As sellers typically seek a clean exit while buyers may wish to retain operational staff, employment transfers are common in business asset sales in Malaysia.
This guide sets out a step-by-step approach to documenting business sale employment transfers in compliance with the Employment (Termination and Lay-Off Benefits) Regulations 1980 (the Regulations).
Step 1: Negotiation
At the negotiation stage, the buyer and seller should have a clear understanding of whether employees are intended to continue with the business after completion, and if so, to what extent.
Depending on the nature of the business and the transaction structure, this may involve all employees, selected employees, or no employees at all.
Step 2: Documentation
If the buyer intends to offer employment to existing employees of the business, this intention should be documented in writing, whether in a Letter of Intent or a Business Asset Sale / Sale & Purchase Agreement (SPA).
Where documented in the SPA, this arrangement typically becomes a binding obligation on the buyer treated as a condition precedent to completion.
Importantly, Regulation 8(1) of the Regulations states that where employees are offered continued employment, the terms offered must not be less favourable than the employee’s existing employment terms.
Step 3: Implementation
Under Malaysian law, employments cannot technically be “transferred”.
Instead, the process involves a termination by the seller and a new employment offer by the buyer. Once the SPA is signed and the relevant conditions precedent are to be implemented:
Seller’s role
Unless the employee consents to waiving the notice period, the seller must serve a termination notice on the employee with a notice period not less than that stipulated under the Employment Act 1955, regardless of whether the employment contract provides for a shorter notice period.
| Length of Employment | Notice Period |
| Less than 2 years | 4 weeks’ notice |
| 2 years or more but less than 5 years | 6 weeks’ notice |
| 5 years or more | 8 weeks’ notice |
Buyer’s role
Under Regulation 8(1) of the Regulations, the buyer must make a new employment offer to the employee within seven days from the change of business ownership or the employee will be entitled to termination (lay-off) benefits under Regulation 8(2).
Where a compliant new employment offer is made within the 7-day period:
- the employee will not be entitled to termination benefits; and
- the employee cannot unreasonably refuse the offer (failing which, termination benefits will not apply)
Continuity of employment period
Where an employee accepts a new employment offer from the buyer in connection with a business sale, Regulation 8(3) provides that the employee’s period of employment is treated as continuous.
In practical terms, this means the employee’s length of service with the seller is generally carried over to the buyer for employment-related purposes.
Buyers should take this into account when offering employment, as continuity of service may affect future statutory entitlements, while sellers benefit from clarity that employment has been properly transitioned in accordance with the Regulations.
Conclusion
In a business asset sale, employment continuity benefits from a clear procedural approach that gives both sellers buyers certainty, and those who need help with structuring or documenting conditions precedent and employment-related contracts are welcome to get in touch.
