# Are non-compete clauses enforceable in Malaysia?

> Post-termination non-compete clauses are void in Malaysia under s.28 of the Contracts Act 1950, and reasonableness does not save them — here is what protects the business instead.

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

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Almost every Malaysian employment contract carries a non-compete clause, and almost
every one of them is void. This is not a close question, and it is not a matter of
drafting quality.

## What section 28 says

Section 28 of the Contracts Act 1950:

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

Three exceptions follow, and they are exhaustive. **Exception 1** allows the seller of
the goodwill of a business to agree not to carry on a similar business within specified
local limits, so long as the buyer carries on a like business there, and provided the
limits appear reasonable to the court. **Exception 2** allows partners, on or in
anticipation of dissolution, to agree not to carry on a similar business within such
limits. **Exception 3** allows partners to agree not to carry on any other business
during the partnership.

There is no fourth exception for employees, and there is no general saving for
reasonable restraints.

## Why English drafting does not transfer

English law treats restraint of trade as presumptively unenforceable but saveable where
it protects a legitimate business interest and goes no further than reasonably
necessary. Practitioners then negotiate scope, duration and geography.

Malaysia does not run that analysis for post-termination employment restraints, because
Parliament replaced the common-law position with a statutory rule. Trimming twelve months
to six, or the whole country to the Klang Valley, does not change the outcome.

Note the internal evidence: **Exception 1 is the only place where reasonableness
appears**, and it appears as a proviso to a specific exception. Its presence there
confirms its absence everywhere else.

## What the clause does and does not destroy

Section 28 voids **the clause**, not the contract. An employment contract containing a
non-compete remains fully binding in every other respect, and the employer cannot use
the invalid clause as a reason to withhold pay, benefits or a release.

Nor does an unenforceable clause become harmless. Threatening litigation on a void
covenant, or telling a prospective employer that the person is restrained, is a
commercial and reputational exposure of its own.

## What actually protects the business

Move the protection from *where the person may work* to *what the person may use*.

**Confidentiality and trade secrets.** An obligation not to use or disclose the
employer's confidential information is not a restraint on exercising a trade — the
former employee remains free to work anywhere, using their own skill and general
knowledge. Define the information with specificity; a clause that sweeps in everything
the employee learned starts to look like a restraint in disguise.

**Intellectual property assignment.** Present assignment of work product, with an
obligation to execute further documents, secures the asset rather than restricting the
person.

**Notice periods and garden leave.** During the notice period the contract subsists and
the employee is still your employee, so keeping them off client work is a management
decision inside a live relationship rather than a post-termination restraint. Keep
paying full wages, and remember s.12(2) requires the notice length to be equal both ways.

**Non-solicitation of customers and staff.** These are drafted as protections of the
employer's connections rather than as bans on trading, and they are the most commonly
attempted workaround. Treat them as exposed rather than safe: a clause that in practice
prevents the former employee from working in their industry will be read for what it
does, not what it is called.

**Retention of the relationship itself.** Client contracts held by the company rather
than the individual, and shared account ownership, protect revenue better than any
covenant.

## Common mistakes

**Assuming a short, narrow clause survives.** Duration and geography are not the test in
Malaysia, because there is no test.

**Copying a Singapore or UK precedent.** Both jurisdictions apply a reasonableness
analysis that s.28 displaced here.

**Paying for the restraint.** Consideration does not validate a void agreement.

**Relying on a director's or shareholder's covenant without checking which exception
applies.** A restraint given by a **seller of goodwill** on a share or business sale can
fall inside Exception 1, subject to the reasonable-limits proviso — but that is a
different instrument from the seller's employment contract, and the two should not be
conflated.

**Leaving the clause in as a deterrent.** In an unfair-dismissal file, an unenforceable
restriction is evidence about how the employer treats its people.

## What's next

Strike the post-termination non-compete from your standard contract and reinvest the
drafting effort in a specific confidentiality schedule, a clean IP assignment and a
notice period long enough to hand over properly. Then check the rest of your template
against [what else is unenforceable in a Malaysian employment
contract](/en/employment/employment-contract-malaysia).

## Sources

- 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)
- 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)

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