Implication of Forced Labour Preventive Measures

Forced labour remains a critical issue in Malaysia. In line with the International Labour Organization’s (“ILO”) Forced Labour Convention No.29, Malaysia has undertaken several measures to combat this problem which has significant implications for investors.

There are several key factors that contribute to the prevalence of forced labour in Malaysia, such as:

Lack of legal protections which leads to exploitation and abuse;
Recruitment practices often leading to deceptive practices where workers are mislead on the nature and conditions of their employment; and
Power imbalance and the weak bargaining position of employees make the situation worse.

Enhanced Compliance and ESG Standards

By aligning with international labour standards, Malaysia is improving its reputation as a responsible investment destination. This bolsters confidence as investors increasingly prioritise environmental, social and governance (ESG) requirements.

Legal Implications

Amendments to the Employment Act 1955, which came into force on 1 January 2023, provide for stricter penalties for employers found to be using forced labour. This increases the legal risk for companies that do not comply with labour law. Improving labour standards initially involves costs, but will lead to long-term benefits by avoiding penalties, increasing productivity and reducing the turnover rate.

Market Stability

Addressing forced labour can contribute to overall market stability by reducing the risk of disruption from labour disputes or international sanctions, as was the case with Top Glove and Sime Darby, which faced US import bans that were lifted after improvements in labour conditions. Stronger labour laws and enforcement will boost investor confidence by ensuring a fair and ethical business environment.

Commentary

With the ratification of the ILO´s Forced Labour Convention No.29, Malaysia has clearly shown its commitment to eradicating forced labour and aligning its labour standards with the ILO. Despite, not being incorporated into legislation, we anticipate that there will be a push for legislations to be amended to stipulate forced labour offences in more detail.

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