Introduction

This time, we will explain the labor laws of the Malaysian states of Sabah and Sarawak.
Recently, it seems that an increasing number of Japanese companies are considering expanding into Sabah and Sarawak, as well as peninsular Malaysia.
As a premise for this explanation, I will briefly explain the relationship between Peninsular Malaysia and the states of Sabah and Sarawak. Due to historical reasons, the Peninsular Malaysia and the states of Sabah and Sarawak are subject to many unified laws and regulations, but there are some areas in which the states of Sabah and Sarawak have their own unique regulations.
The area of labor law that I will explain here is one in which the states of Sabah and Sarawak have their own unique regulations.

The Sabah and Sarawak Labour Ordinance Amendment Acts 2025 are expected to have a significant impact on the labour legislation across Malaysia.
These laws are more closely aligned with the Employment Act 1955 which is applicable in Peninsular Malaysia, and their greatest feature is that employee rights and employer obligations are more uniform across Malaysia.

Background and purpose of the amendment

As mentioned above, for many years, the states of Sabah and Sarawak had their own Labour Ordinances and different regulations were applied to them than those in Peninsular Malaysia.
This stems from the fact that the states of Sabah and Sarawak were granted a certain degree of autonomy under the Malaysia Agreement 1963, which was agreed upon when the Federation of Malaysia was formed in 1963.
With regard to labor policy, these states have maintained their own regulations and practices.

However, in recent years, the federal government has been working to harmonize legal systems in order to standardize the level of labor protection across the country and to improve the investment environment and employment transparency.
As part of this, the following two amending laws were enacted in 2025:

Sabah " Labour Ordinance of Sabah (Amendment) Act 2025 "

Sarawak " Labour Ordinance of Sarawak (Amendment) Act 2025 "

These amendments have resulted in the labour laws in Sabah and Sarawak being revised to be more similar to the Employment Act 1955 which is applicable in Peninsular Malaysia.

Revision details

Expanded scope of application: Change in definition of "Employee"

Previously, the definition of a "worker" was subject to a salary cap (RM2,500) and restrictions on the type of job, but the latest amendments now protect all employees.
This will bring a wide range of workers, including managers and contract employees, into the legal protection framework and require a re-examination of employment contracts.

Working hours and flexible working arrangements

The maximum working hours per week will be reduced from 48 to 45 hours, in order to curb long working hours and promote better work-life balance.
Would this be considered a deterioration for employers?
In addition, employees are given the right to request changes to their working hours, days and location, and are expected to accommodate flexible working styles.

Expansion of maternity and childcare leave system

Maternity leave has been extended from 60 days to 98 days, and seven days of parental leave has been introduced for male employees.
This applies to families with up to five children and calls for the establishment of a family support system.

Enhanced employee protection

New provisions have been introduced to address issues such as sexual harassment, forced labor and discrimination.
Companies will need to formulate policies to prevent and correct these risks and introduce internal reporting and training systems.

Employee Housing and Minimum Standards

Employers who provide housing to their employees must now comply with new minimum standards (such as hygiene, safety and privacy).
This will have a particularly large impact on industrial sectors that employ large numbers of foreign workers.

Establishment of retirement and retirement benefits system

Clear rules will now be established regarding notice periods and payment of severance pay when resigning.
Applying this rule will help prevent problems when an employment contract ends.
On the other hand, employers will need to check whether the severance clauses in their contracts are consistent with current law.

Practical steps for employers

In order to comply with the revisions to labor laws in Sabah and Sarawak, companies are faced with an urgent need to review and improve their practices.
Below, we explain the specific steps that companies should take.

Reviewing employment contracts

The amendment expands the definition of "employee" to include managers and high-income earners who were previously not covered by the law.
Therefore, you should ensure that all employment contracts reflect the new definitions.
In particular, it is necessary to focus on reviewing whether the terms regarding retirement clauses, working hours, and vacation systems comply with current laws.

Work and vacation system updates

The legal reform has reduced the maximum weekly working hours to 45 hours and also allowed for flexible working arrangements.
Along with this, it will be necessary to consider setting working hours and days, as well as introducing flextime and telework systems.
We also need to consider designing a system that can accommodate new leave systems, such as 98 days of maternity leave and seven days of parental leave for men.

Establishment of work regulations

Work rules and company regulations will need to be revised to comply with new regulations regarding sexual harassment, forced labor, discrimination, etc.
For example, it is necessary to establish guidelines that set out specific procedures, such as clear prohibitions against harassment, a complaints desk, and the introduction of an internal reporting system.

Inspection of employee housing

Companies that provide housing to their employees must check whether the housing and accommodation facilities meet the newly established minimum standards (safety, hygiene, living space, etc.) and renovate or improve the facilities if necessary.
Especially if you employ a large number of foreign workers, you will also need to prepare for the risk of being audited by the authorities.

Training for HR personnel

It will likely be necessary to provide training to human resources personnel within companies and make them aware of the content of the legal reforms and their impact on practice.
Such training should cover not only the content of the new system, but also procedures for revising employment contracts and practical responses to changes to work rules, to ensure company-wide understanding and ability to implement them.

Significance of the amendment

With these amendments, the Sabah and Sarawak labour laws have been made more integrated with the Employment Act 1955, further harmonising labour standards across Malaysia. This will enable more consistent employment management, particularly for companies with bases in multiple states.

However, complete unification has not been achieved, and some differences still exist, such as:

• There are regional differences in the Labour Department's operational policies and enforcement systems
• There are still differences between states in public holiday regulations and detailed rules for certain industries.
• There are differences in peripheral systems, such as state-specific administrative guidelines and approval processes.

As a country, it is expected that there will be uniform legislation in the future, but at this stage it is still important to keep in mind the differences mentioned above.

summary

This revision of the labor law can be seen as an important step that symbolizes the move toward harmonizing and unifying Malaysia's employment system nationwide.
For companies doing business or planning to do business in Sabah and Sarawak, it is extremely important to adapt to new laws and regulations and ensure compliance.

This time, the reform concerns the employment system, but it may be that areas that have had separate systems for historical reasons will also be unified in the future.