The law and the labour market

 

An effective legal system is a prerequisite of a properly functioning market and for most people this has a direct impact on them in the labour market.

Employment data in Malaysia shows prima facie evidence that the labour market does not function properly. More than seven million people are outside the labour force, three million people are unemployed or underemployed but employers complain they cannot find workers.

Median salaries are below living wages, millions on formal contracts earn poverty-level pay, fewer than 40% of Malaysians in the labour force have formal contracts, productivity is low and barely one-third of the value added in the economy goes to employees.

One of the main causes of this is that Malaysian employment laws lack detail compared to other countries and so the courts take on the role of adjudicating workplace disputes. The system is slow and costly and many people simply avoid it.

Where employment cases find their way through the system the judicial decisions often have economic implications which are not considered when judges issue their orders.

In a recent case the Court of Appeal overturned rulings in lower courts to allow industrial injury compensation to an employee who suffered an accident while travelling to work, ruling that commuting is part of the working hours.

This is a sensible decision that confirms worker protection as intended by the statute but it reduces productive time when working hours include unproductive commuting.

In another recent case the High Court ruled that a person on a training contract for several years was not protected by the employment law because training is not considered employment.

This judgement opens the door for irresponsible employers to place all new hires on training contracts with hire and fire terms.

Employees are likely to turn down training contracts for fear they have no legal protection just as the government is promoting training as a priority for economic development.

In a third case the Malaysian courts ruled that an expatriate worker was not employed under Malaysian contracts if they also held contracts from their home country, even if those contracts had been ruled invalid by the courts overseas.

The Federal Court denied leave to hear the appeal. This leaves many expatriates without clear legal protection in Malaysia or at home and is one of the main reasons why Malaysia is less attractive to foreign talent than other countries.

In some instances the decisions of the courts favour the employee but in most cases they appear to favour employers or the regulatory system itself. Whatever is the balance, the uncertainty of the law makes formal employment contracts less attractive to employers and employees alike.

In the past there were very few options for employees other than to accept whatever was given to them or to quit. They risked a dispute if they voiced out there grievances.

Now there are more options to make a living by opting out of the traditional work model. New technologies, sharing economy platforms, micro-enterprises, freelancing and gig-economy occupations offer so much more compared to the hire-fire, boss-knows-best employment model of the past.

It is the market, not the law, that is delivering new working models through technology and sharing economy platforms where people sell their services.

Low salaries, bad workplace practices and restrictive contracts are pushing people into better options in the informal and gig-economy.

It is the market, not the law, that is delivering work-from-home (WFH), flexible working arrangements (FWA) and options for work-life balance.

Labour market reforms must embrace this reality and the opportunities it provides, not regulate it away through the same old approach that has failed in the past. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.