Employment and Human Capital

In a very important and critical change, the First Schedule to the Employment Act 1955 (“EA”) has been amended by way of Ministerial Order on 12 August 2022. The change now means that…

The EA now applies to all

The salary threshold to limit applicability of the EA has been removed. The EA now applies to:

“1. Any person who has entered into a contract of service.”

There are exceptions

However, there are certain provisions that have been carved out from being applicable across the board.

The table below sets out the items that are only applicable to the following (Non-Exempt Employees):

• those who earn a monthly wage of RM4,000 or less per month; or
• those who, regardless of how much they earn, are covered by section 2 of the First Schedule, e.g. employees who are, engaged in or who supervise manual labour; operate or maintain vehicles; engaged to work on Malaysian registered vessels; and domestic employees.

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With these amendments in place slated to be effective from 1 September 2022, alongside the amendments made under the Employment (Amendment) Act 2022, it is certainly critical for employers to take note of the changes and implement policies and procedures to ensure compliance with the requirements of the Act.

Anticipated Changes to the EA

In a previous article, we have touched on the changes that were passed by Parliament earlier this year.

In short, based on the revisions to the First Schedule, employers must be ready to meet the requirements of the EA in areas that include but are not limited to the following:

• maternity leave;
• paternity leave;
• maximum work hours per day/per week (must at least be reflected in the employment contract to be within EA limits even though overtime may not be payable);
• minimum annual leave entitlement;
• minimum sick leave entitlement (with a standalone 60 days leave if hospitalisation is required);
• flexible work arrangements;
• discrimination complaints;
• ensuring conduct does not constitute “forced labour”;
• application to the DGL for approval before hiring foreign employees;
• creating contracts with a 3^rd party if there is an arrangement for the supply of labour to such 3^rd party as a Contractor for Labour; and
• notice to raise awareness on sexual harassment.

Whilst the date for roll out of these changes have been set for 1 September 2022, there still remain areas of uncertainty, such as the types of orders that the Director General of Labour can make in disputes on discrimination, whether there is any test as to when flexible work arrangements ought to be granted or rejected and what circumstances can constitute forced labour.

Certainly a good time for employers to revisit and review their employee handbooks and policies!

If you have any questions or require any additional information, please contact Yong Hon Cheong or the Zaid Ibrahim & Co partner you usually deal with.

On 25 October 2021, the Human Resources Minister, Datuk Seri M. Saravanan, tabled the Employment (Amendment) Bill 2021 (“the Bill”) to amend the Employment Act 1955 (“the Act”). The proposed amendments, among others, are to bring the Act in line with the standards and practices required by the Trans-Pacific Partnership Agreement, the Malaysia-United States Labour Consistency Plan and the International Labour Organisation.

The proposed amendments are long overdue and contains very critical changes to what is considered one of the main employment legislations in Malaysia.

SUMMARY OF KEY CHANGES

A reading of the Bill reveals substantial and much-anticipated changes. A summary of the key changes are as follows:

Prior approval from the Director General of Labour to hire foreign employees

The Bill introduces a new requirement for the prior approval of the Director General of Labour (“DGL”) in order to hire foreign employees. Previously, there was only a requirement to furnish particulars of foreign employees to the DGL.

The employer’s application for approval is subject to the following conditions:

• there is no outstanding matter relating to any decision, order, or directive issued under the Act;
• there is no outstanding matter or case relating to any conviction of offence under the Act and other specified legislation; and
• the employer has not been convicted for any offence under any written law in relation to anti-trafficking in persons and forced labour.

Failure to obtain the prior approval of the DGL can attract a fine not exceeding RM100,000 or to imprisonment for a term not exceeding five years or to both.

The Bill also provides that where a foreign employee has been terminated (either by the employer, expiry of employment pass, or repatriated or deported), the employer has to inform the DGL within 30 days of the termination. Where the foreign employee terminates or absconds, the employer has 14 days from the date of the termination or absence to inform the DGL.

Creation of a new offence of “forced labour”

The Bill aims to create a new offence of “forced labour”. “Forced labour”, as provided in the Bill, is where any employer threatens, deceives, or forces an employee to do any activity, service or work and prevents the employee from leaving before the activity, service or work is done. The offence carries a penalty of a fine up to RM100,000 or to imprisonment for a term not exceeding two years or both.

Extension of DGL’s power to decide on discrimination in employment

A new section, section 69F, aims to introduce another power for the DGL to inquire and decide on any dispute relating to discrimination in employment, and make an order where necessary. Failure to comply with the DGL’s order is an offence and can result in a fine not exceeding RM50,000, and for offences that are continuing, a daily fine of up to RM1,000 for each day the offence continues.

There is however no definition of what constitutes discrimination, or what protected characteristics are in the Bill or the Act, or whether discrimination in employment is actually considered as an offence. The provision simply provides that failure to comply with the DGL’s order is an offence.

Although the new provision allows for the DGL to make an “order”, there is little or no indication of what such an order could be. In contrast, the existing section 69 of the Act (DGL’s power to inquire into complaints) has extensive provisions indicating the sort of orders that can be made by the DGL.

With such wide powers being given to the DGL and little to discuss what may constitute discrimination and what are protected characteristics, there would be inevitable concerns over the opening of floodgates to claims. Based on the Bill, as it is currently, so long as discrimination is raised in a dispute, it would appear that the DGL will need to carry out an inquiry and make an order. This could inevitably involve the DGL making orders relating to matters that would customarily have been in the hands of the management, such as promotions and transfers etc.

While the section on discrimination is certainly welcomed, greater clarity is needed.

Reduction in maximum weekly working hours and enhancement of sick leave

The Bill proposes to reduce the maximum working hours from 48 hours to 45 hours in a week.

Sick leave entitlement is also to be amended by removing the proviso where the aggregate of sick leave inclusive of any period of hospitalisation is 60 days. This will entitle employees to 60 days sick leave if hospitalisation is necessary without touching the employee’s normal sick leave entitlement.

Flexible working arrangements framework

In light of the pandemic and many businesses shifting to flexible work arrangements, the Bill has introduced provisions on a flexible working arrangement framework. An employee may apply to an employer for flexible work arrangements including to vary hours of work, days of work or place of work. An application shall be in writing and in the form and manner as may be determine by the DGL.

The Bill does not oblige the employer to approve all applications and just provides that an employer has 60 days, from the date the application is received, to reject or approve the application. If the application is refused, the ground(s) of refusal must be provided.

Enhancement of maternity leave and introduction of paternity leave

Maternity leave has been extended to 90 days from 60 days, in line with that for civil servants. Where a female employee entitled to maternity leave requests to commence work within the maternity leave period, she has to be certified to be fit to resume work by a registered medical practitioner. Further, exceptions to restriction on termination of pregnant employees has been expanded to include willful breach of a condition of the contract of service, misconduct and closure. Previously, the only permitted exception was closure.

Another welcomed introduction is the inclusion of paternity leave. A male employee is entitled to paid paternity leave for a period of three consecutive days for each confinement. Nonetheless, this is restricted to five confinements irrespective of the number of spouses. The conditions for paid paternity leave are that the married employee:

• has been employed by the same employer for at least 12 months; and
• has notified the employer of the pregnancy at least 30 days from the expected confinement, or as early as possible after the birth.

It is interesting to note that the Bill proposes to delete section 44A, which provides that maternity protection, under Part IX of the Act, applies to all female employees irrespective of their wages. This means that the current protection afforded under the Act, extended to cover those that do not fall under the scope of the Act, i.e. female employees earning more than RM2,000 a month, would be removed.  According to the explanatory statement, the rationale behind the deletion is that it is a consequence of the extension of scope of the Act. However, the proposed removal of Section 44A appears to be incongruent with an extension of scope.

Requirement to exhibit notice on sexual harassment

The Bill introduces a requirement for employers to exhibit conspicuously a notice to raise awareness on sexual harassment (similar to health and safety notices). While this is requirement is a positive one, the Bill leaves it open to the employers to determine what should go into the notice.

A puzzling change is the proposed deletion of section 81G, which allows for sexual harassment complaints to be made by any employee irrespective of their wages. The amendments to the requirements for sexual harassment complaints appear to have taken one step forward and two steps back.

Other amendments

• General amendments to update and change the archaic references of “domestic servants” to “domestic employees”.
• The general penalty for offences has been increased from RM10,000 to RM50,000.
• The penalty for non-compliance of the DGL’s order pursuant to an inquiry by the DGL into any dispute between an employer and employee is to be increased from RM10,000 to RM50,000 with the daily fine for continuing non-compliance increased from RM100 to RM1,000 per day.
• The court can order an employer, who has been convicted for an offence relating to wages, to pay any payment that is due to the employee. Failure to comply, the court can issue a warrant to levy the employer’s property for any payments due.
• The Bill provides provisions for the presumption as to who is an employee and employer in the absence of a written contract of service, relating to any category of employee under the First Schedule.

What to look forward to

At the time of publication the Bill is at the second reading stage at the Dewan Negara (House of Representatives). It remains to be seen how much of these amendments will be eventually passed by Parliament.

Whilst many of these changes are seen as timely, questions are abound based on a reading of the Bill. One such question is whether the provisions relating to maternity (section 44A) and sexual harassment (section 81G) still apply across the board to all employees regardless of wage levels as they have been earmarked for deletion. Both these sections were meant to “open” the scope of the Act to be applicable to all employees rather than to the limited scope of coverage in the First Schedule. Therefore, the proposed deletion of both sections, but no widening of scope in the First Schedule seems to be regressive.

This will certainly be an interesting development to follow so watch this space!

If you have any questions or require any additional information, please contact Yong Hon Cheong, Vinhothinii Rajoo or the Zaid Ibrahim & Co partner you usually deal with.

This alert is for general information only and is not a substitute for legal advice.