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In brief

Effective 1 September 2023, any person who enters into a contract for service to supply employees to a principal1 (“Labour Contractors“) will be entitled to certain protections and subject to obligations under the Employment Act 1955 (EA).


Background

Previously, other than the agriculture sector, Labour Contractors were exempted from sections 31, 33A, 69 and 73 of the EA pursuant to the Employment (Exemption) Order 2012. However, effective 1 September 2023, the 2012 Order was revoked, which effectively means that the four provisions above will now be applicable to Labour Contractors in all sectors.

The four provisions are:

  • Section 31 relating to priority of wages and amounts due to Labour Contractors over other debts owed to secured creditors or debenture holders
  • Section 33A relating to keeping of information of the supply of labour
  • Section 69 on the Director General of Labour’s (DGL) power to inquire into complaints
  • Section 73 relating to the DGL’s power to make prohibitory orders to third parties, in relation to sums owed to the Labour Contractors by any liable person.

This Alert focuses on some of the salient rights and obligations of Labour Contractors due to this change.

Key provisions

Information relating to supply of employee (Section 33A)

All Labour Contractors are now required to:

  • Register with the DGL within 14 days before supplying or undertaking to supply an employee
  • Enter into a contract in writing for the supply of any employee
  • Maintain a register containing information regarding each employee supplied
  • Ensure that the written contracts, any related documents and register are available for inspection.

This section also specifically provides that failure to comply with the obligations above is an offence and on conviction, can attract a penalty of up to RM 50,000 (approx. USD 10,000).

DGL’s power to inquire into complaints (Section 69)

The EA empowers the DGL to inquire into and decide any claim by a Contractor for Labour against a principal for any sum due in respect of any employee provided by him. In addition, the DGL is also empowered to make consequential orders as may be necessary to give effect to his decision. Any orders for payment of money made under this section also attract interest up to 8% per year if it is not settled within 30 days from the date of order.

Failure to comply with the decision or order of the DGL is an offence and on conviction, can attract a penalty of up to RM 50,000 (approx. USD 10,000). In the case of continuing offence, the fine will be up to RM 1,000 (approx. USD 200) each day the offence continues after conviction.

Takeaways

Contractor for labour arrangements are commonly used and It is imperative that Labour Contractors and those engaging them are aware of their rights and obligations under the EA.

Non-compliance with the EA not only attracts the penalties mentioned above, but may also result in the directors, managers or similar offices being held jointly and severally liable. Further, there is also the risk of applications for approval from the DGL for the hiring of foreign employees being rejected, if there is an outstanding matter or case relating to a conviction of an offence under the EA.


1 A “principal” is defined as any person who in the course of his business or for his trade/business, contracts with a contractor for the execution by or under the contractor for the work undertaken by the principal (whether wholly or partially).

Author

Grace Chai is an Associate in Wong & Partners, Kuala Lumpur office.

Author

Trishelea is a partner in the Employment Practice Group of Wong & Partners. Her practice focuses on employment and industrial relations, and maritime and shipping law.

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