8 Misconceptions and Myths About Employment Contracts in Malaysia

An employment contract is the foundation of the employment relationship in Malaysia. It sets out the rights, obligations, and expectations for both employers and employees.

Yet many companies underestimate its importance, contracts are often copied from old templates, adapted from foreign jurisdictions, or left vague. Misconceptions about contracts can cause compliance risks, disputes at the Industrial Court, and even financial penalties.

Below, we clear up the most common myths about employment contracts in Malaysia, explain the legal realities under the Employment Act 1955, and show how employers can avoid costly mistakes.

1. Verbal Agreements are Enough

Myth: A handshake or verbal agreement is enough to establish an employment relationship.

Reality: While verbal contracts are legally valid, they are risky. Without a written contract, employers may struggle to enforce terms like notice periods, leave entitlements, or job scope.

Disputes often end up being one party’s word against the other's. Under Section 12 of the Employment Act, employers must issue written contracts for employees working more than one month.

2. Notice Period is Always One Month

Myth: All employees in Malaysia only need to give or receive one month’s notice.

Reality: Notice periods vary. Under Section 12, the minimum notice depends on length of service:

Less than 2 years: 4 weeks.
2-5 years: 6 weeks.
More than 5 years: 8 weeks.

Contracts can stipulate longer notice (e.g., 2 or 3 months), but they must apply equally to both employer and employee. In practice, many employees still resign with a week notice if the Act does not cover them, but this may breach their contract.

3. Employers Can Change Contract Terms Anytime

Myth: Employers can revise terms (e.g., salary, work hours, allowances) at their discretion.

Reality: Any variation requires mutual consent. Employers cannot unilaterally reduce entitlements, extend work hours, or cut allowances. Doing so risks claims of constructive dismissal. All changes must comply with the Employment Act and be clearly recorded in writing.

4. Annual Leave is Optional

Myth: Annual leave is a discretionary benefit.

Reality: The Employment Act sets minimum statutory annual leave entitlements:

8 days for service <2 years.
12 days for service 2-5 years.
16 days for service >5 years.

Employers can grant more leave as part of a benefits package, but cannot go below the statutory minimum.

5. All Employees are Covered under the Employment Act 1955

Myth: Every employee in Malaysia is protected under the Act.

Reality: The Act primarily covers employees earning ≤ RM2,000/month or engaged in manual labour, regardless of salary. Higher-earning employees are governed by the terms of their contracts.

Employers should be careful when drafting, as over-promising statutory benefits to non-EA employees can create unintended obligations.

6. Rejecting a Job Offer After Signing the Offer Letter is Illegal

Myth: Once an employee signs an offer of employment, they are legally bound and cannot withdraw.

Reality: Employees may withdraw before starting work, though it may cause inconvenience. Legally, an offer letter is a form of contract, but enforcing it through litigation is rare and impractical. Instead, focus on robust recruitment and selection processes to avoid mismatches.

7. Probationers Have No Rights

Myth: Probationary employees can be dismissed at will since they are “on trial.”

Reality: Probationers have almost the same rights as confirmed staff. The Industrial Court has repeatedly ruled that probationers cannot be dismissed without just cause and excuse.

They are also entitled to statutory benefits such as sick leave and annual leave. Confirmation is not automatic, but a fair evaluation is required.

8. Termination Can Be Done without Reason

Myth: Employers can terminate employment by giving notice or salary in lieu, without explanation.

Reality: Malaysian law requires termination to be based on just cause and excuse, such as poor performance, misconduct, or redundancy. If challenged, employers must defend their decision before the Industrial Court. Mere compliance with notice periods does not shield against claims of unfair dismissal.

Types of Employment Contracts in Malaysia

Contract Type	Description	Key Points
Permanent	Ongoing employment without a fixed end date	Entitled to full statutory benefits and protections.
Fixed-term	Employment for a specific period	Common for project roles; renewal must be genuine, not a disguise for permanent roles.
Part-time	Fewer hours than full-time employees	Covered under Part-Time Employees Regulations; entitlements pro-rated.
Probationary	Trial period before confirmation	Entitled to statutory leave; termination must be justified.
Offer of Employment vs. Contract	Offer letter sets initial terms; full contract formalises the relationship	Employers should ensure both documents are consistent.

FAQ

What is Section 12 of the Employment Act?

It sets out minimum notice periods for termination, based on years of service, ranging from 4-8 weeks.

Is a week’s notice period valid in Malaysia?

Yes, if agreed in the contract. But under the Act, statutory minimum notice is 4–8 weeks, depending on service.

Can an employee resign without serving the 3 months’ notice period?

Employees may resign immediately by paying their salary in lieu of notice.

What happens if an employee rejects a job offer after signing the offer letter?

Legally possible, but uncommon for employers to pursue legal action. Most companies prefer to re-hire.

Is annual leave compulsory under Malaysian labour law?

Yes, minimum entitlements are set under the Employment Act. Employers may offer more, but not less.

How does the Industrial Court handle disputes over employment contracts?

The Court examines fairness, compliance with the Act, and whether termination was for just cause and excuse.

What are the consequences of not issuing a written contract of employment?

Employers risk disputes, difficulty enforcing terms, and non-compliance with Section 12.

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