What is Garden Leave in Malaysia? And Is it a Bad Thing?

Garden leave in Malaysia means an employee who has resigned or been given notice stays on payroll but is told not to work during the notice period. It is legal if written in the contract and managed fairly.

Leaving a job often comes with mixed emotions. Some employers prefer that departing staff stay away from the office while still being paid. 

This is called garden leave, a term that might sound pleasant but carries specific legal and practical ramifications in Malaysia.

Today, we will explain how garden leave works, the rules that make it valid, and whether it benefits employees or not.

What Does Garden Leave Mean in Malaysia?

Garden leave is a contractual pause between employment and departure.

An employee remains employed and paid, yet is required to stay away from work and stop performing duties. The name comes from the idea of “tending one’s garden” during this waiting period.

In Malaysia, there is no clause in the Employment Act 1955 that defines garden leave. It exists through contractual agreement only. Features include:

• Continuous salary and statutory contributions (EPF, SOCSO, EIS).
• No active participation in work, client meetings, or system access.
• A requirement to remain contactable for hand-over matters.
• A restriction from joining competitors until the notice period ends.

Because the employee remains legally employed, garden leave maintains confidentiality obligations until the very last day of service.

How Garden Leave Differs from Other Types of Leave in Malaysia

Most employees are familiar with annual or sick leave, but garden leave is a different concept altogether.

The table below highlights how it compares with other common leave types in Malaysia.

Types of Leave in Malaysia

Garden leave differs from statutory leave because it is not a benefit or entitlement.

Instead, it is a contractual measure that employers use to manage departures and protect confidential information during the notice period.

How Does Garden Leave Work Under Malaysian Law?

It depends entirely on what the contract allows.

Section 28 of the Contracts Act 1950 invalidates post-employment restraints of trade. However, restrictions that apply during employment remain valid. 

This is why many companies use garden leave instead of non-compete clauses.

For a garden leave clause to hold up:

1. The contract must state it clearly. Employers cannot impose garden leave unilaterally without consent or written provision.
2. Salary and benefits must continue. Any deduction or suspension can breach the contract.
3. The period must be reasonable. Usually equal to the notice period (for example, one or two months).

Although Malaysian courts have not published landmark rulings on garden leave, Industrial Court decisions recognise the practice when it follows these principles.

What Should Be in a Garden Leave Clause

A well-drafted clause prevents disputes later.

It should include:

• The employer’s right to place the employee on garden leave during notice.
• Duration of the period (equal to notice or shorter).
• Entitlement to salary and benefits.
• Confidentiality and non-compete obligations.
• Conditions for communication or recall during the period.
• Return of company property and system access restrictions.

A clear clause protects both parties. It guarantees transparency and avoids conflict over pay, access, or rights during the notice period.

Why Employers Use Garden Leave (And When It Backfires)

Garden leave is a preventive tool, not a punishment.

Employers use it mainly to:

• Stop employees from taking clients or trade secrets before departure. 
• Manage leadership transitions without workplace disruption.
• Prevent conflicts of interest while still paying the employee.

However, it can backfire if:

• The employer cuts pay or benefits during the period.
• The duration exceeds the contractual notice period.
• The clause does not exist in the contract and the employer enforces it anyway.

Such actions may allow the employee to claim constructive dismissal, arguing that the employer breached contractual duties. 

This is different from unfair dismissal, which we have a whole blog on.

Scenarios

• Scenario 1: Senior Manager Joining a Competitor. An IT firm places a department head on one-month garden leave to prevent access to client databases before joining a rival.
• Scenario 2: Employee with Sensitive Client Data. A financial consultant resigns, and HR uses garden leave to finalise client hand-overs without allowing new contact.
• Scenario 3: Mutual Agreement. Both parties agree to garden leave to allow the employee to serve notice without tension.

What Happens to Pay and Benefits During Garden Leave?

Employees remain fully entitled to their normal compensation.

That includes:

• Monthly salary and allowances.
• EPF, SOCSO, and EIS contributions.
• Accrued annual leave payout (unless stated otherwise).

In certain cases, variable pay such as bonuses or commissions may depend on whether the employee actively worked during the qualifying period. 

For employees. always check how your company defines “active service” in its policy.

From the employer’s side, maintaining full benefits shows good faith and avoids future disputes.

Is Garden Leave a Bad Thing for Employees?

For some, garden leave offers a paid cooling-off period before moving to the next job. For others, it feels isolating because they are cut off from the workplace.

Advantages for the employee:

• Continued income while resting or preparing for a new role.
• Reduced office tension during notice.

Possible downsides:

• Restricted from joining another employer until the period ends.
• Limited networking or reference opportunities during inactivity.

If handled transparently and kept within the contract, garden leave can be fair to both sides. Problems arise only when communication is poor or the terms are unclear.

How to Handle Garden Leave the Right Way

A clear process protects both employer and employee.

For Employers:

1. Include a written garden leave clause in employment contracts.
2. Confirm full pay and benefits continue during the period.
3. Issue a formal letter specifying start and end dates.
4. Restrict access to systems and clients professionally.
5. Keep communication open and respectful.

For Employees:

1. Request written confirmation of the terms.
2. Clarify how salary, bonuses, and benefits apply.
3. Remain available for reasonable hand-over requests.
4. Avoid any employment or consultancy elsewhere until the notice ends.
5. Maintain confidentiality even while away from work.

Well-managed garden leaves preserve trust and compliance on both sides.

HR Best Practices to Avoid Disputes

Employers should apply garden leave consistently and fairly to maintain credibility. We recommend an employee handbook that clearly states the terms and conditions.

• Train HR managers on lawful implementation and documentation.
• Keep written records of all correspondence and ensure payroll continuity.
• Conduct exit interviews even when employees are on garden leave.
• Avoid over-use, reserve it for sensitive or high-risk roles.

“By treating garden leave as a professional management tool rather than a disciplinary measure, HR teams strengthen both compliance and reputation.”

Understanding Garden Leave Beyond the Contract

Garden leave in Malaysia is not about sidelining employees but marking a smooth and secure transition for both parties. 

When managed fairly, it protects business interests while giving employees the space to plan their next steps.

As the best digital PR agency in Malaysia, PRESS supports fair and responsible workplace communication. 

If your organisation needs help turning HR policies into accessible, authoritative web content, or if you’re a brand that wants to educate audiences on employment compliance, our content and PR teams are here to help.

Disclaimer: This article provides general information on Malaysian employment law (current as at 31 Oct 2025) and does not constitute legal advice. Please consult a qualified employment lawyer for advice on your specific situation.

Source:

• Employment Act 1955 – Statutory basis for annual leave (s.60E), sick & hospitalisation leave (s.60F), maternity leave (s.37), and paternity leave (s.60FA).
• Skrine (30 Dec 2022): “Employment (Amendment) Act 2022 comes into force on 1 Jan 2023.”
• P.E. Lim (14 Jun 2022): “Sick Leave under the Employment Act 1955.” —
• Contracts Act 1950, s.28 (official text) : Post-employment restraints of trade generally void
• KWSP/EPF: Employer Responsibilities: Mandatory Contribution
• PERKESO (SOCSO) 2025 Employer Booklet
• Industrial Court award (example referencing “garden leave”)
• Christopher & Lee Ong (20 Jun 2025): Court of Appeal case note on “forced leave” & constructive dismissal risk