Is a Non-Compete Clause Enforceable in Malaysia? Section 28 of the Contracts Act Explained

What does section 28 of the Contracts Act 1950 say?

Section 28 provides that every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is to that extent void. It is one of the provisions that make the Malaysian position stricter than the common law in other countries.

The section has three exceptions:

• a person who sells the goodwill of a business may agree not to carry on a similar business within specified local limits, so long as the buyer carries on a like business there, if the limits are reasonable;
• partners may agree, in anticipation of dissolution, that some or all of them will not carry on a similar business within those limits;
• partners may agree that some or all of them will not carry on any business other than that of the partnership while it continues.

An ordinary employment contract does not fall within these exceptions. That is why a clause that says an employee may not work for a competitor, or start a competing business, for a period after leaving is generally void.

Why are non-competes treated differently in Malaysia than in England or Singapore?

In England and Singapore, a post-employment restraint can be upheld if it goes no further than is reasonable to protect a legitimate business interest, such as trade connections or trade secrets. Courts there assess the duration, geographical scope and activities covered.

Malaysia has a statutory rule instead. Because section 28 sets out its own exceptions, Malaysian courts have generally treated a post-employment non-compete as void however reasonable its terms look, rather than weighing whether the period or area is acceptable. Contracts drafted on an English or Singapore template, with a twelve-month non-compete and a "reasonableness" clause, often give Malaysian employers less protection than they expect.

What can an employer still enforce after the employee leaves?

Section 28 targets restraints on working. It does not stop an employer from protecting its own property and information. After employment ends, employers can usually rely on:

• confidentiality obligations, which can continue without a time limit, as the Federal Court accepted in Dynacast;
• the duty of confidence in equity, which protects genuinely confidential information even without a written clause;
• obligations to return company property, documents and data, including copies in personal email and cloud accounts;
• intellectual property clauses that confirm the employer owns work created in the course of employment;
• non-solicitation clauses, although their enforceability is less certain and depends heavily on the wording.

Confidentiality has limits. The Federal Court in Dynacast held that the employer must specify what confidential information is said to have been misused, that a former employee may use their own skill, knowledge and experience, and that setting up a competing business is not in itself a wrong. A confidentiality clause cannot be used as a non-compete in disguise.

Does a non-compete apply while the employee is still working?

The position during employment is different. Every employee owes a duty of fidelity to the employer for as long as the employment lasts, and senior employees and directors may also owe fiduciary duties. Working for a competitor, diverting clients or setting up a rival business while still employed can be a breach of those duties and can justify dismissal after a fair inquiry.

The notice period counts as employment. An employee serving notice remains bound by the contract and the duty of fidelity, and some contracts allow the employer to place the employee on garden leave, with full pay, so that they stay away from clients and confidential material until the employment ends.

What about non-solicitation clauses?

A non-solicitation clause does not stop the employee from working. It stops them from approaching the employer's clients or staff for a period. Because it is narrower than a non-compete, it is not automatically treated the same way, but Malaysian decisions on these clauses are not uniform and enforcement is often difficult.

A clause has a better chance if it:

• is limited to clients the employee actually dealt with in a defined period before leaving;
• restricts active approaches, rather than dealing with clients who come to the employee unprompted;
• lasts for a short, defined period;
• is drafted separately from any non-compete, so it can stand on its own if the non-compete is struck down.

I signed a non-compete. Can I join a competitor?

Usually yes, but how you leave matters more than the clause. Most claims against former employees are not about the non-compete at all. They are about documents taken, clients approached during the notice period, or information used at the new job. Before you move:

• return all company devices and delete nothing from them;
• do not forward company documents to your personal email or save them to personal cloud storage;
• serve your notice period properly and do not approach clients or colleagues for the new business until your employment has ended;
• keep a record of how any former client came to you, such as their own enquiry or a public tender;
• read your contract for confidentiality, non-solicitation and intellectual property clauses, which may still apply.

If you receive a letter of demand or a writ after leaving, our article Sued by Your Former Employer in Malaysia? explains the first steps.

What should employers put in employment contracts instead?

Employers protect themselves better with clauses that Malaysian law will enforce than with a non-compete that will probably be void. A sound employment contract for staff who handle clients or sensitive information usually includes:

• a confidentiality clause that defines the categories of information protected, such as client data, pricing, margins and technical material;
• a clear obligation to return all property and data on leaving, and to confirm in writing that copies have been deleted;
• an intellectual property clause;
• a conflict of interest clause requiring disclosure of outside business interests during employment;
• a notice period long enough to protect client relationships, with a garden leave option;
• a narrowly drafted non-solicitation clause, kept separate from any non-compete.

Contracts work best alongside practical controls: limiting access to client data by role, monitoring bulk exports, and a structured exit process. We review and draft these documents as part of our employment contracts and HR compliance work, and our overview of ex-employee and competitor disputes explains what happens when things go wrong.