THE PASSING OF EMPLOYMENT (AMENDMENT) BILL 2021: THREATS TO LABOUR DEMAND IN MALAYSIA?

To be in tandem with international labour standards and practices, the Dewan Rakyat passed the Employment (Amendment) Bill 2021 on 21 March 2022, welcoming the significant increase of maternity leave from 60 days to 98 days and introduction of 7 days paid paternity leave.

The amendment also saw the prohibition to dismiss a pregnant employee, except on the grounds of wilful breach of a condition of the contract of service, misconduct or closure of the employer’s business. It will therefore be incumbent on employers to prove that the termination was not due to pregnancy. The Bill also introduced an express prohibition against forced labour and the presumptions as to who is engaged under a contract of service or a contract for services i.e. employee or independent contractor.

The Bill also requires employers to post up a notice to raise awareness on sexual harassment and has increased the fine for employers who do not comply with sexual harassment provisions. However, these new sexual harassment provisions introduced under the Bill may still be rather limited in scope to better address sexual harassment.

EXTENDED SCOPE OF APPLICATION FOR THE EMPLOYMENT ACT 1955 AND STATUTORY MINIMUM WAGE

To extend application to all employees regardless of salary earned, the ministry will issue an order to amend the First Schedule of the Employment Act 1955 and assured that the order will be enforced simultaneously on the effective date of the Bill. The upcoming ministerial order would determine the group of employees who will benefit from the passing of the Bill but currently there is no detail on this order and its contents.

Futhermore, the government had also announced that the country’s minimum wage will be increased to RM1,500 with effect from 1 May 2022. However, micro, small and medium-sized enterprises (SMEs) will be exempted from applying the RM1,500 minimum wage rate from 1 May 2022, for now.

ADJUSTING EMPLOYMENT BENEFITS AND PROTECTION WHEN YOU CANNOT ADJUST CAPITAL

Businesses are still recovering from the financial impact of the pandemic and the passing of the Bill and the increase in minimum wage may herald both challenges and repercussions. The substantial increase in employment benefits signals substantial increase in the cost of doing business in Malaysia, which may eventually shun foreign investors from the country. Labour costs are rising, and business leaders will be on the desperate lookout for any area of the business where they can reduce spending. To maintain competitive advantage in the upcoming years against regional competitors, businesses are forced to evolve their business model to incorporate such higher labour costs.

Whenever there is an increase in labour cost or cost for an hour of work, employers face a dilemma to reduce the number of employees hired and to spread heavy workloads among smaller number of employees. The choice matters to the society. Businesses may feel the pinch and pressure to do even more with less—fewer employees, fewer resources and smaller budgets.

Knowing how employers would react to higher labour costs is essential to understanding the future labour demand in Malaysia and for predicting the underlying economic impacts of the new legislation and minimum wage. In first-world or developed countries, the impact of changes in labour costs on demand for labour may not be very apparent. They practise “At-will” employment where employees can be terminated for any reason. This is less true in developing economies like Malaysia. The direct increasing of labour cost may be easy to measure but their indirect repercussions to the overall future employment landscape and labour demand in Malaysia may be difficult to ascertain. While it is certainly a robust and plausible move to enhance protection and benefits for employees but are better days ahead for employees in Malaysia?

By Leonard Yeoh and Pua Jun Wen, Tay & Partners, Malaysia, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact malaysia@transatlanticlaw.com

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