Employment Contracts in Malaysia: What You Can't Afford to Skip
From probation clauses to restraint of trade — the provisions that protect your business under Malaysia's Employment Act 1955.
Lawgistics February 1, 2025 5 min read
InsightsThe Employment Act 1955 (EA) sets the floor for employee rights in Malaysia — but it doesn't write your employment contracts for you. A missing or poorly drafted clause can expose your business to tribunal claims, garden leave disputes, and post-employment competitive threats.
Probation Clauses
Malaysian courts have consistently held that probationary employees have lesser dismissal protections, but only if the probation clause is clearly drafted. State the duration (typically 3–6 months), the right to extend, and confirmation criteria.
Restraint of Trade
Non-compete clauses are generally unenforceable in Malaysia under section 28 of the Contracts Act 1950 — unless the restriction is reasonable in scope, geography, and duration. Courts have upheld limited garden leave provisions as an alternative. Get this clause right or don't bother including it.
Confidentiality Obligations
Separate from non-compete, confidentiality clauses protecting your trade secrets, client lists, and proprietary processes are enforceable. They should survive termination of employment.
Termination Provisions
For employees covered under the EA (earning RM4,000/month or less in most categories), minimum notice periods are prescribed by statute. For higher earners, your contract governs. A PILON (payment in lieu of notice) clause gives you flexibility to exit quickly when needed.
Deduction Authorisations
The EA restricts employer deductions from salary. If your business requires employees to authorise deductions (training levies, company equipment, etc.), those authorisations must be in writing and should be in the employment contract.
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