Malaysia
Mutual Separation Agreement was an unfair dismissal (case law)
Impact date: 27 April 2025 The Court of Appeal has ruled that an employee who signed a Mutual Separation Agreement was in fact unfairly dismissed. This case is one of many recent cases in which mutually-agreed separations have been challenged as being unlawful. In this case, the Court ruled that the Mutual Separation Agreement was not signed voluntarily, and the employee was not given reasonable time to consider the agreement or obtain legal advice. In its judgement, the Court said employers should avoid unlawfully dismissing employees under the guise of mutually-agreed separations.
Employer implications/action needed In view of recent cases, employers must handle any proposed mutually-agreed separation very carefully. Employees should be given reasonable timeframes to consider any proposals, and employers must be careful not to threaten employees with dismissal, or otherwise pressure employees into accepting separation proposals. All communications should be properly documented and preserved in the event of an employee claim.
Employer risk Mutually-agreed separations which are deemed to be unfair dismissals carry a high financial risk, with successful unfair dismissal claims potentially resulting in awards of 24 months’ backwages plus one month’s salary per year of service in lieu of reinstatement.
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Major labour ordinance changes in East Malaysia
Impact date: 1 May 2025 Labour laws in the East Malaysian States of Sabah and Sarawak have been revised to be consistent with the laws in Peninsular Malaysia, as a result of wide-ranging changes to the Sabah Labour Ordinance and Sarawak Labour Ordinance which came into force on 1 May 2025. The gap was created due to the significant amendments to the Employment Act which came into force on 1 January 2023. The major changes include expansion of the statutory coverage to cover all employees, increased paid maternity benefits, paid paternity leave, and changes to working hours and leave benefits.
Employer implications/action needed Employers with employees in Sabah and Sarawak should ensure that their employment contracts and policies are updated to reflect the significant changes to the law.
Employer risk Non-compliance with the labour ordinances may result in employee claims or regulatory action and penalties.
Mandatory stamp duties on employment contracts
Impact date: 6 June 2025 (date of directive). Impacts employment contracts entered into from 1 January 2025 The Inland Revenue Board (IRB) issued a formal directive on 6 June 2025 regarding the mandatory stamping of employment contracts. Pursuant to the directive – (i) employment contracts signed before 1 January 2025 are exempted from stamp duty; (ii) employment contracts signed from 1 January 2025 to 31 December 2025 are subject to stamp duty (RM10), but no late stamping penalty will be charged if they are stamped on or before 31 December 2025; and (iii) employment contracts signed from 1 January 2026 will be subject to the usual stamp duty and late-stamping penalties.
Employer implications/action needed All employers should proceed to arrange for all employment contracts entered into from 1 January 2025 to be stamped accordingly.
Employer risk From 1 January 2026, employment contracts must be stamped within 30 days of the contract date (stamp duty is RM10), failing which late-stamping penalties will apply (RM50 penalty if stamped late, but within three months; and RM100 penalty if stamped after three months).
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Potential increase of retirement age from 60 to 65
Impact date: Awaited The Malaysian Government is currently reviewing a proposal to raise the retirement age from 60 to 65. Under current laws, the mandatory retirement age for civil servants is 60, while private sector employees have a minimum retirement age of 60 pursuant to the Minimum Retirement Age Act 2012.
Employer implications/action needed N/A
Employer risk N/A
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Human Resources Ministry to set up one-stop labour centre in Penang
Impact date: Awaited The Human Resources Ministry will be setting up a one-stop labour centre in Penang. This pilot project will consolidate the workscope currently handled by numerous offices such as the labour office, Industrial Relations Department, Industrial Court, Trade Union Affairs Department, and Social Security Organisation. The long-term plan is for similar one-stop centres to be opened nationwide.
Employer implications/action needed Once the one-stop centre is operational, employers in Penang will have to ensure that any employment administrative or regulatory matters are redirected accordingly.
Employer risk N/A
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