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Legal Information * Legal Awareness * A Guide To Malaysian Labour Laws - Part 2 of 2

A Guide To Malaysian Labour Laws - Part 2 of 2
(As at March 1997)

B. Industrial Relations Act 1967 (Act 177)

C. Employment (Termination And Lay-Off Benefits Regulations) 1980

D. Employees Provident Fund Act 1951

E. Social Securities Organisation Act 1969 (Socso)

F. Workmen's Compensation Act 1952

This Act governs the relationship between employers and workmen (employees) and their trade unions and generally deal with trade disputes.

Some Useful Guides

Outlined are some useful guides and explanations of some of the definitions under this Act .

"Award" means an award made by the Industrial Court in respect of any trade dispute or matter referred to it or any decision or order made by it under this Act.

"Collective agreement" means an agreement in writing concluded between an employer or a trade union of employers on one hand and a trade union of workmen (employees) on the other relating to terms and conditions between the 2 such parties.

"Trade disputes" means any dispute between the employer and workman (employee) which is connected with the employment or non-employment or the terms of employment or the conditions of work of such workman.

"Workman" means any person including an apprentice employed by an employer under a contract of employment to work for hire or reward and for the purposes of any proceedings in relation to a trade dispute includes any such person who has been dismissed, discharged or retrenched.

Unlawful Dismissal

What does this entail?

1. An workman whose services has been terminated by the employer feels he has been dismissed without just cause or excuse by his employer, can make representations in writing to the Director General for Industrial Relations within 60 days of the dismissal.

2. Reconciliation proceedings is then held to see if a settlement can be arrived at and if there is not likelihood of a settlement the Minister is informed accordingly.

3. The Minister if he thinks fit would then refer the representations to the Industrial Court for adjudication and for an award.

Functions Of Industrial Court

The Industrial Court upon the matter being referred to it by the Minister then goes to consider whether the termination of employment of the workman is unlawful or whether it is justified. Where the Court holds that the termination is unlawful, the Court then makes an "Award" to reinstate the employee to his former position or in lieu awards proper compensation.

Domestic Enquiry

1. Where an employer finds misconduct on the part of the employee, the employer firstly gives the employee a letter to "show cause" as to why his services ought not to be terminated paying reference to the allegations or charges preferred against him as regards the misconduct.

2. Where the employer finds that the reasons extended by the employee are not satisfactory, the employer then convinces a "Domestic Enquiry" to arrive a fair decision in compliance with the rules of Natural Justice wherein the employee is given every opportunity of being heard fully to defend himself against the charges made against him.

Constructive Dismissal

What does this mean in law?

It is a situation where an employee being dissatisfied with the manner in which he is being treated by the employer e.g. where there is an unilateral change in his terms and conditions of service, the employee tenders his letter of resignation and pleads that he has been constructively dismissed.

Trade Unions

Who can become a Trade Union member?

1. Employers shall not impose any condition in a contract of employment seeking to restrain the right of a person to join a trade union or to continue his membership in the trade union.

2. No employer shall refuse to employ any person on the ground that he is or he is not a member of an officer of a trade union.

3. An employer shall not discriminate any person in regard to employment, promotion, any condition of employment or working condition on the ground that he is or he is not a member or office of a trade union.

4. An employer shall not induce a person to refrain from becoming or to cease to be a member or officer of a trade union.

The following categories of workmen (employees) are outside the scope of representation of trade unions:-

a) managerial capacity

b) executive capacity

c) confidential capacity

d) security capacity

Collective Agreement

A collective agreement between the employer or trade union of employers and trade union of employees is an agreement in writing signed by the parties to the agreement setting out the terms of the agreement.


When does an employer become liable?

An employer shall be liable to pay termination and lay-Off Benefits payment as follows:-

Length of Number of days wages
Completed Service entitlement for each year
of employment
*1 year but less than 2 years 10
*2 years but less than 5 years 15
*5 years and more 20
*Pro-rata basis for an incomplete year.
Calculate to the nearest month.

Termination benefits are not payable for the following reasons:-

1. Where the employee attains the age of retirement as stipulated in the contract of service.

2. Where the employee commits misconduct inconsistent with the fulfilment of the expression or implied condition of his service after due enquiry.

3. Voluntary termination by the employee.

4. If the employee's contract of service is renewed or is re-engaged by the same employer under a new contract of service on terms and conditions which are not less favourable and where the renewal or re-engagement takes effect immediately at the ending of his employment under the previous contract.

Payment Of Termination Or Lay-Off Benefits

1. Any termination or lay-off benefits payment should be paid by the employer to the employee not later than 7 days after the relevant date.

2. Any employer who fails to comply shall be guilty of an offence.

Amount Of Termination And Lay-Off Benefits

What is an employee's entitlement?

An employee is entitled to termination or lay-off benefits payment as follows:-

Not less than -

1. 10 days wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for a period of less than 2 years; or

2. 15 days wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for a period of 2 years or more but less than 5 years; or

3. 20 days wages for every year of employment under a continuous contract of service with the employer if he has been employed by that employer for 5 years or more; and

4. pro-rata as respect of an incomplete year, calculated to the nearest month.


Under the EPF Act 1951 it is compulsory for all employers and employees to contribute towards this Fund. The employer's contribution is 12% and the employee's contribution is 11 % of his monthly wages.

Persons exempted from making the compulsory contribution are:-

1. expatriates.

2. domestic servants.

3. self-employed persons (but can elect to contribute).

4. out-workers (persons who do cleaning, alterations or repair works).

5. persons detained in custody e. g. prisoners.

6. pensioners.

Nomination Of Beneficiaries

1. An employee above the age of 18 years can nominate any person or persons to become his or her beneficiary.

The nominee or nominees can he changed by notifying the EPF accordingly.

2. EPF contributions can be withdrawn in full if a contributor leaves the country permanently.

3. A contributor can also withdraw all his or her contributions on medical grounds subject to approval by a medical board.

Employees can at any time check his or her balance with the EPF by approaching (in writing) the authorities concerned.

Nominations of any person or persons to become a beneficiary can be made by an employee who is 18 years of age or above.

Withdrawal of EPF

1. Should a contributor die his nominee can make the claim from the said Fund.

2. Any person who attains the age of 55 can withdraw his contributions (but he can opt to continue payment if he still continues employment).

Conditions for Withdrawal of EPF Contributions

Certain conditions must be fulfilled for withdrawal of the EPF. Some of the conditions to be satisfied are:-

1. Applicant must have contributed to the EPF for at least 5 years from the date of membership.

2. Partial withdrawal for purchasing a residential house or a shophouse cum residential unit.

For the purpose of withdrawal from the EPF, a member's contribution is divided into 3 categories of his credit amount -

1. The 1st category of 60% of his contribution cannot be withdrawn.

2. The 2nd category of 30% can be withdrawn for purposes of purchase of housing units.

3. The 3rd category of 10% can be withdrawn for medical purposes including critical illnesses e. g. cancer, heart problem, etc.

The withdrawal for purchase of house is only possible if it is to reduce the mortgage for the purchase.

The withdrawal for the purchase of a house must he within 2 years from the date of signing of the Sale and Purchase Agreement.

Further withdrawal is also possible after 5 years of withdrawal of the first loan provided it is for the same house.

No withdrawal is possible for the purchase of a second house.

Payment To Nominees

Nominees of the contributor are entitled to monies upon the contributor's death irrespective of whether there is a Will or not.

Nominations made before marriage, are automatically cancelled.

Fresh nominations must therefore be made.


Those liable to contribute.

Firms with 1 or more employees whose individual earnings do not exceed RM1,000.00 a month have to register with SOCSO.

The provisions of the Act do not cover the following categories of persons:

1. Any person whose wages exceed RM2,000.00 a month but who has never been covered before.

2. Any person whose employment is of a casual nature and not for purposes of the industry.

3. A domestic servant employed to work in a private dwelling house which includes a cook, house servants, gardeners, washer woman, watchman, driver, members of the armed forces, police officers.

4. Employees who have attained the age of 55 only for purposes of invalidity but if they continue to work they should be covered under the Employment Injuries Scheme.

5. Foreign workers.

6. Government servants.

7. Self-employed.

The SOSCO complements the following type of Schemes

1. Employment Injury Insurance Scheme.

2. Invalidity Pension Scheme.

Under the above 2 categories, an insured employee who is classified or who has acquired invalidity status is entitled to such benefits and upon his death, his dependants can also benefit out of his Scheme including funeral benefits up to RM1,000.00.

Invalidity pensions are also made to insured persons under the relevant provisions.

Under the SOCSO Employment Injury Insurance Scheme, the family of a worker who dies will be entitled to a monthly pension or dependants benefits subject to a minimum of RM270.00 and a maximum of RM58.50 per day.

A worker who is permanently disabled is entitled to a lump sum payment provided certain conditions are met.

Note : An employee covered by both SOCSO and Workmen's Compensation Scheme can seek compensation from both Funds.


How does the law operate?

There is no coverage of Malaysian workers under the Workmen's Compensation Act from 1 July 1992.

Only foreign workers are covered. Employers of foreign workers pay towards the Scheme.

(Reproduced with the courtesy of the Bar Council.)

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