certain industries however may face unique challenges in implementing the amendments to the EA. For example, with employees earning up to RM4,000 now being statutorily entitled to overtime, certain entry-level professional occupations will now attract overtime payments. It may be difficult or even impossible to track such overtime hours. Another example is workers in the gig-economy now being presumed to be employees if any of the newly introduced presumptions are present. With regard to indirect amendments or ‘obscure’ EA provisions, these are obligations which now apply to all employees and employers which may be contained in the subsidiary legislation implemented under the EA. The difficulty here arises from a lack of awareness or understanding, or the hassle of having to pick up new operational practices.

Donovan: Given the way the EA amendments were adopted, achieving full technical compliance may be difficult. I believe that most employers will strive for substantive compliance within the spirit and intention of the EA. There may be instances where employers choose to disregard non-material provisions of the EA if non-compliance does not significantly harm employees. For instance, while the register of employee information must be in physical form (not electronic) and kept at the place of employment (not online), it may be impractical to strictly comply with this provision. Some employers may still opt to keep their registers on the cloud, since this wouldn’t harm anyone or affect any employee rights. It still remains to be seen if the authorities will enforce compliance with the strict letter of the law, as their approach towards enforcement will definitely shape how employers treat compliance with the EA.

Q4. Finally, what do you think are some employment and industrial relations legal trends which are developing or we can expect to see developing in Malaysia in 2023? What will keep employment lawyers busy this year?

Keat Ching: In my view, a trend that we will see developing in 2023 would be flexible working arrangements (FWA) for employees. Though there are certain companies that have continued on from the Covid-19 pandemic work-from-home arrangements with no complaints from employees, this year may see an influx of employees petitioning for FWA in their companies to cater to their different lifestyles, i.e. working mothers, those living a far commute from their respective offices, those with disabilities, etc. As the EA has provided that employees may apply to their employers for FWA, employment lawyers may be kept busy advising on the proper way to implement the arrangements or conversely, the proper way to decline an employee’s application and on what acceptable grounds. Same goes for the new provision in the EA regarding discrimination. There may be a myriad of discrimination issues that may arise and I foresee that new principles of law will be developed based on cases that arise.

Selvamalar: I believe it is unavoidable that international standards will set the benchmark and that as always in the sphere of labour and employment, it is the courts that will make the “real” law. If we look at some of the amendments and the language in which they have been crafted, it is apparent that they are crying out for judicial pronouncements to provide the guiding light. Human Rights in Business will also take centre stage as ESG becomes relevant to every industry. I anticipate that those of us who are what we colloquially refer to as “Company side” lawyers will be busy helping our clients navigate the narrow and not so straight ESG road. Balancing the various stakeholders’ interests will prove a big challenge for Boards and no one can afford a misstep as we have learnt from the experience some of our conglomerates who have had to pay the price.

Amardeep: Certainly an exciting time to be an employment lawyer. Take the introduction of the presumption of an employer-employee relationship (in the presence of certain factors) under the EA. We may see a rise in disputes regarding the classification of whether one is an employee or an independent contractor. A number of our own clients are already facing such complications. The consequences of a finding that one is an employee under the EA can be cost-heavy — attracting all obligations imposed on an employer such as statutory contributions to EPF, SOCSO and EIS, HRDF and income tax deductions. Additionally, as forced labour is now a defined offence under the EA, employers, particularly those in sectors engaging blue-collar workers, must keep an eye on their internal practices. ILO released a set of 11 indicators covering the main possible elements of a forced labour situation. Malaysia has already felt the sting of non-compliance with export bans over allegations of forced labour. We can also expect employers to divert their focus on diversity, equity, and inclusion (DEI) and on environmental, social and governance (ESG) initiatives in the workplace. The EA amendments sees the introduction of the power of the Director General of Labour to look into disputes related to discrimination in employment and of flexible working arrangements. We are likely to see a push from employers in implementing such initiatives including those in existing policies and codes in such as the Malaysian Code of Corporate Governance, Malaysian Code for Institutional Investors etc. which stipulates having 30% women on company boards, establishing gender diversity policies to support the participation of women in senior management etc.

Donovan: Aside from the obvious increased emphasis on compliance with the EA amendments, we can probably see more issues relating to remote work/flexible work arrangements, which in turn could lead to employers re-examining employment contracts and policies, workplace safety and data protection. Employment litigators will also be kept busy trying to clear their backlog of unfair dismissal claims at the Industrial Court.

Janice: We will be kept busy with increased number of claims in court as more classes of persons now fall within the ambit of the EA. We can expect claims by gig economy workers and potentially independent contractors as well since they may now argue that they are an employee pursuant to the EA. In the near future, we can also expect to see discrimination complaints and sexual harassment complaints being brought to the Director General. However, we are still yet to see how these new protections are to be enforced.

Amardeep Singh Toor is a partner at Lee Hishammuddin Allen & Gledhill.

Donovan Cheah is a founding partner of Donovan & Ho, and the author of “Navigating Employment Disputes in Malaysia”.

Janice Anne Leo is a partner at Steven Thiru & Sudhar Partnership.

Selvamalar Alagaratnam is head of Skrine’s Labour & Employment Practice Group. Skrine is Malaysia’s largest law firm and its Labour & Employment Team are management or business lawyers, with the practice spanning the whole ambit of labour, employment, industrial relations, human rights in business, etc.

Wong Keat Ching is a Partner of Zul Rafique & Partners and Co-Deputy Chair of the Bar Council Industrial & Employment Law Committee.

Related posts:

The Malaysian Lawyer

Latest Updates on Malaysian Law