# The Malaysian employment contract, clause by clause

> Which clauses in a Malaysian employment contract are void no matter what both parties signed, and which ones the employer is actually free to set.

- Category: employment
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/employment/employment-contract-malaysia

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The contract is not the law. It is a document that operates inside the law, and
section 7 of the Employment Act 1955 says so in one sentence: any term less
favourable to an employee than the Act is **void to that extent**, and the statutory
term is **substituted for it**. Not renegotiated. Not read down. Substituted.

That single provision decides most of the questions employers actually ask about
Malaysian employment contracts, and it is why a template downloaded from a template
farm is worse than useless — it gives you confidence in clauses that will not survive
a labour officer reading them.

## What does section 10 actually require in writing?

Most guides say "any employment lasting more than a month must be in writing". That
is not what the section says.

Section 10(1) requires writing for **a contract of service for a specified period of
time exceeding one month**, and for **a contract for the performance of a specified
piece of work** where the time reasonably required exceeds or may exceed one month.
Both limbs are about contracts with a defined endpoint. An ordinary open-ended
monthly appointment is not literally caught.

That does not make an oral appointment safe. Section 2 defines a contract of service
as *any agreement, whether oral or in writing and whether express or implied* — so the
employee has every statutory right regardless, and you have no document to prove terms
you did rely on. And where you do issue a written contract, **s.10(2) makes a
termination clause mandatory**, setting out the manner in which either party may
terminate in accordance with Part II.

## Which clauses are void no matter what?

**Unequal notice periods.** Section 12(2) is explicit that the length of notice *shall
be the same for both employer and employee*. A contract giving the employer one month
and the employee three is less favourable to the employee, so s.7 voids the excess.
Where the contract is silent, s.12(2) supplies four weeks below two years of service,
six weeks from two to under five years, and eight weeks at five years or more.

**Free termination during probation.** Nothing in the contract removes a probationer's
right to make representations under s.20 of the Industrial Relations Act 1967. The
Act's own Second Schedule contemplates the dismissal of a probationer without just
cause, which settles the point.

**Deduction and forfeiture clauses.** Section 24(1) is a blanket prohibition — no
deduction may be made otherwise than in accordance with the Act. Section 24(2) lists
the four deductions an employer may make unilaterally: overpaid wages from the
preceding three months paid by mistake, the s.13(1) indemnity where notice was not
served, recovery of interest-free advances under s.22, and deductions authorised by
other written law. Trade-union dues and share purchases need the employee's **written
request** under s.24(3). Insurance schemes, third-party payments, interest-bearing
advances, purchases of the employer's goods and accommodation charges need the written
request **plus the Director General's prior written permission** under s.24(4). Total
deductions are capped at 50 per cent of that month's wages.

A clause saying "the company may deduct any loss or damage caused by the employee"
authorises nothing.

**Cash wages.** Section 25(1) requires the whole of the wages, less lawful deductions,
to be paid **into an account opened by a financial institution** in the employee's
name, or jointly with others as the employee stipulates.

**Post-termination non-compete.** Section 28 of the Contracts Act 1950 voids every
agreement restraining anyone from exercising a lawful profession, trade or business.
The three exceptions cover the sale of goodwill and partnership arrangements — none of
them covers an employee. This is the clause most Malaysian contracts get wrong.

**Union restrictions.** Section 8 of the Employment Act voids any contractual
restriction on joining a registered trade union, participating in its activities, or
associating with others to organise one.

**Waiver of maternity rights.** Section 43 makes void any condition by which a female
employee relinquishes or is deemed to relinquish a right under Part IX, and substitutes
the statutory right.

**Contracting out of leave.** Annual leave under s.60E, sick and hospitalisation leave
under s.60F, paternity leave under s.60FA and paid holidays under s.60D all run through
s.7. "Leave in this company is 8 days for all staff" is void against an employee with
five years of service, who takes 16.

## What can the contract legitimately decide?

Quite a lot, and this is where drafting effort belongs.

| The contract may | Statutory hook |
| --- | --- |
| Set terms **more favourable** than the Act, including in a collective agreement or Industrial Court award | s.7A |
| Fix a notice length longer than the statutory minimum, provided it is equal both ways | s.12(2) |
| Define misconduct, and the disciplinary process that will be run before dismissal | s.14(1) |
| Set normal daily hours below the s.60A(1) limits, and agree a compressed week within 9 hours a day and 45 a week | s.60A(1) proviso (iii) |
| Specify the wage period, the pay date within the s.19 window, and the bank-crediting mechanics | ss.18–19, 25 |
| Impose confidentiality and intellectual-property assignment, during and after employment | outside s.28 |
| Substitute other days for the six non-compulsory gazetted holidays, by agreement | s.60D(1A) |
| Provide for a fixed term, where the fixed term reflects a genuine time-limited need | s.11(1) |

## Common mistakes

**Treating the offer letter as the contract and never issuing terms.** The s.61 register
duty and the s.10(2) termination clause both assume a documented set of particulars.

**Copying an English or Singaporean template.** Restraint of trade is the obvious trap —
England applies a reasonableness test, Malaysia does not, because s.28 is a statutory
prohibition with three closed exceptions.

**Writing a probation clause that promises what it cannot deliver.** "Employment may be
terminated during probation without reason" is a sentence that produces an award against
you, not a defence.

**Using a salary-deduction clause as a discipline tool.** The lawful punishments under
s.14(1) are dismissal, downgrading, and lesser punishments including suspension without
wages for **not more than two weeks**. A pay cut imposed as a penalty is neither.

**Assuming employees above RM4,000 have no statutory entitlements.** First Schedule
paragraph 1A disapplies exactly six provisions — ss.60(3), 60A(3), 60C(2A), 60D(3),
60D(4) and s.60J. Leave, holidays, maternity, paternity, hours limits, notice, deduction
rules and payment rules all still apply.

**Forgetting stamp duty.** The instrument is chargeable, and unstamped documents have
evidential consequences.

## What's next

Read your standard contract against the list above and strike the clauses that cannot
work, rather than leaving them in as deterrents — an unenforceable clause is evidence
of bad faith when the file reaches the Industrial Court. Then confirm which of your
staff sit inside [First Schedule coverage](/en/employment/employment-act-coverage), and check the
[non-compete position](/en/employment/non-compete-clause-malaysia) before you promise a client that
your people are locked in.

## Sources

- Employment Act 1955 (Act 265), updated text as at 1 January 2023 — https://jtksm.mohr.gov.my/sites/default/files/2023-11/Akta%20Kerja%201955%20(Akta%20265)_0.pdf (Jabatan Tenaga Kerja Semenanjung Malaysia)
- Contracts Act 1950 (Act 136), reprint incorporating all amendments up to 1 January 2006 — https://lom.agc.gov.my/ilims/upload/portal/akta/LOM/EN/Act%20136.pdf (Attorney General's Chambers)
- Industrial Relations Act 1967 (Act 177), updated text as at 1 November 2021 — https://lom.agc.gov.my/ilims/upload/portal/akta/outputaktap/1690019_BI/010721_Act%20177_final.pdf (Attorney General's Chambers)

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