Legal Aspects of HRM

2006 UNITAR All Rights Reserved

Contents
Why compliance with labour laws is important?

The historical background of Malaysias labour law

The role of the Ministry of Human Resources and its departments in administering labour laws Some significant provisions in major labour laws Managerial decisions and practices that will avoid legal liability

WHY COMPLIANCE WITH LABOUR LAWS IS IMPORTANT

It helps you do the right thing to do

Recognise the limitations of your firms HR department Minimise your firms potential liability

THE HISTORICAL BACKGROUND OF MALAYSIAS LABOUR LAW

THE EARLY ERA

The development and enforcement of labour laws in Malaysia began to take shape upon the arrival of migrant labourers from China and India during British colonial rules in the 19th century.
The labour laws established pertained mainly to matters concerning immigration, entry of forced labour, housing, and health. In 1912, the first labour office was established in the Straits Settlement and Federated Malay States.

THE HISTORICAL BACKGROUND OF MALAYSIAS LABOUR LAW

THE CONTEMPORARY LABOUR LAWS

The basic principles that govern the relationship between the employer and the employees in Malaysia were derived from three main sources:
English Common Law Malaysia Written Statutes, Decisions of the Civil and Industrial Courts.

MAJOR LAWS INFLUENCING

EMPLOYMENT PRACTICES
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. The Employment Act 1955 The Wages Council Ordinance 1947 Employment (Termination and Lay-Off Benefits) Regulations 1980 The Children and Young Persons (Employment) Act 1966 The Employment (Restriction) Act 1968 The Employees Social Security Act (SOCSO) 1969 The Workmens Compensation Act 1952 Employees Provident Fund Act (EPF) 1951 Occupational Safety and Health Act 1944 The Trade Unions Act 1959 The Industrial Relations Act 1967

THE MINISTRY OF HUMAN RESOURCES

The basic objectives of the Ministry are: To protect the welfare of workers their safety, health and rights; To promote good employer-employee relationships through a stable and peaceful industrial relations system; To equip the unemployed with basic industrial skills and to improve the skill level of the work force; and To assist in maximising the countrys manpower resources through manpower planning.

2006 UNITAR All Rights Reserved

THE MINISTRY OF HUMAN RESOURCES

Departments in the Ministry:

Department of Labor
Enforces the: The Employment Act, 1955 The Workmens Compensation Act, 1952 The Wages Councils Act, 1947 The Children and Young Persons Act (Employment), 1966 The Employment (Restriction) Act, 1968 The Workers Minimum Standards of Housing and Amenities Act, 1990 The South Indian Labor Fund Ordinance, 1958 (revoked in 1999)

This department can also convene the labor court Industrial Court Department of Skill Development
2006 UNITAR All Rights Reserved

THE MINISTRY OF HUMAN RESOURCES, contd. Department of Industrial Relations

Administers: The Industrial Relations Act, 1967 and helps in settling disputes between employers and employees through conciliation

Department of Trade Unions

Enforces: The Trade Unions act, 1959. It has the authority to register and deregister trade unions, check a unions annual accounts and generally to investigate complaints made against a trade union.

Department of Occupational Safety and Health

Enforces: The OSHA, 1994 and the Factories and Machinery Acts, 1967

2006 UNITAR All Rights Reserved

THE EMPLOYMENT ACT 1955

This Act sets the minimum labor standards for workers and seeks to protect them from exploitation.
The main areas covered in this Act are: Definition and types of employees covered Contracts of service (Section 6-17) Payment of wages (Section 18-32) Employment of women (Section 34-44) Hours of work and holidays (Section 58-60H) Termination and layoffs (Section 60J) Complaints and inquiries (Section 69-81)

THE EMPLOYMENT ACT 1955, contd.

Employees Covered Under The Act: All employees who earn less than RM1,500 per month; Employees, irrespective of their wages, who work as manual laborers supervise manual laborers operate or maintain a mechanically propelled vehicle engage in any capacity in any vessel registered in Malaysia (except officers)

THE EMPLOYMENT ACT 1955, contd.

ADMINISTRATIVE REQUIREMENTS
Section 63A of the Act requires employers to inform the nearest Labor Department's office of their business operations within 90 days of formation/ registration or commencement of their business.
The information required to be furnished includes: the registered name, address and nature of business the name of the manager or persons in charge a statement of the categories and total number of workers employed.

An employer who fails to provide such information or who gives false information is liable, upon conviction, to a fine of RM2,000.

THE EMPLOYMENT ACT 1955, contd.

A REGISTER OF EMPLOYEES
Section 61 of the Act requires employer to maintain a register of employees containing:
employees personal information (names, sex, age, home address, work permit, etc.); terms and conditions of employment (wage rates, allowances, rates for overtime work, working hours, period of notice of termination, paid holidays, etc.); up-to-date details of wages and allowances earned during each wage period. The employer should keep the register at the place of employment and should be made available for inspection by officers from the Labor Department. This register must be preserved for a period of not less than six years.

THE EMPLOYMENT ACT 1955, contd.

CONTRACT OF SERVICE Definition: A contract executed, whether orally or in writing and whether by expressed or implied condition, whereby one person agrees to employ another as an employee and that the other agree to serve his employer as an employee.

THE EMPLOYMENT ACT 1955, contd.

CONTRACT OF SERVICE
A contract of service must be in writing if the period of employment is more than 1 month. The contract of service is detailed out in the letter of appointment, and that the contract is deemed to have been accepted by the employee once he reports for work upon receiving the letter. The content of the contract of service that must be in writing should have the occupation, rates of wages and wage period, allowances, working hours, paid public holidays, annual leaves entitled, benefits, and notice of termination. RESTRICTIONS: Conditions of contract cannot be less favorable than those stipulated in the Act, and that it cannot restrict the right of an employee to join, participate in activities of, or organize a trade union.

THE EMPLOYMENT ACT 1955, contd.

NORMAL HOURS OF WORK

. . . is the usual hours of work per day less any intervals and rest for tea breaks and meals.
OVERTIME WORK

. . . . the number of hours worked in excess of the normal hours of work per day.
Currently, the EA 1955 do not allow an employee to work overtime more than 108 hours a month.

THE EMPLOYMENT ACT 1955, contd.

NORMAL HOURS OF WORK, contd.

Employees can not be required to work:

More than 8 hours a day (except where an employee works less than eight hours on any days he can be required to work up to nine hours on other days); More than 10 hours a day working intermittently (i.e. that is in excess of a spread over a period of 10 hours in one day); More than 48 hours in one week.
NOTE: Employees can not be asked to work more than 5 hours without a break of at least 30 minutes (except where work should be continuously performed, they can be given a total of 45 minutes rest within the 8 hours).

THE EMPLOYMENT ACT 1955, contd.

WAGES
Currently, there is no minimum wage legislation. The wages paid is subject to negotiations: between an employer and an employee, or between a trade union and an employer. NOTE: However, under the Wages Councils Ordinance 1947, certain categories of occupations (not unionized) are subjected to a minimum wage. shop assistants, hotel and catering industry workers, Penang stevedores, and cinema workers. Currently, the minimum wage for these groups of employees is RM250 per month.

THE EMPLOYMENT ACT 1955, contd.

WAGES, contd.
DEFINITION OF WAGES: All payments in cash payable to an employee for work done in respect of his contract of service including his basic pay but excluding: housing and utility allowances, contribution to funds or schemes established for the benefit of the employee, traveling allowances, termination benefits, bonuses, commissions overtime payment.

THE EMPLOYMENT ACT 1955, contd.

WAGES, contd.
The wage period should not exceed one month. Wages must be paid, in legal tender, within seven days after the end of the wage period. Upon a written request from the employee, the employer can deduct an employees wage for payment to: trade unions cooperative societies. Employers can deduct employees wages without first obtaining employees consent or permission for deductions authorized by law (e.g. EPF, SOCSO, etc.). The total deduction of an employees wage should not exceed 50 percent of the wages.

THE EMPLOYMENT ACT 1955, contd.

ORDINARY RATE OF PAY
The rate of pay for a day of paid leave (e.g. maternity leave, public holiday, annual leave and sick leave) and the basis for the payment for work on a public holiday, a rest day, or for overtime work is known as the ordinary rate of pay (ORP).
ORP includes basic wages and contractual bonuses but excludes housing and utility allowances, contribution to funds or schemes established for the benefit of the employee, traveling allowances, termination benefits, non-contractual bonuses, commissions, overtime payment, and payments for any work done on rest days and public holidays

THE EMPLOYMENT ACT 1955, contd.

ORDINARY RATE OF PAY, contd.
Section 60(I) provides the method for determining ORP. For a daily rated or a piece rate employee: Total wages earned in the preceding wage period* Actual No. of days worked in that wage period* *excluding the ten chosen public holidays/ rest days/any

paid holidays substituted

For a weekly rated employee: Weekly rate of

6 days
For a monthly rated employee: Monthly rate of pay

26 days

THE EMPLOYMENT ACT 1955, contd.

ORDINARY RATE OF PAY, contd.
The hourly ORP is derived by dividing the ORP per day with the number of normal hours of work (usually 8 hours). Section 7A of the EA 1955 allows any employer to provide employees more favorable terms and conditions of service than those required in the EA 1955 Thus, an employer may adopt any other method for calculating the above rate of pay, as long as the results are not less than the rate determined by the above method.

THE EMPLOYMENT ACT 1955, contd.

WAGE RATE FOR OVERTIME WORK DURING A NORMAL WORKING DAY

An employee who works overtime during a normal working day should be paid at least 1 times his hourly ORP.

THE EMPLOYMENT ACT 1955, contd.

WAGE RATE FOR WORK DURING A REST DAY

NORMAL HOURS OF WORK:

For a daily, hourly or other similar rated employee:
Half a day or less: 1 days wage More than half a day but less than 1 day: 2 days wages

For a piece -rated employee: Twice the ORP per piece

For a monthly rated employee:
Half a day or less: half days wage More than half a day but less than 1 day: 1 days wages

BEYOND NORMAL HOURS (OVERTIME)

Overtime payment at the rate of 2 times his hourly ORP

THE EMPLOYMENT ACT 1955, contd.

WAGE RATE FOR WORK DURING PAID PUBLIC HOLIDAY

NORMAL HOURS
Two days wages at his/her ORP, in addition to his/her pay he is entitled to for that day.

BEYOND NORMAL HOURS

3 times his hourly ORP.

THE EMPLOYMENT ACT 1955, contd.

REST DAY, ANNUAL LEAVE, PUBLIC HOLIDAYS & SICK LEAVE

REST DAY
one whole day in each week where an employee is allowed more than one rest day in a week, that day is also considered a rest day. No employee can be compelled to work on a rest day unless he/she is engaged in work of a continuous nature in two or more shifts.

NOTE: An employer may require any employee to work overtime or to work in situations such as accidents, work essential for the life of the community, urgent work to be done to machinery or plant, and unforeseen interruption of work.

THE EMPLOYMENT ACT 1955, contd.

REST DAY, ANNUAL LEAVE, PUBLIC HOLIDAYS & SICK LEAVE, contd.

ANNUAL LEAVE
Year of Completed Service With the Same Employer Annual Leave Entitled (No. of Days) 8 12 16

One year and over but less than two years Two years or more but less than five years Five years or more

THE EMPLOYMENT ACT 1955, contd.

REST DAY, ANNUAL LEAVE, PUBLIC HOLIDAYS & SICK LEAVE, contd.

PUBLIC HOLIDAYS
Every employee is entitled to a minimum of ten gazetted public holidays in a calendar year, inclusive of four compulsory holidays: National Day Kings Birthday Head of States Birthday Labors Day The employer can choose the other six days from the list of public holidays as announced by the government (e.g., Hari Raya Puasa, Hari Raya Haji, Chinese New Years, Christmas, Deepavali, etc.).

THE EMPLOYMENT ACT 1955, contd.

REST DAY, ANNUAL LEAVE, PUBLIC HOLIDAYS & SICK LEAVE, contd.

SICK LEAVE
Length of Service No. of Days Entitled Per Year 14 18 22

Less than two years Two years but less than five years Five years or more

THE EMPLOYMENT ACT 1955, contd.

EMPLOYMENT OF WOMEN

Female employees in agricultural and industrial undertakings are not allowed:

To work between 10:00 p.m. and 5:00 a.m. (except with the approval of the Director General of Labor) To work continuously for 11 hours without a break To work underground.

THE EMPLOYMENT ACT 1955, contd.

EMPLOYMENT OF WOMEN, contd.
She is entitled to maternity leave of 60 days if she had been employed for 90 days during the nine months and at least 90 days anytime within the 4 months immediately before the confinement, does not have 5 surviving natural children, and has notified her employer. She is entitled to receive maternity allowance at her normal rate of pay or RM6.00 a day, whichever is higher.

THE EMPLOYMENT ACT 1955, contd.

TERMINATION OF CONTRACT OF SERVICE
Normal Termination The period in the contract expires, at the completion of the work, or in accordance with the provisions in the contract. Termination requiring notices, where: The contract has no provision on termination The employer has ceased operation or moved The requirements of the job have diminished The employee refused to accept a transfer (if there is no such requirement in the contract). a change in the ownership of the business

THE EMPLOYMENT ACT 1955, contd.

TERMINATION REQUIRING NOTICE, contd.

Notice of termination: < 2 years of service - 4 weeks 2 - 5 years of service - 6 weeks > 5 years of service - 8 weeks
In lieu of notice: The party terminating the contract pays to the other party a sum equal to the wages accrued during the period of notice.

THE EMPLOYMENT ACT 1955, contd.

TERMINATION OF CONTRACT OF SERVICE, contd.
Termination for Special Reasons a) If the employee commits misconduct the employer may dismiss him/her without notice after due inquiry (or downgrade or impose any lesser punishment). b) If the employee or his dependents are threatened by danger of violence or disease he can terminate the contract without notice. Breach of Contract a) By employer - if he fails to pay wages within 7 days at the end of the wage period, or he fails to provide work or wages. b) By employee - if he is absent for more than 2 consecutive days without reasonable excuse and without informing or attempt to inform the employer

THE EMPLOYMENT ACT 1955, contd.

TERMINATION OF CONTRACT OF SERVICE, contd.

Regulation 5 of The Employment Ordinance 1980

states that an employee is deemed to have been laid-off if:
he is not assigned any work for 12 or more normal working days within a period of 4 consecutive weeks; he is not paid for the period in which he is not assigned any work.

THE EMPLOYMENT ACT 1955, contd.

TERMINATION & LAY OFF BENEFITS
The Employment (Termination and Lay-off Benefits) Regulations 1980 states that the employer is not liable to pay any termination or lay-off benefits under the following categories of termination of services: upon attaining the age of retirement as stipulated in the contract of service; dismissal as a result of misconduct after due inquiry (i.e. a proper domestic inquiry); voluntary termination of service for personal reason;

Contd. on next slide

THE EMPLOYMENT ACT 1955, contd.

TERMINATION & LAY OFF BENEFITS, contd.

renewal of contract of service or re-engagement made by the same employer under a new contract of service on the terms and conditions which are not less favorable than the previous contract;
renewal or re-engagement takes effect on the ending of his employment under the previous contract; renewal of contract of service or re-engagement under a new contract, has been offered at least 7 days before the date of termination of service and the terms and conditions are not less favorable than the previous contract;
Contd. on next slide

THE EMPLOYMENT ACT 1955, contd.

TERMINATION & LAY OFF BENEFITS, contd.
offer of renewal or re-engagement has been unreasonably refused by the employee;
after receiving notice of termination of contract of service, the employee leaves the service without prior consent of the employer, or without paying the employer the indemnity due in accordance with the EA 1955; where there is a change of ownership of the business, the new owner, within 7 days of the change offers to continue to engage the employee under the terms and condition of employment not less favorable than those before and the employee unreasonably refuse the offer.

THE EMPLOYMENT ACT 1955, contd.

TERMINATION & LAY OFF BENEFITS, contd.
Regulation 3 of The Employment Ordinance 1980 stipulates that an employer can be liable for payment of termination or lay-off benefits to employees if: the contract of service of the employee is terminated; if the employee is being laid off (retrenched) the employee has worked for at least 12 months continuously for the same employer and the period between the date of resignation and the date of re-employment exceeds 30 days.

THE EMPLOYMENT ACT 1955, contd.

TERMINATION & LAY OFF BENEFITS, contd. Regulation 6 of The Employment Regulations 1980 stipulates that the lay-off benefits depends on the employees length of service:
No. of Days Wages Entitlement for each Length of Completed Service Year of Employment 1 Year but less than two years 10 Two years but less than five years 15 Five years or more 20 Pro-rata basis for an incomplete year, calculated to the nearest month.

THE CHILDREN AND YOUNG PERSONS (EMPLOYMENT) ACT 1966

PURPOSE: Prevent exploitation of child labor. A child (under 14 yrs.) can only engaged in light work in a family business Young persons (14-16 yrs.) are restricted to working: in light work which does not involve the use of machinery a maximum of 7 hours a day not later than 8:00 p.m. THE EMPLOYMENT (RESTRICTION) ACT 1968 All non-Malaysian citizens are required to hold valid work permits before they can be employed locally.

2006 UNITAR All Rights Reserved

PRACTICES THAT CAN AVOID LEGAL LIABILITY

PROVIDE TRAINING Provide supervisors, managers, and executives with regular updates on labor law and other related issues through regular, focused training sessions. Employers should focus on communicating to employees their commitment to a fair and just treatment of all employees. ESTABLISH A COMPLAINT RESOLUTION PROCESS Establish a process for the internal resolution of employee complaints Employee morale can be improved when employees are able to pass along their concerns to upper level management.

2006 UNITAR All Rights Reserved

PRACTICES THAT CAN AVOID LEGAL LIABILITY, contd.

Document HR Decision
The nature of any HR decision, and the rationale for it, should be clearly documented. In cases involving lawsuits, written documents provide easier preparation for the legal challenge.

2006 UNITAR All Rights Reserved