Yes, Malaysian law lets you renew a fixed-term contract, and a genuine one simply ends when its term expires — that is not a dismissal. But each automatic renewal makes it easier for a court to find the job was permanent all along. If it does, the non-renewal becomes a dismissal, and backwages can run to 24 months of last-drawn salary.
- No statutory limit on renewals. The risk is not the count; it is whether the work was genuinely temporary.
- The test has three parts. The parties' intention, the employer's later conduct, and the nature of the business.
- The exposure is 24 months of last-drawn salary in backwages — 12 for a probationer.
- The clock is sixty days from the dismissal to file a claim for reinstatement.
This is the renewal question inside our Employment Act 1955 employer guide. Unsure the person is an employee at all? Start with contract of service versus contract for service.
When a fixed term is genuine
When is a fixed-term contract genuine in Malaysia?
When the work itself is temporary. The Employment Act 1955 requires a fixed term over one month to be in writing with a termination clause, and section 11(1) says such a contract ends when its period expires. Whether that ending counts turns on three considerations the Federal Court set out in 2020.
Those considerations, from Rahmat Lim & Partners' note on Ahmad Zahri bin Mirza Abdul Hamid v AIMS Cyberjaya Sdn Bhd [2020] 5 MLJ 58, are “the intention of the parties, the employer's subsequent conduct during the course of employment and the nature of the employer's business”. The authority is older: in Han Chiang High School (1988) the Industrial Court held that teachers on multiple automatically renewed fixed terms were not on genuine ones.
“it is only doable for a position that is meant to be one-off, seasonal, and temporary.”
— Sujatha Selliah, DSP Law, on when a fixed term may be used
What tipped two decided cases
What makes repeated renewals look like permanent employment?
Conduct, not paperwork. In the 2021 Court of Appeal case the employer lost on things it did without thinking: renewing automatically with no application from the employee, letting someone work for months with no contract at all, and writing internal emails about making the role permanent.
| Ahmad Zahri v AIMS Cyberjaya (Federal Court, 2020) | A Gilbert D'Cruz v Sapuraacergy (Court of Appeal, 2021) | |
|---|---|---|
| Renewals | Annual, three consecutive years; dispute on the fourth | Continuous and consecutive for 7 years |
| Employer conduct | Reclassified the role after a merger, then removed the bonus | Renewed automatically, no application from the employee; about 45 months worked with no contract |
| What decided it | “ongoing, continuous employment without break” | Management emails showing intent to convert the role |
Case facts per Rahmat Lim & Partners and Donovan & Ho on A Gilbert D'Cruz v Sapuraacergy Sdn Bhd & Anor [2021] MLJU 2010.
Four signals mark a fixed-term renewal that a Malaysian court can read as permanent employment: renewal without fresh terms, benefits matching permanent staff, a gap where the paperwork should be, and an email trail stating what management really intended. None is in the contract; all are in your files.
What it costs if you are wrong
What does it cost if the contract is found to be permanent?
The non-renewal becomes a dismissal, and the employee can claim reinstatement under section 20 of the Industrial Relations Act 1967. Backwages are capped at 24 months of last-drawn salary, or 12 months for a probationer. The claim must be filed within sixty days of the dismissal.
| Remedy or limit | What the Act sets |
|---|---|
| Backwages, employee | Not more than 24 months of last-drawn salary |
| Backwages, probationer | Not more than 12 months of last-drawn salary |
| Post-dismissal earnings | A percentage, decided by the court, is deducted |
| Loss of future earnings | Not compensated |
| Time to file | Within sixty days of the dismissal |
Industrial Relations Act 1967 (Act 177), section 20(1A) and the Second Schedule, per the AGC updated text of the reprint as at 1 October 2015, hosted by WCC Penang.
The ceiling is stated in the Act’s own words, in paragraph 1 of the Second Schedule:
In the event that backwages are to be given, such backwages shall not exceed twenty-four months’ backwages from the date of dismissal based on the last-drawn salary of the person who has been dismissed without just cause or excuse.
Because the cap is a multiple of the last-drawn salary, the worst case is arithmetic rather than guesswork. What the ceiling comes to at three salary levels:
| Last-drawn monthly salary | Ceiling, confirmed employee (24 months) | Ceiling, probationer (12 months) |
|---|---|---|
| RM1,700 — the statutory minimum wage | RM40,800 | RM20,400 |
| RM5,000 | RM120,000 | RM60,000 |
| RM12,000 | RM288,000 | RM144,000 |
The statutory ceiling multiplied out at illustrative salary levels — not a prediction of any award, and not a Carriera figure. The Industrial Court may award less: it deducts a percentage of post-dismissal earnings, gives nothing for loss of future earnings, and takes contributory misconduct into account. For real market salary levels, see our Malaysian salary guide.
Reinstatement is not theoretical either: on 17 June 2025 the Federal Court ordered a former senior executive reinstated in Ooi Mei Chien v Osram Opto Semiconductors Sdn Bhd, rejecting money as the default remedy. Dismissal is also the dispute the Industrial Court mostly hears, and Selangor accounts for the largest share of its case resolutions, as Kosmo! reported from a Department of Statistics Malaysia study.
Ending one early
Can you end a fixed-term contract before it expires?
Not at will. Cutting the term short before its expiry breaches the contract under section 74(1) of the Contracts Act 1950, and the employer carries the burden of proving just cause and excuse for the dismissal. That is why the termination clause the Employment Act requires is worth drafting properly.
A fixed term cuts both ways: arbitrary termination of a fixed-term contract before its expiry is not allowed in Malaysia, as Chia, Lee & Associates set out. If what you need is an exit, the route is ending employment lawfully on the correct statutory notice period.
What to do instead
What should you do instead of renewing again?
Decide whether the work is temporary, not whether you feel ready to commit. If the role is ongoing, hiring permanently with a probation period gives you a lawful trial at half the exposure — 12 months of backwages rather than 24, though a probationer still has to be dismissed with just cause and excuse — and stops the evidence against you accumulating with every renewal.
“An employer should be mindful not to place employees on fixed term contracts just because it seems like a good approach for risk mitigation.”
— Donovan Cheah, Donovan & Ho
- Test the work, not the commitment. If you cannot name the project or season the term ends with, it is not genuinely temporary work.
- If the role is permanent, hire permanently. A probation period is the lawful trial — see terminating a probationer in Malaysia.
- Never renew on autopilot. Automatic renewal with no fresh negotiation is the signal in the 1988 and 2021 decisions.
- Keep the paperwork, mind the email trail. A written reason for the term, a dated end-of-term letter, no unpapered gaps. Internal emails decided the 2021 appeal.
- If you are stalling because hiring is hard, fix that instead. That is a recruitment problem wearing a contract problem's clothes.
Carriera is a licensed Malaysian recruitment agency — JTKSM 615, held by Agensi Pekerjaan Carriera Talent Resources Sdn Bhd (1058296-H) — and hiring through a licensed agency on a published six-step process is what ends a renewal loop. If the gap is knowledge, not headcount, Carriera Academy Sdn Bhd (1112514-D) is an HRD Corp Approved Training Provider and its employment-law workshops are claimable under SBL-Khas: the live course calendar shows what is open.
Still have questions?
Renewing fixed-term contracts — employer FAQ
How long after a non-renewal can an employee still file a claim?
How many times can you renew a fixed-term contract in Malaysia?
Can an employee on a work pass be a permanent employee in Malaysia?
Statute: Employment Act 1955 (Act 265) ss.10–11, AGC text as at 1 January 2023 via JTKSM; Industrial Relations Act 1967 (Act 177) s.20 and Second Schedule, AGC reprint as at 1 October 2015 hosted by WCC Penang, which predates the Industrial Relations (Amendment) Act 2020. Case law via Rahmat Lim & Partners, Donovan & Ho, DSP Law, Chia, Lee & Associates, Low & Partners. Industrial Court caseload: Department of Statistics Malaysia case-management study, as reported by Kosmo! on 17 January 2025. Reviewed 19 October 2026. General information for employers, not legal advice.
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