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Malaysia Employment Act amendments: 7 key changes for employers to note

[Update: The Bill was tabled for its second reading and passed on 21 March 2022. There were only two minor amendments from the first draft which was the subject of this article, in relation to maternity and paternity leave. These have been updated in the text below.]

Wide-ranging amendments to Malaysia’s Employment Act 1955 (“the EA”) are now going through Parliament. The Employment (Amendment Bill) 2021 (“the Bill”) was tabled for its first reading on 25 October 2021.

The Explanatory Statement to the Bill states that it seeks to amend the EA “to comply with the international standards and practices as required by the Trans-Pacific Partnership Agreement, the Malaysia-United States Labour Consistency Plan and the International Labour Organization”. It further states that the purpose of the amendments, among others, is “to provide for the protection against discrimination and forced labour, and to provide for maternity benefits”.

As the Bill is only in its first reading, I expect some changes before it is finalised and passed. The current draft of the Bill does appear quite disjointed in parts, and there are some inconsistencies that will need to be cleaned up. It is worth noting that many of the amendments contained in the Bill have been mooted as far back as 2017, so while the fact that the Bill has been tabled is promising, there is no guarantee that it will be passed — though for political reasons it does appear very likely that it will happen this time.

The current draft of the Bill contains comprehensive amendments — there are 46 sections in total — but at this stage I will briefly set out the key changes that employers should take note of, along with some commentary.

(1) Increase in paid maternity leave

The change: The Bill increases the paid maternity leave entitlement from the existing 60 days to 90 days. [Update: The revised Bill which was passed on 21 March 2022 provides for 98 days paid maternity leave.]

Comment: This is welcome, and is long overdue. The government has been promising to legislate this since 2017. Public sector employees have been entitled to 90 days paid maternity leave for several years now.

(2) Restriction on termination of pregnant employee

The change: The Bill introduces a new Section 41A in the EA which will prohibit an employer from dismissing an employee who “is pregnant or is suffering from an illness arising out of her pregnancy” except on the grounds of — (a) wilful breach of contract; (b) misconduct; or (c) business closure. The new Section 41A also provides that where the employment of a pregnant female employee is terminated, the employer will bear “the burden of proving that such termination is not on the ground of her pregnancy or on the ground of illness arising out of her pregnancy”.

Comment: These changes provide much greater protection to pregnant employees from being dismissed from their employment. The existing provisions of the EA [at Section 42(1)] only protect a female employee from being dismissed if she is absent for up to 90 days post maternity leave due to illness arising from her pregnancy that renders her unfit to work. A notable effect of the protection being put forward by the Bill is that employers cannot terminate the employment of a pregnant employee for poor performance, or as part of a retrenchment exercise arising from redundancy.

Interestingly, unlike the existing Section 42(1), the new Section 41A does not contain the limit of a 90-day period. Also, while Section 42(1) refers to “illness certified by a registered medical practitioner to arise out of her pregnancy and confinement and to render her unfit for her work”, Section 41A only refers to “an illness arising out of her pregnancy”. As a result, if the new Section 41A is passed in its current from, it may render Section 42(1) redundant, as Section 41A is not limited to 90 days, and has a seemingly lower bar as to what constitutes a pregnancy-related illness.

(3) Paternity leave

The change: The Bill introduces 3 days paid paternity leave for married male employees, for up to 5 confinements. [Update: The revised Bill which was passed on 21 March 2022 provides for 7 days paid paternity leave.]

Comment: Again a much welcome and overdue change, though obviously 3 days is well short of international standards. Public sector employees have been entitled to paid paternity leave (3-10 days) for several years now.

(4) Employees can apply for flexible working arrangement

The change: Pursuant to the Bill, employees will be able to submit a written application to their employer “for a flexible working arrangement to vary the hours of work, days of work or place of work”. An employer who receives such an application will be required to approve or refuse the application within 60 days, and if it is refused, the employer must “state the ground of such refusal”.

Comment: This is an interesting change, but arguably is just performative, with no real impact. The employer is under no obligation to reasonably consider these applications, or to provide fair or reasonable grounds for refusing them.

(5) Employment discrimination disputes

The change: The Bill seeks to introduce a new Section 69F. which gives the Director General the power to “inquire into and decide any dispute between an employee and his employer in respect of any matter relating to discrimination in employment [and] make an order”. Non-compliance by an employer with such an order would be an offence.

Comment: As Malaysia is notably lacking in terms of any discrimination protection, this is a move in in the right direction. However, the new provisions are very vague. There are no details at all in terms of what sort of “discrimination” is being addressed, and no indication of what types of orders the Director General may make pursuant to these new powers.

(6) Notice on sexual harassment

The change: The Bill introduces a new Section 81H, which requires employers to “exhibit conspicuously at the place of employment, a notice to raise awareness on sexual harassment”.

Comment: This is another very vague provision. There are no details at all regarding regarding what this “notice” must state, and really does appear to be something that was pencilled in to tick off the box of doing something about workplace sexual harassment.

(7) Formula for calculating wages for incomplete month’s work

The change: The Bill proposes a new Section 18A, which introduces a formula for calculating wages where an employee has not worked a full month. The new Section 18A provides that “notwithstanding Section 60I” (which I will explain below) the formula to be used to calculate the wages due in these circumstances is: [(Monthly wages / Number of days of the particular wage period) x Number of days eligible in the wage period]

Comment: This provides welcome clarification, as this is often an administrative issue for HR/payroll. However, there may be confusion regarding the Section 60I mentioned above, as Section 60I — which only applies to Part IX (Maternity Protection) and Part XII (Rest Days, Hours of Work, Holidays, and Other Conditions of Service) — provides the following formula for determining the “ordinary rate of pay” for employees employed on a monthly rate of pay: [monthly rate of pay / 26]

Confusion regarding the Bill’s effect on the scope of the EA and applicability to all employees

One general drafting comment I would like to add is that there is an overall confusion regarding whether the Bill seeks to expand the scope of the EA to beyond the existing definition of “employees”. Currently, employees who fall within the scope of the EA (“EA Employees”) are those defined in the First Schedule — generally, those earning up to RM2,000/month or engaged with manual labour. This legal separation of EA Employees and non-EA Employees has long been a feature of Malaysian employment law, and certain provisions of the EA which are intended to apply to both EA Employees and non-EA Employees would be specifically carved out and stated as applying to all employees.

However, many of the drafting changes proposed by the Bill seem to be contradictory, and appear to be drafting mistakes. Some brief notes on this:

  • The Bill proposes to delete provisions such as Section 44A which extends the Part IX maternity protections to all employees (“Notwithstanding paragraph 1 of the First Schedule, this Part extends to every female employee who is employed under a contract of service irrespective of her wages”), and Section 81G which extends the Part XVA sexual harassment provisions to all employees (“Notwithstanding paragraph 1 of the First Schedule, this Part extends to every employee employed under a contract of service irrespective of the wages of the employee”).

  • Unless the intention is to extend the coverage of the EA to all employees — and there is no indication that this is the case, and the First Schedule has not been amended by the Bill — there seems no reason to delete these existing provisions.

  • It also would not make sense to expand the EA’s coverage to all employees without then carving out exclusions for provisions which would be impractical to apply to all employees irrespective of wages, such as entitlement to overtime compensation and limits on working hours. EA Employees are also entitled to termination compensation pursuant to the Employment (Termination and Lay-Off Benefits) Regulations 1980.

Concluding comments

There are many welcome changes proposed under the Bill. However, while these changes move industrial relations in Malaysia in the right direction, many of them are too shallow, and too bereft of detail to make a material impact. I would hope that, as the Bill goes through Parliament, constructive feedback will be provided, and some of these new provisions can be reworked and strengthened before the Bill is finalised.

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