Can an employer require an employee to remain employed for a minimum period, failing which the employee must “reimburse” the employer for the unserved period? Is this different from employment or training bonds which are generally enforceable?
In Nur Fatin Nabila binti Mohd Salehen v Ong & Partners [Award No. 709 of 2026], the Industrial Court considered the enforceability of a ‘minimum service term’ or reimbursement clause in an employment contract, and whether the existence and attempted enforcement of the clause gave rise to constructive dismissal.
Brief Facts
- The Claimant was employed as a Conveyancing Lawyer by a law firm on 1.2.2024.
- Approximately one month into her employment, disputes arose concerning the Firm’s internal processes workplace practices. The Claimant alleged that the Firm’s checklist requirements and procedures were unnecessarily rigid and caused delays to ongoing conveyancing transactions.
- The Claimant further alleged that she was called into a meeting with one of the Firm’s partners and was given 2 options:
- To resign immediately; or
- To continue working subject to compliance with the Firm’s internal requirements and procedures.
- The Claimant subsequently resigned on the grounds of constructive dismissal, contending that she had not been given any real choice in the matter.
- The Firm denied dismissing the Claimant and maintained that she had voluntarily resigned, and further argued that the resignation itself was invalid and constituted a breach of the employment contract.
- In particular, the Firm relied on the following ‘minimum service term’ or reimbursement in the employment contract:
“In consideration of salary granted to you, you hereby agree that you shall at least be working with the firm and bound for a contract term for at least fifteen months continuously failing which you shall reimburse the firm for the unserved period.”
Court’s Findings
The Industrial Court found that the ‘minimum service term’ or reimbursement clause was void for uncertainty under Section 30 of the Contracts Act 1950.
In particular, the Court held that the clause failed to sufficiently define the extent of the employee’s liability and the way the alleged reimbursement for the “unserved period” was to be calculated.
The Court also observed that such a clause would, in any event, be difficult to enforce in the context of a free labour market where employees remain entitled to resign and seek alternative employment. Importantly, the Court described the clause as being “kabur”, “menindas” and “manipulatif” towards job seekers.
The Court further held that the Claimant had effectively been denied a proper and legally valid employment contract, having been required to sign a contract containing vague and oppressive terms. This constituted a breach going to the root of the employment relationship.
Whilst the Court did not extensively analyse the individual workplace complaints raised by the Claimant, it appeared to treat the existence and attempted enforcement of the clause as part of the surrounding circumstances supporting the constructive dismissal claim.
Accordingly, the Industrial Court found that the Claimant had been constructively dismissed and ordered that the Claimant be paid 5 months of backwages.
Key Takeaways
This decision should not be read as authority that all minimum service obligations are unenforceable in Malaysia. The Industrial Court’s findings turned on the particular drafting before it.
This can be contrasted with the kind of employment bonds that Malaysian courts have generally been prepared to enforce. Training bonds and scholarship bonds typically involve real, quantifiable expenditure by the employer such as sponsored study, professional qualifications, overseas training or secondment, given in exchange for a minimum period of service. Where the employee leaves prematurely, the recoverable sum is tied to that expenditure and operates as liquidated damages for a genuine pre-estimated loss, rather than as a penalty designed to discourage resignation.
The clause in this case rested on “salary granted” as its only consideration, fixed a flat fifteen-month commitment, and left the quantum of any “reimbursement” entirely at large.
This case is also notable because the Industrial Court appeared to treat the defective contractual clause itself as part of the basis for constructive dismissal.
Poorly drafted retention clauses may therefore expose employers not only to enforceability challenges, but also to wider disputes concerning the validity and fairness of the employment relationship itself. Employers seeking to secure a minimum period of service should consider whether their commercial objective is better achieved through a properly structured training or scholarship bond, supported by documented expenditure and a clearly defined, pro-rated reimbursement mechanism.
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This article was written by Ilyssa Jace (Associate) from Donovan & Ho’s employment law practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation.
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