Understanding The Different Types of Employment Contracts in Malaysia

In Malaysia, the employment landscape is governed by a variety of contract types, each with its own legal implications and practical considerations. Understanding these contracts is crucial for both employers and employees to ensure compliance with the law and to safeguard their respective rights and obligations. This article explores the different types of employment contracts in Malaysia and discusses the consequences of breaching the employment contracts.

1. Permanent Employment Contracts

Permanent employment contracts offer long-term employment with no specified end date. Under this type of contract, employees are entitled to full benefits, including annual leave, sick leave, and other statutory benefits as stipulated under the Employment Act 1955.

Key Features:

  • Job Security – Employees have a stable and continuous job with no end date.
  • Notice Periods – Specific notice periods for termination are outlined in the contract.

2. Fixed-Term Employment Contracts

Fixed-term employment contracts are employment contracts that last for a specific duration. These contracts are common in project-based industries or where temporary manpower is required. At the end of the contract term, the employment relationship automatically terminates. These contracts are also governed by the Employment Act 1955, which ensures that employees under fixed-term contracts receive the same protections as permanent employees for the duration of their contract.

Key Features:

  • Specified Duration – The contract clearly states the start and end dates.
  • Termination at End of Term – Automatically terminates when the period for which the contract was made has expired or when the specified piece of work has been completed.

3. Apprenticeship/ Internship/Training Employment Contracts

These employment contracts are designed for individuals who are gaining practical experience and training in a specific trade or profession. They are particularly common in technical and vocational fields, as well as in professional sectors. Under the Employment Act 1955, an “apprenticeship contract” means a written contract entered into by an apprentice with an employer, who undertakes to employ and train the apprentice systematically for a trade for a period between 6 months to 24 months.

Key Features:

  • Training and Development: Focus on providing practical experience and skills development.
  • Duration: Typically lasts for a specific period, usually aligned with the duration of the training program or academic requirement.

4. Part-Time Employment Contracts

Part-time employment contracts cater are designed for employees who work on an irregular basis or for fewer hours than full-time employees. Under the Employment Act 1955, a part-time employee is defined as an employee whose average hours of work per week are more than 30% but less than 70% of the normal hours of work per week of a full-time employee employed in a similar capacity in the same company. These contracts are common in sectors like retail and hospitality. In addition to the Employment Act 1955, part-time employees are also subject to the Employment (Part-Time Employees) Regulations 2010, which provides specific protections and benefits to part-time employees.

Key Features:

  • Flexible Hours– Employees work on an as-needed basis.
  • Less Job Security – Typically less job security compared to permanent roles.

When comparing contract and permanent employment in Malaysia, several factors come into play, including job security, flexibility, cost considerations, and talent acquisition. Understanding these differences can help employers and employees make strategic decisions that align with their needs and long-term goals.

1. Job Security

Permanent Employment – it offers higher job security with an indefinite duration of employment. Employees are likely to be more loyal and lead to better retention rates.

Contract Employment – it has a predetermined end date, employees may focus more on completing specific projects rather than long-term career growth within the company.

2. Flexibility or Stability

Permanent Employment – it provides a stable workforce, which is essential for roles that require continuity and long-term commitment. It also enables better long-term planning for both employers and employees.

Contract Employment – it provides greater flexibility for both employers and employees. Employers can hire talent for specific projects without long-term commitments, while employees can explore various opportunities and gain diverse experiences. Additionally, employers are also not obligated to retain employees beyond the contract period.

3. Cost Considerations

Permanent Employment –It typically incurs higher fixed costs due to salaries, benefits, and other contractual contributions. Long-term employees may require more investment in training and development to ensure ongoing growth and productivity.

Contract Employment – It allows for more flexible budgeting as labour costs are tied to specific projects and timelines. Termination costs may be minimised since contracts have predetermined end dates.

4. Talent Acquisition

Permanent Employment –Permanent roles attract candidates looking for stability and long-term career prospects, helping to build a dedicated and committed team.

Contract Employment – Contract roles attract candidates seeking flexibility, diverse work experiences, and opportunities to apply specialised skills to specific projects.

Understanding the different types of employment contracts in Malaysia and the distinctions between contract and permanent employment is crucial for both employers and employees. However, it is equally important to recognise the potential issues that can arise from breaching these contracts. A breach of an employment contract occurs when either party fails to fulfil the terms and conditions agreed upon.

1. Employer’s Breach

Employer can breach an employment contract in several ways. Common scenarios include:

  • Terminating an Employee Without Required Notice – Dismissing an employee without adhering to the notice period stipulated in the employment contract.
  • Failing to Pay Wages – Delaying or unlawfully withholding wages or any other agreed-upon compensation.

2. Employee’s Breach

Employee can breach an employment contract in several ways. Common scenarios include:

  • Resigning Without Notice– Leaving the job without providing the notice period required by the employment contract.
  • Misconduct –  Engaging in behaviour that violates company policies or the terms of the employment contract, such as theft, harassment, or fraud.

3. Legal Remedies

In cases of breach of employment contract, the aggrieved party usually seek legal remedies through the Labour Court or the Industrial Court, depending on the nature of the dispute.

The Labour Court handles disputes related to wages or any other payments due to employees, including issues such as unpaid salaries, overtime pay, and other financial entitlements. The Industrial Court hears cases involving unfair dismissal of employees and other significant employment disputes.

Legal remedies that may be granted include:  

  • Reinstatement – The Industrial Court may order the employee to be reinstated in his former employment. The effect of reinstatement would mean to restore the employee to his last position with the employer.
  • Compensation – Financial compensation for losses incurred due to the breach. For example, the Labour Court may order employers who commit any offence under the Employment Act 1955 to be fined up to RM 50,000. The Industrial Court may award financial compensation to employees for unfair dismissal, which can include back wages up to 24 months, post-dismissal earnings and other related losses.

Understanding the different types of employment contracts in Malaysia is essential for both employers and employees. Each contract type has its own advantages and challenges, choosing the right one depends on the specific needs and circumstances of the parties involved. Furthermore, understanding the implications of a breach of employment contract is crucial, as it ensures that both parties are aware of the potential legal consequences and remedies available.

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