Can You Work for Competitors in Malaysia After Leaving Your Company?

Disclaimer: This article should not be considered to be legal advice, and altHR is not liable for any actions taken based on this article.

Many employees often skim through their employment contracts when joining a new company. After all, what could be less appealing to read than the barely-understandable legal jargon that fills multiple pages of our contracts? 

However, you should (of course) read the end to end of your employment agreements. Besides all of the obvious stuff — such as your remuneration — there are also various terms and conditions that cover other important elements of your  employment. 

One of the most crucial terms that you might find in your contract would be a non-compete clause. This would appear to prevent you from working for a competitor after leaving your current organisation. However, there is a degree of confusion here: can employers actually prevent employees from working for competition? 

What is a non-compete clause?

Non-compete clauses are fairly common around the world, and you might find it buried within your employment agreement. It should look something like this: 

“After the termination of employment, the employee shall not for a period of XX months from the date of termination carry out any business of any nature that is similar or the same as [company], or is in competition with [company].”

Many often ask if this applies to the entire industry, or if it only applies to direct competitors. But what even constitutes direct competition? How are these clauses enforced? Can they be enforced by Malaysian law? 

Can a non-compete clause be enforced in Malaysia?

Despite the fact that it is fairly commonplace in employment contracts, non-compete clauses are generally not enforceable in Malaysia. This is because of Section 28 of the Contracts Act 1950, which basically states that any contractual agreement that prevents someone from earning a (lawful) livelihood is void. 

Note that this doesn’t mean that non-compete clauses are illegal — merely that they cannot be enforced in Malaysia. However, there are 3 situations where a non-compete clause may be effective/enforceable, although these all apply to business owners/partners: 

• An agreement when selling a business to prevent the buyer from carrying on similar business nearby 
• Business partners agreeing not to compete upon dissolution of the partnership 
• The same as above, but during the partnership

Is there a catch?

No, there isn’t. However, you should still remember that you cannot conduct competing business against your existing employers — as long as you’re still employed there. This comes down to fiduciary duties of employees, and your contract should provide for that within the terms and conditions. 

At the end of the day, it’s essential to understand the terms of your employment agreement, preferably before signing the contract and joining. And as employers, it’s equally important to keep up with the law to avoid any potential issues in the future.