Can Employers Force Employees to Take Annual Leave During a Company Shutdown in Malaysia?
When a company closes for several extra days after Chinese New Year, Hari Raya, Christmas or another festive period, can HR automatically deduct those days from employees’ annual leave?
The short answer is no, not simply because the company decided to close.
KESUMA has reminded employers that employees should not be forced to take annual leave or unpaid leave to reduce business costs during an extended company closure.
JTKSM also states that a monthly-paid employee who is not provided with work during a shutdown is entitled to full wages under the contract of service.
At a Glance
| Situation | General treatment |
|---|---|
| The employer temporarily closes the business and tells everyone to apply for annual leave | The employer should not automatically deduct annual leave merely because it chose to close. KESUMA states that annual leave should be based on the employee’s own request. |
| The employer tells employees to take unpaid leave during the closure | The employer should not impose unpaid leave simply to transfer its shutdown cost to employees. |
| A monthly-paid employee is ready to work, but the employer provides no work during the shutdown | JTKSM states that the employee is entitled to full wages based on the contract of service. |
| The contract or collective agreement contains a planned shutdown arrangement | Review the exact wording, how the arrangement was agreed and whether it is consistent with the Employment Act. A clause does not automatically justify an arbitrary or last-minute leave deduction. |
What Did KESUMA Say?
On 28 January 2025, the Ministry of Human Resources (KESUMA) issued a reminder after receiving complaints about employers forcing workers to use annual leave or unpaid leave during business closures extending beyond the gazetted Chinese New Year public holidays.
KESUMA’s position was clear: employees have the right to decide when to apply for annual leave, and employers should not force annual leave or unpaid leave for the purpose of reducing business costs.
Leave should be granted based on the employee’s own request.
JTKSM republished the issue on its official portal, with the relevant page updated on 15 September 2026. This is an official reminder of the existing position, not a new annual leave entitlement introduced in 2026.
What Happens to Salary During a Shutdown?
JTKSM’s official FAQ addresses monthly-paid employees directly.
It states that where a monthly-paid employee is not provided with work during a shutdown, the employee is entitled to full wages. The employer must continue paying salary based on the employee’s contract of service.
Therefore, for a monthly-paid employee who is ready to work but is unable to do so because the employer has closed the workplace, the closure should not automatically become:
- unpaid leave;
- a salary deduction; or
- annual leave deducted without the employee’s request.
The JTKSM FAQ is specifically worded for monthly-paid employees.
Employers dealing with daily-rated, hourly-rated or piece-rated workers should review their employment terms and the applicable law instead of applying the monthly-paid answer automatically.
What Does Section 60E Say About Annual Leave?
Section 60E of the Employment Act 1955 provides paid annual leave for employees covered by that section:
| Continuous service with the same employer | Minimum paid annual leave per 12 months |
|---|---|
| Less than 2 years | 8 days |
| 2 years to less than 5 years | 12 days |
| 5 years or more | 16 days |
The employer must grant, and the employee must take, the annual leave within the statutory period.
Section 60E also states that if an employer asks an employee not to take the annual leave, payment in lieu is allowed only where the employee agrees to this in writing.
In practical terms, annual leave is a statutory employee entitlement. It should not be treated as the employer’s automatic “shutdown buffer”.
This does not mean an employee may take leave on any date without approval. Employers may still manage leave applications reasonably according to operational requirements, staffing needs and the company’s leave process.
The issue is the unilateral use of an employee’s leave balance to cover an employer-initiated closure.
What If the Contract or Handbook Already Mentions Shutdown Leave?
Some factories and seasonal businesses plan annual shutdowns well in advance.
In these cases, HR should review:
- the employment contract;
- any collective agreement;
- the handbook or leave policy;
- how and when the arrangement was communicated and agreed; and
- whether employees still receive at least their statutory rights.
A pre-existing arrangement may be relevant, but the words “company shutdown” in a handbook do not automatically settle the issue.
Section 7 of the Employment Act provides that a contractual term which is less favourable than the Act is void to that extent.
Employers should therefore avoid assuming that a general policy gives them an unrestricted right to deduct annual leave or wages.
Where a shutdown arrangement requires employees to use annual leave, the exact clause and the circumstances of agreement should be reviewed carefully. Collective agreements may also require separate consideration.
The clearest risk is a last-minute instruction such as:
“The company will close for three additional days. All employees must apply for annual leave or take unpaid leave.”
That is the type of cost-shifting practice addressed by KESUMA’s reminder.
Practical Example
A company decides to close for three working days after a festive public holiday.
Its monthly-paid employees are ready to work, but the company will not open. HR then deducts three annual leave days from every employee without receiving individual leave applications.
Based on KESUMA’s stated position, the company should not impose annual leave merely to cover its closure.
Based on JTKSM’s shutdown FAQ, the monthly-paid employees remain entitled to full wages where the employer does not provide work.
HR should instead review the contractual arrangements, communicate the closure early and use a compliant option that does not unilaterally remove employees’ leave or wages.
HR Checklist Before a Company Shutdown
- Confirm which closure dates are gazetted paid public holidays and which are additional company closure days.
- Check the employment contract, collective agreement and existing leave policy.
- Do not automatically submit annual leave applications on behalf of employees.
- Do not impose unpaid leave merely because the company has chosen not to operate.
- Confirm the wage treatment, especially for monthly-paid employees.
- Communicate the arrangement early and keep employees’ written requests or agreements where relevant.
- Ensure that any contractual arrangement does not provide less than the statutory minimum.
- Keep accurate payroll, leave and communication records.
- Obtain specific advice where employee categories or contractual arrangements differ.
What Can an Employee Do If Leave or Salary Is Deducted?
The employee should keep copies of:
- the shutdown notice;
- HR memos, emails or WhatsApp messages;
- payslips;
- annual leave records;
- the employment contract; and
- the relevant handbook or policy.
The employee can first ask HR in writing to explain the contractual and legal basis for the deduction.
If the employer still deducts annual leave entitlement or wages for the closure period, KESUMA states that the employee may report the matter to the nearest Pejabat Tenaga Kerja.
Under Section 69 of the Employment Act 1955, the Director General may inquire into disputes concerning wages or other cash payments due under the contract of service or the Act.
Note
This article discusses the Employment Act 1955, which applies in Peninsular Malaysia and the Federal Territory of Labuan.
Sabah and Sarawak have their own labour ordinances. Section 60E also does not apply to domestic employees under the First Schedule to the Employment Act.
Key Takeaway
A company may plan its operations and closure dates, but it should not unilaterally transfer the cost of its shutdown to employees by automatically deducting annual leave, imposing unpaid leave or withholding the wages of monthly-paid employees who were ready to work.