Asia-Pacific employment law bulletin 2025

Malaysia

2024 was a quieter year for employment law, compared to 2023 when the Employment Act 1995 was substantially amended. However, some changes have still been made to certain Malaysian employment laws and this included:

Increase of the ceiling monthly salary, applicable for social security contributions

The monthly ceiling salary for this purpose has been increased to RM 6,000 (USD 1,333) from RM 5,000 (USD 1,111).

Whilst all employees and employers are required to contribute to social security based on actual salaries, employees earning more than the ceiling monthly salary will now have their contributions calculated based on a maximum of RM 6,000. This amendment is effective from October 2024. However, there is a transition period for all employers to comply with these revised contributions spanning from 1 October 2024 until 31 March 2025. During this period, there will be no penalties for non-compliance. The revised rates apply to both local and foreign employees.

Increase of minimum wages effective from 1 February 2025

In October 2024, during the tabling of the 2025 budget in Parliament, it was announced that monthly minimum wages would be increased to RM 1,700 (USD 377.8). Effective from 1 February 2025, employers must ensure compliance with the revised monthly minimum wage (which was previously RM 1,500 (USD 333.3)). However, employers with less than 5 employees are only required to comply with the new minimum wage by 1 August 2025. Professional services organisations, such as legal, accounting, engineering and medical services providers, are excepted from this phased approach, and will have to comply from 1 February 2025, regardless of their employee headcounts.

Reiteration that selection for retrenchment must be genuine and not based on collateral reasons

In a recent case, a first award of 2025, the Industrial Court drew two important conclusions in relation to collective dismissals. The first is that employers must not attempt to use retrenchment as a guise for dismissing employees for other reasons, for instance based on a non-compliance issue which had been dealt with by way of a warning (which was the case brought by the claimant and that the court considered unfair). This follows the existing approach of the Courts, which have in the past repeatedly held that as far as performance issues are concerned, they should be managed through a proper process of performance management and the employee should not be conveniently terminated as part of a retrenchment. The other conclusion is that if an employee has been punished previously for a misconduct or breach, this must not be used again as a reason to terminate the employee on the basis of retrenchment.

In the concerned case, the employer dismissed an employee in June 2020 due to severe financial difficulties faced during the COVID-19 pandemic. While the economic situation of the employer was not in dispute in this case, the selection criteria that led to the retrenchment of the claimant, were.

The criteria used by the employer were based on its ’best fit’ policy, which consisted in a demerit points system. If an employee received a warning or any other disciplinary action during the year, points would be deducted.

In the case at hand, the employee had received a warning in 2019 for non-compliance with a company policy, and had 35 out of 100 points deducted, leaving him with 65 points at the time of the retrenchment exercise. He was rated ‘poor’ as a result and not considered a ‘best fit’ for the employer.

The Court recognized that employers may not necessarily have to follow the ‘last in, first out’ principle as prescribed under the Code of Conduct for Industrial Harmony, but can choose an alternative selection method for retrenchment. That said, if an employer uses some other selection method, such method will be subject to scrutiny by the Industrial Court for fairness and reasonableness.

In this case, the Court did not agree with the employer for two reasons. Firstly, because the employee was being punished twice for the same non-complying act, and secondly, because there was no clear evidence that the employee was not needed by the employer. It may well be different if it was repeated misconduct where the Court may have considered the unchanging attitude or conduct of an employee despite having been warned.

Contributors: Yong Hon Cheong - Zaid Ibrahim & Co.