That Non-Compete Clause In Your Malaysian Employment Contract Is Almost Certainly Void

If you signed a Malaysian employment contract saying you cannot work for a competitor for 12 months after you leave, here is the position:

That clause is almost certainly void, and it has been void the entire time.

Not "void if unreasonable". Not "void if the geographical scope is too wide". Void, because s.28 of the Contracts Act 1950 says every agreement restraining anyone from exercising a lawful profession, trade or business of any kind is, to that extent, void — and Malaysian courts apply it strictly, with only three narrow statutory exceptions, none of which fit ordinary employment.

This is a genuine difference between Malaysia and almost everywhere else. In England, in Singapore, in Hong Kong, courts run a reasonableness test: is the restraint no wider than necessary to protect a legitimate interest? Malaysia does not run that test. Once a clause is a post-employment restraint of trade, reasonableness is irrelevant. It is void. One international survey described Malaysia as one of the few Asia-Pacific jurisdictions that does not recognise post-termination non-compete clauses at all.

Donovan & Ho put the practical consequence memorably: a Malaysian employer trying to enforce a non-compete through civil action may find they have no greater rights than an obsessive and vindictive ex.

1. What s.28 actually says

Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.

Then three exceptions:

Notice what is not on that list: employment. There is no employment exception. That is the whole point.

The exceptions are exhaustive, and the courts have set a high threshold for bringing a clause within them. In the Court of Appeal case Nagadevan a/l Mahalingam v Millennium Medicare Services [2011] 3 CLJ 529 / [2011] 4 MLJ 739, the court considered a restriction on a medical practitioner under a partnership agreement against s.28, confirming that a restraint of trade is void unless it falls within an exception.

2. During employment vs after: the line that matters

This is the distinction that trips up both sides.

Section 28 applies only to the post-contract period. In Polygram Records Sdn Bhd v Hillary Ang & Ors (the band The Search) [1994] 3 CLJ 806, the High Court held that s.28 applies where a person is restrained from carrying on their trade or profession after the expiry of the contract, not during it.

So while you are employed, a clause stopping you holding an interest in a rival business is fine — and indeed you owe an implied duty of loyalty and fidelity regardless of what the contract says. The moment employment ends, the non-compete falls away.

A related point on clause drafting. Courts look at substance. A clause that merely regulates the manner in which someone exercises their trade is not necessarily a restraint on exercising it at all — commentary notes a person may trade even though he has bound himself by contract to trade in a particular manner. But a vague or general post-employment prohibition dressed up as something else will attract s.28.

3. What employers CAN still protect

Losing the non-compete does not leave an employer defenceless. Three things survive:

Confidential information and trade secrets. This is the real protection. The distinction the courts draw is between:

• The employee's own skill, knowledge and experience — acquired in the job, and theirs to use. A former employer cannot stop an ex-employee using the skills and knowledge learnt during employment, because those are different from secret and confidential information.
• The employer's secret and confidential information — client lists, formulations, pricing structures, technical data. Taking or using this is actionable.

In Dynacast (Melaka) Sdn Bhd & Ors v Vision Cast Sdn Bhd & Anor [2016] 3 MLJ 417, the Federal Court indicated that confidentiality obligations could potentially have perpetual effect, and also held that certain obligations are enforceable even where not expressly written into the employment contract. Commentary notes the decision left open whether restrictions on divulging confidential information during or after employment fall under s.28 — so the safe practice is to state the duration and scope explicitly in the contract or a separate NDA.

Breach of the duty of loyalty and fidelity. In Sundai Malaysia Sdn Bhd v Masato Saito & Ors [2013] 9 MLJ 729, defendants orchestrated the mass poaching of the plaintiff's employees, causing disruption and instability. The court held this amounted to a breach of their duty of loyalty and fidelity to the plaintiff.

Non-solicitation — with a significant caveat. See the next section.

What a claim looks like in practice: an employer can sue the ex-employee, the new employer, and/or the competing business, seeking injunctive relief to prevent disclosure of confidential information or solicitation of customers, suppliers or employees, plus damages.

4. Non-solicitation: honestly, this is unsettled

Here the Malaysian commentary genuinely conflicts, and you should not trust anyone who states it flatly.

The "may be upheld" view: Tay & Partners state that although post-termination non-competes are clearly void, a non-solicitation clause may be upheld and is binding during and post-employment, provided a reasonable post-employment period is set and the clause is clearly worded and validly incorporated into the contract. Louis Liaw's analysis takes a similar line — that unlike restraint of trade clauses there are no laws prohibiting non-solicitation clauses, so they should be taken as enforceable, but employers must draft very specifically because a vague or general prohibition may be recharacterised as a non-compete and attract s.28.

The "unclear" view: Pinsent Masons' 2025 analysis states the position on whether non-solicitation clauses are allowed under the Contracts Act is unclear, on the basis that such clauses do not directly contravene s.28.

The tension is real. A non-solicitation clause preventing an ex-employee from approaching former clients does, in a practical sense, restrain them from exercising their trade in relation to those clients. Whether that engages s.28 is exactly the question, and there is no authoritative appellate ruling settling it that we could locate.

What that means for you:

• Employers: do not assume your non-solicit is bulletproof. Draft it narrowly and specifically, anchor it to confidentiality and the misuse of client information, set a defined reasonable period, and make sure it is properly incorporated. A poorly drafted or unincorporated clause gives you nothing.
• Employees: do not assume it is void just because the non-compete is. This is a materially different question and you need advice on your specific wording.

5. Garden leave

Garden leave — keeping the employee on the payroll during the notice period but away from work, clients and systems — is the practical workaround that some employers use, because it operates during employment rather than after.

But be careful about how far that gets you. A long garden leave period is itself a restraint on the employee's ability to work, and its status has not been definitively settled in Malaysia. The employment relationship must be genuinely continuing, with the employee paid and still bound by the duty of fidelity. This is drafting territory, not DIY territory.

The realistic protection for an employer is a properly structured notice period plus confidentiality obligations, not a long garden leave clause borrowed from a UK precedent.

6. Has a Malaysian court ever upheld a post-employment non-compete against an employee?

We could not find one, and the weight of Malaysian commentary is that the answer is effectively no — post-termination non-competes in employment are void and the courts favour a rigid interpretation of s.28.

Two honest caveats.

First, a caution about one international source. The International Bar Association's comparative article states that Malaysia is one of the few Asia-Pacific jurisdictions that does not recognise post-termination non-compete clauses, and that Malaysian courts favour rigid interpretation of s.28. But the same article also contains a passage stating that post-termination non-competes "may be enforceable" subject to proving legitimate proprietary interest and reasonableness — language that describes the Singapore and Hong Kong position, not Malaysia's. Read that source carefully; the reasonableness test is expressly stated by Malaysian practitioners not to apply here.

Second, the position is only "settled" in the sense that Malaysian commentary is near-unanimous. It is not immune to future legislative change or a novel argument on unusual facts.

7. The uncomfortable truth: void clauses still work

Multiple Malaysian firms make the same observation, and it is the most practically important thing in this article.

There is no prohibition on including a void clause in a contract. Employers keep putting non-competes in, and many employees — unaware of s.28 — assume they are bound and voluntarily refrain from joining a competitor. The deterrent effect achieves the employer's aim even though the clause is legally unenforceable.

So the clause in your contract is doing work. It is just not doing legal work.

What to actually do

If you are an employee being threatened with a non-compete:

• Read the clause and identify whether it bites during or after employment. After employment, s.28 is your answer.
• Separate the strands: a non-compete, a non-solicit, and a confidentiality obligation are three different clauses with three different legal fates. A lawyer's letter may be bundling them.
• Do not take documents, client lists, files or data with you. This is the one thing that converts a strong position into a weak one. Your skill and knowledge are yours; the company's confidential information is not.
• Do not use your old employer's confidential information in the new role, and do not let your new employer ask you to.
• Get advice before responding to a letter of demand. Do not sign an undertaking that concedes the clause is valid.
• If you have already turned down a job because of a non-compete you now believe is void, take advice — but note that undoing a past decision is much harder than resisting a threat now.

If you are an employer wanting real protection:

• Stop relying on the non-compete. It is decorative.
• Invest the drafting effort in a confidentiality and trade secrets clause: define what is confidential, state the duration and scope explicitly, and consider a separate NDA. The Dynacast position on perpetual confidentiality obligations makes this the strongest tool you have.
• Draft non-solicitation narrowly and specifically — named categories of customer, a defined reasonable period, tied to information the employee had access to. Make sure it is properly incorporated into the contract, not buried in a handbook.
• Use notice periods and garden leave as the timing tool, drafted properly.
• Protect information operationally: access controls, offboarding checklists, revoking system access on the last day, exit interviews confirming return of materials.
• Consider retention rather than restraint. A restraint that cannot be enforced is not a retention strategy.