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5 things about employment contracts that every Malaysian gets wrong

almost 6 years ago JS Lim





This article is for general informational purposes only and is not meant to be used or construed as legal advice in any manner whatsoever. All articles have been scrutinized by a practicing lawyer to ensure accuracy.




So here’s a question - how many of you actually FULLY read your employment contract? Chances are that most of you probably skipped to the part about your pay and annual leave before signing the next few years of your life away as an indentured servant gainful employee.

But at the risk of sounding like a broken record, you should always read your contracts and do your best to understand what they mean. Surprises aren’t very nice when it comes to the terms of your employment - you don’t want to assume your resignation notice period is 1 month, only to find out that it actually says 3 months in your contract.

[READ MORE - What happens if you sign a contract without reading it in Malaysia?]

The trouble is your contract is not always straightforward, and you’ll need to know some of the laws that work alongside it to fully understand what’s going on. Here’s 5 points about your employment contract that are not what they seem - and could end up seriously misleading you!


1. Your ex-employer can’t stop you from working with a competitor company after resigning

Unless you’ve never read your employment contracts (or you’ve never had a job), you probably know that there’s a clause about “non-competition” or “restriction of trade”. It’ll read something like this:

“After the termination of employment for any reason whatsoever, the employee shall not for a period of 12 months from the date of termination carry out any business of any nature that is similar in nature to or is in competition with the employer.”

[READ MORE - Can Malaysian employers stop their ex-staff from joining a competitor?]

Depending on your contract, it may be written to cover the time during your employment as well. While it’s not a crime to put this term into a contract, these non-competition clauses are not enforceable in Malaysia because of Section 28 of our Contracts Act 1950 (although there are exceptions for agreements with business partners):

“Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.”

This doesn’t mean that you can set up a competing business against your employer, or use your employer’s clients to set up your own business, as you still have what’s called “fiduciary duties” to your employer. It basically means that you have a relationship where you have a duty to act for your employer’s best interests, and if you act against it, you are said to have breached your fiduciary duties.


2. There are ways to skip your resignation notice period

This isn’t an easy way round or a way to game the system. It more because of a little known fact: you can negotiate changes to your employment contract even after signing it.

If for one reason or another you need to leave your job before you can finish serving your notice period, you can actually skip the notice period by negotiating to get it waived with your employer. (Pro-tip: building a healthy working relationship with your boss helps a lot here.)

Using your outstanding leave to offset the notice period is usually also an option, failing which... there’s always the last resort of paying the penalty for resigning without notice.

[READ MORE - Is there a legal way to skip the notice period when you resign in Malaysia?]


3. Having an “employment contract” doesn’t always mean you’re an employee

When you get approached by a company and you sign an employment contract, you are an employee; and when you get an offer to be a “freelance” or “part-time” promoter for a few days, you are a freelancer - right?


Contrary to what you might be used to, those “freelancer promoter” jobs you might have done time to time might actually be employment - legally speaking. If it was legally considered employment, it means that you should be paid EPF, SOCSO, and EIS for those few days of work.

[READ MORE - 5 things Malaysian employers pay on top of your monthly salary]

There are a few factors that the laws looks at to determine whether a person is really an employee or a freelancer, but whether you have a contract is not one of them. In fact, you can still be considered a freelancer even if you signed a document called “employment contract” - the effect of that document is more important than what you call it. You can read more about it in our article linked below.

[READ MORE - What makes a person an employee or a freelancer in Malaysia?]


4. Not all employees are protected by our Employment Act

Surprise surprise, you might not have known that our Employment Act 1955 defines “employees” as those who earn below RM2,000 per month, or those who are engaged in certain services, like manual labour or being a domestic servant (you can find a complete list in the First Schedule of the Employment Act).

The Employment Act contains some provisions protecting employee rights, like minimum rest days, the minimum notice period for termination of employment, the right to be paid on time, etc. But, if you’re not considered an “employee” within the definition given, those protections will not apply to you. Instead, you’ll be looking to your employment contract to see what rights and responsibilities you have.

So always read your contracts and fully understand what you’re getting yourself into, more so for your employment contract. This is even if you fall within the meaning of “employee” in the Employment Act, because although you have rights, it can be a hassle to go about enforcing them since you’ll be taking your boss to court.

[READ MORE - If your boss refuses to pay you in Malaysia, what can you do?]

[READ MORE - Is it legal for my boss to make me work on a Malaysian public holiday?]


5. You can be sued if you turn down a job after signing the offer letter

If sending as many job applications as you can sounds like an attractive job-hunting strategy to you, just make sure you don’t hastily sign and return offer letters before you make your final decision. Each of those offer letters you’re getting could be valid contracts, and if you sign one, you can be sued for not taking the job.

[READ MORE - Can a company sue me in Malaysia if I turn them down after signing the letter offer?]

As mentioned, not all offer letters you receive are valid contracts, like those which do not list down the terms of your employment, or those which contain a term saying that the offer letter is subject to another contract or further negotiation. So unless you know for sure that the offer letters are not valid contracts, don’t go signing them to “book” the position - the company can stand to lose time and money (which they can sue you for).

But relax, just because you can be sued doesn’t mean you will be. The company can only claim nominal damages (just a token sum) from you unless they suffered losses from your failure to follow through with the offer letter (like recruitment costs and time needed to headhunt another candidate, etc). While you might not be sued in the end, it’s still best to be prudent about signing because you don’t want to build a reputation for disappearing on companies and breaking contracts left right centre.


Always read AND understand what you’re signing

Imagine thinking that you aren’t allowed to work in the same industry for a year after leaving a company, only to find out later than you were misled, and you didn’t really need to respecialize to get another job. We like the idea of lifelong learning and all, but you could have avoided a very unnecessary struggle if you knew sooner.

If the idea of reading contracts full of confusing legal jargon tastes bad to you, you can ask your the HR department to clarify and explain the contract (don’t take “this one don’t need to know” or “too complex to explain” for an answer). You can also check out our guide to reading a 50 page contract without falling off your chair.

[READ MORE - How to not fall off your chair when given a 50 page contract in Malaysia]

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JS Lim

Jie Sheng knows a little bit about a lot, and a lot about a little bit. He swings between making bad puns and looking overly serious at screens. People call him "ginseng" because he's healthy and bitter, not because they can't say his name properly.