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Template employment contracts online are a dime a dozen. As a business, it is tempting to download a template employment contract in order to save time and costs. However, reckless use of templates (as well as failure to understand the contents of the contract) can have dire consequences.

If you are starting a business and looking to hire your first employee, or if you are merely looking at revamping your current contracts, this checklist of key issues in an employment contract might be helpful.

 

No. Issue/Clause Remarks
1. Type of Employment

This might seem clear cut, but first of all consider if you are even hiring an “employee”.  Given today’s gig economy, not all roles need to be filled by a full-time employee and may even be suitably performed by an independent contractor. If you meant to engage an independent contractor, you should not be having anything that looks remotely like an employment contract.

If you are hiring an employee, take note of the different employment structures such as: permanent employee; fixed term employee, part-time employee, etc.

2. Compensation

As much as employees claim they “don’t care about salary”, the reality is far from the truth.  When drafting a compensation clause, do take into account the different forms of compensation (salary, allowance, fringe benefits etc).  For certain positions, a compensation package may include employee share option schemes or equity grants; so be sure to get those terms ironed out up front.

Be mindful of factors like minimum wage and the threshold for employees falling under the protections of the Employment Act – especially for those employees who may be structured on a “low basic pay but high incentive / fringe benefit” model.

3. Scope of Employment

Aside from the basics such as the employee’s job title and reporting manager, consider whether it would be beneficial to include a job description or key performance indicators as an annexure to the agreement.

4. Benefits

Consider the usual benefits such as annual leave, sick leave / hospitalisation leave etc.  Some types of leave are not required by law (e.g: paternity leave, compassionate leave, adoption leave, optical / dental allowance etc) so it is up to you.

Maternity leave is provided by law to all applicable female employees and may not need to be set out in the contract, although you may want to do so for avoidance of doubt or if you intend to provide benefits beyond what is provided by the law.

5. Termination

Not every employment has a happy ending. Termination clauses are important to govern the obligations of each party when the agreement comes to an end. While an employer still needs to demonstrate just cause and excuse prior to dismissal, a clause which sets out a notice of termination is crucial in practice since it would also apply in the event of a resignation.

It may also be helpful to specify what situations the employer deems are serious enough to warrant immediate dismissal (without notice).

6. Confidentiality

Confidentiality clauses are important if your employee will have access to confidential information. This is especially crucial for those in high level management positions, where the abuse of confidential information can be extremely damaging to the business.

7. Restrictive Covenants

Restrictive covenants include, for example, non-solicitation of employees and non-poaching of customers. Take note that not all restrictive covenants may be enforceable under Malaysian law, so always get proper legal advice if you are unsure of the implications.

8. Intellectual Property

This clause is necessary especially if the employee is being engaged to create intellectual property for the business (e.g: a designer, inventor, etc). There is also a possibility that these employees may be creating intellectual property for their own use, on their own time – what happens if this intellectual property is related to your business? A well-drafted intellectual property clause can ensure that ownership of such rights vest in your business.

9. Transfer

If your company has multiple branches or you foresee the likelihood of a “fluid” employment relationship, it may be important to highlight the company’s right to transfer the employee to a different location or department.  Take note that the clause alone may not be sufficient as the employer still has a duty to ensure there are no fundamental, detrimental changes to the employee’s employment without their consent.

10. Retirement

A retirement clause should set out the exact retirement age for that employee and how that age is calculated. It sounds obvious but some employees may get confused about whether they reach the retirement age upon their birthday, or on the first day of the calendar year, for example.

If you don’t have a clear retirement age, you leave room for a retirement to be misconstrued as an “unfair dismissal”.

Don’t rely on the Minimum Retirement Age Act to “imply” a retirement age for your company – it doesn’t and it can’t.

 

Of course, the above is not an exhaustive list of what every employment contract needs to have.  What is pertinent is that employers and their human resources function take the time to understand that an employment contract is not a “cut and paste” exercise that is intended to be locked in a filing cabinet after the employee signs the contract. As the core document that governs the (sometimes sensitive) employer-employee relationship, it is a means to an end, but not the end itself.

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This article was written by Donovan Cheah. Donovan has been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific 2017, 2018 and 2019, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.

Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory.  Have a question? Please contact us.

 

 

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