Non-Compete Agreement (Malaysia)
NON-COMPETE AND CONFIDENTIALITY AGREEMENT
Contracts Act 1950 (Act 136), Section 28 | Copyright Act 1987 (Act 332) | Patents Act 1983 (Act 291)
THIS AGREEMENT is made on [Effective Date]
BETWEEN:
(1) [Employer Name] (Registration No. [Employer Reg No]) of [Employer Address] (the "Employer"); AND
(2) [Employee Name] (NRIC: [Employee NRIC]) of [Employee Address], employed in the position of [Designation] (the "Employee").
1. DEFINITIONS
1.1 "Confidential Information" means all information and materials of the Employer that are proprietary or confidential, including but not limited to: [Confidential Info Description].
1.2 "Competing Business" means [Competitor Definition].
1.3 "Restriction Period" means [Restriction Period] following the termination or expiry of the Employee's employment.
1.4 "Territory" means [Geographic Scope].
2. OBLIGATIONS DURING EMPLOYMENT
2.1 The Employee shall devote their full working time and attention to the business of the Employer and shall not, without prior written consent of the Employer, engage in any other employment or business activity that conflicts with their duties.
2.2 The Employee shall maintain the strictest confidence in respect of all Confidential Information and shall not disclose any Confidential Information to any third party without the prior written consent of the Employer.
2.3 All works, inventions, software, databases, and materials created by the Employee in the course of employment are assigned to the Employer under Section 26 of the Copyright Act 1987 (Act 332) and Section 20 of the Patents Act 1983 (Act 291).
3. POST-EMPLOYMENT RESTRICTIONS
3.1 Non-Solicitation of Clients: During the Restriction Period, the Employee shall not, directly or indirectly, solicit, canvass, or approach any client or customer of the Employer with whom the Employee had material dealings in the 12 months preceding termination, for the purpose of providing services competitive with those of the Employer within the Territory.
3.2 Non-Solicitation of Employees: During the Restriction Period, the Employee shall not solicit or attempt to recruit any employee of the Employer to leave the Employer's employment.
3.3 Continuing Confidentiality: The Employee's obligation of confidentiality in respect of Confidential Information continues indefinitely after termination of employment.
3.4 The Employer acknowledges that these restrictions are intended to protect legitimate business interests in accordance with the common law of confidence. To the extent that any provision of Clause 3 constitutes a restraint of trade under Section 28 of the Contracts Act 1950 (Act 136), the parties agree that such provision shall be read as narrowly as possible to preserve its validity.
4. CONSIDERATION
4.1 In consideration of the Employee's obligations under this Agreement, the Employer agrees to provide: [Consideration].
5. GOVERNING LAW AND DISPUTE RESOLUTION
5.1 This Agreement is governed by the laws of Malaysia including the Contracts Act 1950 (Act 136), the Industrial Relations Act 1967 (Act 177), the Copyright Act 1987, and the Patents Act 1983.
5.2 Any dispute arising under this Agreement shall first be referred to mediation under the Mediation Act 2012 (Act 749) before the Malaysian Mediation Centre (MMC). If unresolved within 30 days, the dispute shall be submitted to the exclusive jurisdiction of the High Court of Malaya.
Signed by [Employer Name]: _______________________ Date: _______________
Signed by [Employee Name]: _______________________ Date: _______________
Witness: _______________________ NRIC: _______________ Date: _______________
Employer
________________
Signature
Employee
________________
Signature
What Is a Non-Compete Agreement (Malaysia)?
A Non-Compete Agreement in Malaysia records the terms the parties accept and the commitments each makes to the other.
Section 28 of the Contracts Act 1950 broadly follows the English common law doctrine of restraint of trade but lacks the English law 'reasonable restraint' exception for employment contracts. The Privy Council in Worldwide Renta-Car Inc v Dhun B. Dalal [1969] 1 MLJ 134 held that Section 28 of the Malaysian Contracts Ordinance (the predecessor to the Contracts Act 1950) renders all post-employment restraints void as a matter of statutory interpretation, regardless of reasonableness. This position has been refined by the Malaysian courts over subsequent decades, with the Federal Court in Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127 drawing a distinction between restrictions during employment (enforceable) and restrictions post-employment (generally void under Section 28).
Despite the strictness of Section 28, Malaysian courts have enforced post-employment restrictions in limited circumstances: where the restriction protects trade secrets or confidential information under the common law duty of confidence rather than purely restricting competition; where the restriction is expressed as a non-solicitation of specific clients rather than a blanket non-compete; and where the employee has received specific consideration for the post-employment restriction beyond the ordinary employment relationship, as recognised by the High Court in Lim Ching Wan v Pan-Malaysian Pools Sdn Bhd [2007] 7 MLJ 228.
During employment, restrictions such as non-disclosure of trade secrets and exclusive service obligations are fully enforceable under Section 28 read with the implied duty of fidelity at common law. The Personal Data Protection Act 2010 (Act 709) also regulates how employers protect business-critical personal data that employees may otherwise misuse after departure.
The legal framework governing the Non-Compete Agreement (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Non-Compete Agreement (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. Section 28 of the Contracts Act 1950 (Act 136) sets the foundational requirements.
When Do You Need a Non-Compete Agreement (Malaysia)?
A Non-Compete Agreement in Malaysia is used in a range of employment contexts where the employer has legitimate business interests to protect, even though the enforceability of post-employment restrictions under Section 28 of the Contracts Act 1950 is limited.
A Non-Compete Agreement is needed when employing senior executives, directors, or key technical personnel who will have access to trade secrets, client lists, proprietary technology, or strategic business information. While a blanket post-employment non-compete may be void under Section 28 of the Contracts Act 1950, a carefully drafted agreement focusing on non-disclosure and non-solicitation of specific clients provides enforceable protection under the law of confidence and the Protection of Trade Secrets and Confidential Information provisions recognised by Malaysian courts.
A Non-Compete Agreement is required when a company's business model depends on long-term client relationships and the departure of a key employee could cause significant client attrition. A non-solicitation clause — which prevents the departing employee from actively approaching specific named clients for a defined period — is more likely to be enforced by the Malaysian courts than a blanket non-compete, as it targets specific harm rather than general competition.
A Non-Compete Agreement is needed in technology and software development companies where employees develop source code, algorithms, or databases that constitute trade secrets under common law and may also attract copyright protection under the Copyright Act 1987 (Act 332). Combining a non-compete with an IP assignment clause and a non-disclosure agreement maximises the employer's protection.
A Non-Compete Agreement is required in franchise and distribution arrangements where the employee or contractor also operates as an agent or distributor. The Competition Act 2010 (Act 712), administered by the Malaysia Competition Commission (MyCC), prohibits anti-competitive agreements under Section 4; non-compete clauses that go beyond protecting legitimate business interests may violate the Competition Act 2010.
A Non-Compete Agreement is needed when an employer invests substantially in specialised training for an employee, to prevent the employee from immediately joining a competitor and applying that training against the employer's interests.
What to Include in Your Non-Compete Agreement (Malaysia)
A Malaysia Non-Compete Agreement must include the following elements to maximise enforceability within the constraints of Section 28 of the Contracts Act 1950.
Parties and recitals: Full legal names of employer and employee, company registration number under the Companies Act 2016 (Act 777) or business registration under the Registration of Businesses Act 1956, employment commencement date, and a recital explaining the legitimate business interest being protected. Malaysian courts look for a clear nexus between the restriction and a genuine protectable interest.
Definition of confidential information and trade secrets: Precise definition of the information the agreement protects — customer lists, pricing data, technical specifications, formulas, software source code, and business strategies. The more specific the definition, the more likely a Malaysian court is to enforce the restriction as a confidentiality obligation rather than a restraint of trade under Section 28 of the Contracts Act 1950.
During-employment restrictions: Obligations during employment including exclusive service, non-disclosure, and prohibition on engaging in competing side businesses. These restrictions are fully enforceable under Section 28 and the implied duty of fidelity at common law during the employment relationship.
Post-employment restrictions: Non-solicitation of specific clients or customers the employee personally dealt with during employment, non-solicitation of employees (garden leave and team solicitation restrictions), and non-disclosure of confidential information. Given Section 28 of the Contracts Act 1950, these should be drafted as narrowly as possible — specific clients, specific named employees, specific information categories — rather than a general prohibition on competing.
Duration and geographic scope: The period and geographic territory of the restriction. Malaysian courts are less likely to grant injunctive relief for restrictions exceeding 12 months or extending to all of Malaysia unless supported by strong evidence of a legitimate protectable interest — as the High Court indicated in Lim Ching Wan v Pan-Malaysian Pools Sdn Bhd [2007].
Consideration: Specific consideration provided by the employer for the post-employment restriction, beyond ordinary salary. A separate financial payment, garden leave with full salary, or enhanced severance tied to compliance with the restriction strengthens enforceability.
Governance and dispute resolution: Governing law as Malaysia and the laws of the relevant state, jurisdiction of the High Court of Malaya or High Court of Sabah and Sarawak, and whether the parties will attempt mediation under the Mediation Act 2012 (Act 749) before litigation.
Additional compliance elements for a Non-Compete Agreement (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
Cite this page
Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Non-Compete Agreement (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/employment/contracts/non-compete-agreement-malaysia
"Non-Compete Agreement (Malaysia) (Malaysia)." Forms Legal, 2026, https://forms-legal.com/malaysia/employment/contracts/non-compete-agreement-malaysia.
@misc{formslegal-non-compete-agreement-malaysia,
author = {{Forms Legal}},
title = {Non-Compete Agreement (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/employment/contracts/non-compete-agreement-malaysia}},
note = {Free legal document template. Based on Contracts Act 1950 s. 28}
}
Frequently Asked Questions
Non-compete agreements in Malaysia face significant enforceability challenges because of Section 28 of the Contracts Act 1950 (Act 136), which renders void any agreement that restrains a person from exercising a lawful profession, trade, or business. Unlike English law, which allows reasonable post-employment restraints, the Malaysian Contracts Act 1950 does not contain an express 'reasonableness' saving provision for employment restraints. The Federal Court in Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127 held that post-employment restrictions on competitive activity are prima facie void under Section 28. However, Malaysian courts have enforced non-solicitation clauses targeting specific clients, non-disclosure obligations protecting genuine trade secrets, and restrictions during employment. Post-employment non-compete clauses drafted as narrow client non-solicitation and confidentiality obligations have the best prospect of enforcement. Blanket prohibitions on working for competitors are generally void.
A non-compete clause in Malaysia prohibits the employee from working for a competitor or setting up a competing business for a defined period after leaving employment. Section 28 of the Contracts Act 1950 renders such clauses generally void as they restrain the exercise of a lawful profession or trade. A non-solicitation clause, by contrast, prohibits the employee from actively approaching specific clients or employees of the former employer to solicit business or encourage them to leave. Malaysian courts have shown greater willingness to enforce non-solicitation clauses because they target specific harm — the misuse of particular client relationships or employee contacts built during employment — rather than broadly preventing competition. In practice, Malaysian employment lawyers draft non-compete agreements that focus on non-solicitation, non-disclosure of trade secrets under the common law of confidence, and non-dealing with specific named clients, to maximise the prospect of enforcement under the Contracts Act 1950.
There is no statutory maximum duration for non-compete restrictions under Malaysian law, but duration is one of the factors that Malaysian courts consider when assessing whether a restriction goes beyond protecting a legitimate business interest. For restrictions that Malaysian courts are willing to enforce — particularly non-solicitation and non-disclosure clauses — a period of six to twelve months after termination of employment is generally considered the maximum that courts have been willing to consider as non-excessive in cases such as Lim Ching Wan v Pan-Malaysian Pools Sdn Bhd [2007] 7 MLJ 228. Restrictions exceeding twelve months, particularly for general non-compete provisions, face near-certain invalidity under Section 28 of the Contracts Act 1950. Employers seeking longer-term protection are better served by robust trade secret and confidential information provisions, which are not time-limited under the common law of confidence and the law of equity applied by Malaysian courts.
An employer in Malaysia may apply to the High Court of Malaya (for Peninsular Malaysia) under Order 29 of the Rules of Court 2012 for an interlocutory injunction to restrain a former employee from breaching a non-compete or non-solicitation clause, pending a full trial. The court applies the American Cyanamid principles: whether there is a serious question to be tried, where the balance of convenience lies, and whether damages would be an adequate remedy. Given the uncertainty around Section 28 of the Contracts Act 1950, courts are reluctant to grant injunctions for broad non-compete clauses but have done so for narrowly drawn non-solicitation and confidential information restraints where the employer can demonstrate immediate and irreparable harm to the business. The employer must also give an undertaking in damages, meaning it must compensate the defendant if the injunction is subsequently found to have been wrongly granted. The Mediation Act 2012 (Act 749) provides an alternative route through mediation before the Malaysian Mediation Centre.
Given the limitations of Section 28 of the Contracts Act 1950 on post-employment non-competes, Malaysian employers have several practical alternatives. First, a comprehensive confidentiality and trade secrets agreement — protecting specifically identified business-critical information — is enforceable under the common law of confidence and the equitable doctrine of confidence applied by Malaysian courts. Second, intellectual property assignment clauses ensuring that inventions, code, and business methods created by the employee vest in the employer under the Patents Act 1983 (Act 291) and Copyright Act 1987 (Act 332) prevent misuse of those assets. Third, garden leave provisions — where the employee is paid full salary to stay away from work during the notice period — effectively delays the employee's ability to join a competitor and is enforceable as a contractual obligation. Fourth, client non-solicitation clauses targeting specific client relationships are more enforceable than general non-competes under Malaysian case law.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
Found an error? Let us knowRelated Documents
You may also find these documents useful:
IP Assignment Agreement (Employment) — Malaysia
A Malaysia-compliant Intellectual Property Assignment Agreement for employment contexts, assigning inventions, copyright works, and software developed by employees to the employer under the Copyright Act 1987, Patents Act 1983, and Industrial Designs Act 1996.
Employee Handbook (Malaysia)
A Malaysia-compliant Employee Handbook template covering company policies, working hours, leave entitlements, code of conduct, disciplinary procedures, and workplace safety under the Employment Act 1955, Industrial Relations Act 1967, and Occupational Safety and Health Act 1994.
Remote Work Agreement (Malaysia)
A Malaysia-compliant Remote Work Agreement documenting the terms of working from home or a remote location, covering work hours, equipment, data security under the Personal Data Protection Act 2010, OSHA 1994 home-office obligations, and performance expectations under the Employment Act 1955.