2019

PROTECTING AGENCY
WORKERS IN MALAYSIA
REVIEW OF CURRENT LEGISLATION & RECOMMENDATION
FOR FUTURE CHANGES
PURPOSE OF REPORT

This report aims to understand Malaysia’s current labor regulations and its effectiveness in
supporting and protecting non-standard forms of employment. More particularly, this report aims to
assess Malaysia’s legislations in light of its effectiveness in protecting the jobs and working
conditions of agency workers (see definition below). This report will also seek to identify
international best practices for the protection of non-standard workers in both the ASEAN, East
Asian and European regions. Lastly, this report will conclude by recommending some changes to the
Malaysian legislation in order to better protect Malaysian agency workers.

PROBLEM STATEMENT

Agency workers are currently employed by Malaysian schools to provide cleaning and security
services. However, these workers lack any form of job security, wage parity and other job benefits
such as pension and social security contributions.

KEY DEFINITIONS

1. Agency Workers- An agency worker has a contract with an employment agency but works
temporarily for a hirer (principal). Thus, they are part of a triangular employment
relationship (as shown below):

2. Agency worker does not include:

a. Worker who finds work through an agency but is self-employed

b. Worker who uses an agency to find permanent or fixed-term employment
c. Worker takes pay from agency for period between jobs. In this case, the worker is
deemed to be an employee of the agency.

3. An agency worker should be differentiated from a worker who is employed by a sub-

contracting company. For example, many businesses outsource (contract out) non-essential
aspects such as cleaning and security to sub-contractors. These sub-contractors employ a
large force of cleaners and security personnel who are then posted to various sites of their
clients. These workers are employees of the sub-contracting firm and thus, are considered
full-time employees. Thus, they will benefit from all rights under the current Malaysian labor
laws.
MALAYSIA’S CURRENT STATE ASSESSMENT

Key Takeaway: Malaysia does not have adequate protection mechanism for agency or other non-
standard workers from legislative, legal or operational standpoints.

Table 1: Applicability of Malaysian laws to different types of workers (Green: Applies; Yellow: Partly Applies; Red: Does
not Apply)

Employees Part-time /Fixed Agency Workers/Other non-

Term standard
Employment Act
Industrial Relations Act
Social Security Act
Part-time Employment Act

Legislation in Malaysia

The following are the main categories of legislation that govern workers’ rights in Malaysia:

1. Employment Act
2. Industrial Relations Act
3. Part-time Employment Act
4. Social Security Act

The above legislations mostly cater to employees of an organization. An employee of an organization

is someone who has a “contract of service” with the employer directly. However, no guidance has
been provided regarding the status of agency workers within the labor market. This is of particular
significance because job protection is mandated under Industrial Relations Act and is only catered to
employees of organizations. While this provision does not preclude agency workers from registering
complaints against employers for job-related transgressions with the Director General of Industrial
Relations, it doesn’t guarantee protection of agency workers either. Thus, in the event of unfair
dismissal, an agency worker can only rely on contractual rights to seek remedy. Further, Social
Security Act also caters to employees only. This means that agency workers do not have access to
basic social safety net in terms of pension and social security contributions

A clear exception to the above is stated in the Employment Act because it guarantees payment of
wages to all workers (including agency workers). This is mandated under the section for “Contractor
for Labor” and it holds both the contractor (job agency) and the employer jointly liable for all the
wages payable to the agency worker.

Legal Precedents in Malaysia

Given the lack of legislations, the second line of protection for agency workers can only come from
existing case law. While I have not been able to find precedent cases relating to agency workers and
their employment status, I have found cases which showcase criterion used to determine whether a
 person can be deemed as an employee (Refer: Henry Eliathamby v Tootpay Sdn Bhd [Award No.
1459 of 2018, 28 June 2018]). A summary of the main factors considered by the Industrial Court are:

a. the nature of work performed by the individual;

b. the degree of control exercised by the employer over the individual;
c. the length of time / the period in which the individual performed the work;
d. contractual terms if any ;
e. whether the individual was treated the same as other permanent employees in the
Company etc.

Thus, agency workers are allowed to take employers to the court but there is no definitive guide
about treatment of agency workers. In the end, the litigation process can become very expensive
without any guarantee of agency worker protection.

Operational Level Legislations

Without legislative and legal protections, operational level safeguards can protect agency workers
from untoward discrimination in the workplace. In Malaysia, the Private Employment Agency Act
lays down the rules for the licensing, functioning and termination of a private employment agency.
However, it doesn’t lay down operational standards that an employment agency must follow in
order to procure a license and/or renew one. For example, in South Korea, private employment
agencies are only granted licenses if they have at least 4 clients (either operating or agreed to
procure services). This aspect provides protection to workers in the event of unforeseen dismissal as
they can be rotated to any of their other clients if necessary.

AGENCY WORKER LEGISLATION COMPARISON

Indonesia Malaysia Philippines Japan Korea UK/EU

Existence of specifications on sectors, business
activities and types of jobs where use of agency
work is allowed
Laws and regulations on manpower recruitment
and supply are complemented by stricter and
special regulations on the licensing and
operation of labour/manpower supply and
dispatch
Clearly stipulated provisions on the rights and
legal entitlements of workers under triangular
employment relations
Solidary liability: clear provisions that principals
or user companies are jointly liable with the
manpower supplier for the latter workers’
wages, overtime pay, holiday pay etc
Clearly stipulated rights of agency workers in
triangular employment arrangements
AGENCY WORKER RIGHTS IN INTERNATIONAL UK/EU

This report will utilize UK/EU as a model set of jurisdictions as they are most advanced in terms of
not just regulating agency workers but also taking a proactive step in protecting the agency workers’
rights.

Bulk of the legislation in UK and EU are capsulated under Agency Workers Regulations and EU
Directive on Temporary Agency Workers. These regulations protect minimum basic working
conditions of the agency workers. As per the rules, the agency workers are entitled to same access
of facilities and opportunities to apply for full-time positions (if available) from the very first day. If
the worker stays for longer than 12 weeks, he/she receives “equal treatment” where the all the
benefits accruing to the worker (i.e. salary, bonus, pension contribution, leave etc.) should be the
same as that of a comparable full-time employee with similar level of experience. However, the
provision of “equal treatment” does not allow agency workers to be automatically treated as an
employee of the hiring organization. The interpretation of the employment status of the agency
worker is left to the courts to decide. Thus, an agency worker is not guaranteed to be able to sue or
take the employer to court for potentially unfair dismissal practices.

In order to determine the status of an agency worker, courts will normally look at the role the
agency worker plays in the employing organization and the role he/she is stipulated to play in the
contracts. Then based upon circumstances particular to the case, a decision will be made regarding
the employment status of the worker. This is one of the few shortcomings of the UK/EU regulations
and thus, are currently being debated in order to close such gaps.

However, several guidelines curb untoward behaviour of agencies. For example:

a. Agency must give the written terms under which they will seek employment on behalf of the
worker. For example:
a. whether the worker is employed under a contract for services or a contract of
employment
b. worker’s notice period
c. worker’s pay details
d. worker’s holiday entitlement
b. Agency must pay for all the work that has been done by the worker irrespective of the fact
that the agency has received payment from the principal/employer
c. Agency must be accurate when placing advertisements
d. Agencies cannot:
a. Prevent the worker from taking a permanent position at the employer
b. Change terms of engagement with the worker without informing the worker first
c. Charge a fee for finding work
d. Stop the worker from registering at other agencies etc.
RECOMMENDATIONS FOR MALAYSIA

I do not believe that there are any short-term fixes for these types of issues as they are very much
driven by legislation. Thus, any viable solution will have to address legislative reform first. However,
in the medium-term, actions can be taken to make employment agencies more responsible while
hiring and sub-contracting workers to employers. These aspects can be introduced during the
licensing phase and continuously monitored during regular inspections:

1. Improve operational requirements for private employment agency operators by amending

Private Employment Agency Act

Licensing Phase

1. Apart from capital requirements, potential business owners must showcase either
interest or present contacts from multiple clients. This will ensure more job protection
for agency workers as they will have opportunities to seek multiple employment
opportunities, which will mitigate potential dismissals from one employer.

Operational Phase

1. There must be processes in place for regular audits of employment agencies. Each
agency should be audited at least once every 3 years

2. Agencies must reveal necessary information to the workers and ensure the following are
adhered to:

i. Agency must give the written terms under which they will seek employment
on behalf of the worker. For example:
1. whether the worker is employed under a contract for services or a
contract of employment
2. worker’s notice period
3. worker’s pay details
4. worker’s holiday entitlement
ii. Agency must pay for all the work that has been done by the worker
irrespective of the fact that the agency has received payment from the
principal/employer
iii. Agency must be accurate when placing advertisements
iv. Agencies cannot:
1. Prevent the worker from taking a permanent position at the
employer
2. Change terms of engagement with the worker without informing the
worker first
3. Charge a fee for finding work
4. Stop the worker from registering at other agencies etc.

These factors will ensure that the workers are well informed of their contractual
obligations towards the agency, employer etc and vice versa. This will reduce
information gaps and result in more accurate decision making by the workers.
The long-term solution would be to enact new labor laws to better protect the agency workers. For
example:

Route 1: Accept forms of non-standard employment (such as temporary agency workers) by

introducing Agency Worker Regulations:

1. The government must persevere to firstly enact the “equal treatment” clause similar to the
UK to at least protect and ensure that agency workers who have been employed at an
organization for a longer-term are provided equal benefits as full-time employees.

2. Based upon recent International Labor Organization discussions, it is also suggested that
government enact legislation that provides agency workers who have worked for the same
employer continuously for a long-term (at least 6 to 12 months) be deemed as full-time
employees in the eyes of the law. In addition, they must also be given opportunities to
request full-time employment at the employer.

3. There must be provisions which guide that temporary agency workers are employed to carry
out duties which are not essential to the functioning of the given employer. If temporary
agency workers are used to carry out critical business function of an employer, there must
be legislative provision which recognizes these workers as full-time employees as well.

4. Allow temporary agency workers to participate in union matters in order to better represent
their interests.

5. Further, collective bargaining for less exploitative agency terms should also be allowed for
these temporary workers.

A major disadvantage of this route is that employers and agency can create contracts to prevent
employees from ever achieving “equal treatment” by intentionally entering into a series of short-
term contracts with the employee. Thus, adequate measures need to be in place in order to prevent
companies from taking advantage of such loopholes.

Route 2: Prevent any form of contractor or third-party employment mechanisms

1. Another route would be to totally ban usage of employment agencies for temporary roles
(especially for recruitment of local Malaysians). The scope of employment agencies could be
limited to serve as workforce sourcing partners. All workers (in any capacity) should have an
employment contract with the employer. This will provide protection to all workers under
the Malaysian labor laws.

2. Added advantage for taking this route is that this has support from the MTUC (Malaysian
Trades Union Congress) and several civil society bodies.

Both the above options have their own merits and demerits. However, I will still prefer to go with
Route 1 because it facilitates better business decision making while also protecting workers’ rights.
Many industries have seasonal business demands and using temporary agency workers will allow
them to best utilize the available resources. These industries will be restricted if Route 2 is followed.