Employment Agreement in Malaysia: What a Compliant Contract Must Cover Before You Hire

A compliant Malaysian employment agreement must be in writing once it runs for more than one month, must set out how it can be terminated under section 10(2) of the Employment Act 1955, and must fall back on the Act’s own notice periods — four, six or eight weeks depending on length of service — if the contract itself is silent. Get this wrong and the exposure is not theoretical: a dismissed employee has just 60 days to file a Section 20 claim, and the Industrial Court can order reinstatement or up to 24 months’ backwages regardless of what the contract says. This guide sets out what a compliant contract must contain, what changed when Employment Act coverage was widened in 2023, and what it actually costs a business to get this wrong.

Most business owners write their first employment contract from a template found online, swap in the salary and job title, and move on. That works until the first dismissal goes wrong — at which point the contract is read clause by clause by the Industrial Court, not by HR.

When does an employment contract have to be in writing?

Under section 10(1) of the Employment Act 1955, a contract of service must be in writing once it is for a specified period exceeding one month, or for a specified piece of work that reasonably takes more than one month to complete. In practice, this covers almost every permanent or fixed-term hire the moment the offer is accepted — verbal offer letters and one-page appointment memos do not satisfy it. Section 10(2) goes further: every written contract of service must include a clause setting out how the contract may be terminated. A contract without a termination clause is not just incomplete — it is non-compliant on its face.

What must a compliant employment agreement actually contain?

Beyond the section 10(2) termination clause, a contract that will hold up under scrutiny needs to state, at minimum:

Two adjacent questions usually come up at the same point in this process: see fixed-term employment contracts in malaysia and director's service agreement in malaysia for how each is handled.

• The parties, position and reporting line — vague job titles make it harder to justify a later performance-based dismissal.

• Remuneration and statutory contributions — salary, allowances, and confirmation that EPF and SOCSO/EIS contributions are made at the prevailing statutory rates.

• Probation terms — the Employment Act sets no statutory maximum probation period; most Malaysian employers use three to six months, set out expressly rather than left implied.

• The termination clause required by section 10(2) — including notice periods, and the circumstances (misconduct, poor performance, redundancy) under which each route applies.

• Confidentiality and IP clauses rather than a non-compete — under section 28 of the Contracts Act 1950, every agreement by which anyone is restrained from exercising a lawful profession, trade or business is void to that extent. The Act’s only exceptions cover the sale of goodwill and agreements between partners; a post-employment non-compete in an employment contract falls outside all of them, and neither a narrow scope nor a short duration saves it. What does protect the business is a confidentiality clause, an IP assignment, and restraints that operate during the currency of the employment. Non-solicitation sits closer to the line and needs specific advice.

Does the Employment Act 1955 now cover every employee?

Largely, yes. The Employment (Amendment) Act 2022, in force from 1 January 2023, removed the wage ceiling that previously excluded higher-paid staff from most of the Act’s general protections — the Act now extends to private-sector employees in Peninsular Malaysia and the Federal Territory of Labuan regardless of salary for these general provisions. One nuance is still commonly misstated. A short list of provisions remains tied to a wage threshold: under paragraph 1A of the First Schedule to the Act, a person whose wages exceed RM4,000 a month falls outside subsections 60(3), 60A(3), 60C(2A), 60D(3) and 60D(4) — the rest-day, overtime, shift and public-holiday pay provisions — and outside section 60J. These are not in Part IV, which deals with deductions from wages; they sit in Part XII and Part XIIA. Section 60J matters more than the overtime points for most employers, because it is the section under which the statutory termination and lay-off benefits are made.

What notice period applies if the contract is silent?

Section 12(2) of the Employment Act sets the notice period where the written contract does not fix one. On its face it fills a gap — but it is not a free hand. Section 7 makes void any term of service less favourable to the employee than the Act prescribes, and section 12(3) requires at least the four, six or eight-week periods regardless of anything to the contrary in the contract of service where the termination is attributable to closure of the business, redundancy, an employee’s refusal to accept a transfer, or a change in the ownership of the business. A contractual period shorter than the statutory minimum is not safe drafting.

Under section 12(4) the notice must be in writing, may be given at any time, and the day on which it is given counts toward the period.

What does it cost to get an employment contract wrong?

Two exposures sit behind a defective or non-compliant contract. First, a dismissed employee who considers the dismissal unfair has 60 days to file a representation under section 20(1A) of the Industrial Relations Act 1967. The sixty days run from the dismissal — but where the employee is dismissed with notice, the same subsection lets them file at any time during the notice period and up to sixty days after it expires, so the window an employer is actually exposed to is longer than the headline figure suggests. Second, if the claim succeeds the remedies are not capped by anything the contract says. Section 30(6A) requires the Industrial Court to take into account the factors in the Second Schedule to that Act, which limits backwages to 24 months’ last-drawn salary for a confirmed employee and 12 months for a probationer, on top of possible reinstatement. Separately, where a role is made redundant rather than the employee dismissed for cause, the Employment (Termination and Lay-Off Benefits) Regulations 1980 set minimum termination benefits — ten days’ wages per year of service under two years, fifteen days between two and five years, and twenty days at five years or more — for employees with at least twelve months’ continuous service, separate from and in addition to any notice pay. Those Regulations are made under section 60J, so they do not reach an employee earning more than RM4,000 a month. For that group the redundancy terms are whatever the contract says, which is precisely why the contract has to say something.

Employment agreement compliance checklist

Frequently Asked Questions

Does every employee in Malaysia need a written contract?

Not by law in every case, but in practice almost always. Section 10(1) of the Employment Act 1955 requires writing once the engagement exceeds one month, which covers nearly every permanent hire. Even where the Act does not strictly require it, an unwritten contract makes a later dispute far harder to defend.

Can an employer set a shorter notice period than the Employment Act default?

Not safely. Section 12(2) lets the contract fix the length of notice, but section 7 makes void any term of service less favourable to the employee than the Act prescribes, and section 12(3) applies the four, six and eight-week minimums regardless of what the contract says where the termination is for closure of the business, redundancy, refusal of a transfer, or a change in business ownership. A contract can set a longer notice period; drafting below the statutory minimum invites a challenge.

Does the Employment Act 1955 now apply to managers and high earners?

Yes, for most of the Act’s general provisions, since the 2023 amendment removed the wage ceiling. A short list still turns on wages: under paragraph 1A of the First Schedule, an employee earning more than RM4,000 a month falls outside the rest-day, overtime, shift and public-holiday pay provisions (subsections 60(3), 60A(3), 60C(2A), 60D(3) and 60D(4)) and outside section 60J, which is what carries the statutory termination and lay-off benefits.

What happens if a dismissal is challenged and the contract is non-compliant?

The employee has 60 days to file a Section 20 representation — running from the dismissal, or, where they were dismissed with notice, up to sixty days after that notice expires. If the Industrial Court finds the dismissal was without just cause or excuse, remedies can include reinstatement or backwages of up to 24 months’ last-drawn salary for a confirmed employee, or 12 months for a probationer — a defective contract does not limit that exposure, it usually widens it.

Is a template employment contract enough?

A template gets the format right and often gets the substance wrong — missing the section 10(2) termination clause, a restraint-of-trade clause that section 28 of the Contracts Act 1950 makes void, or a notice period that contradicts what the business actually intends. The gap only shows up when it is tested in a dispute.

Getting your employment contracts documented properly

A compliant employment agreement is cheaper to get right at hiring than to defend at dismissal. Legal That Works advises Malaysian businesses on employment agreement drafting — a fixed-scope service covering a legal discovery call, a custom reusable contract template, execution and stamping arrangements, and one round of revisions. If you are hiring in the next few weeks, get the contract right before the offer goes out rather than after a dispute forces the review.

This article is for general information only and does not constitute legal advice. Every employment relationship and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

Related guides

• Fixed-Term Employment Contracts in Malaysia

• Director's Service Agreement in Malaysia

• Retrenchment in Malaysia

• IP Assignment Agreements in Malaysia

• Joint Venture Deadlock