about 2 months ago - Nadhirah Afiqah

Beware of Non-Compliant Recruitment Suppliers: A Crucial Alert for Businesses

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Beware of Non-Compliant Recruitment Suppliers: A Crucial Alert for Businesses


In the complex world of business relationships, the choice of suppliers can significantly impact success. Unfortunately, not all suppliers uphold ethical standards. Some of the potential implications are violating human rights, as it may lead to legal action and punishment. Human rights risk affects the entire organization, including partners and suppliers in the value chain, newly acquired companies or operations in new international markets and geographic areas, project financing, loans, asset-management services, and more.

From warning signs to potential repercussions, this blog sheds light on the importance of vigilance in supplier relationships and how to navigate the ethical landscape for sustained business integrity

Cases in Malaysia

First Solar Company

First Solar, a leading U.S. solar panel manufacturer, based on an audit that they had conducted, found that migrant workers in its operations in Malaysia were victims of forced labor. Four on-site service providers in Malaysia had subjected migrant workers to unethical recruitment practices, including “the payment of recruitment fees in their home countries, passport retention, and the unlawful retention of wages”.

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First Solar said it had taken steps to return passports, wages and recruitment fees to the affected workers.

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Top Glove Corp

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The company employed around 1,000 contract workers but because of the poor condition of the housing facilities, the virus infection spread across the neighborhood. Investigations showed that the housing options offered to its employees were the source of the infection. Investigators found the accommodations to be cramped, and uncomfortable. The dormitories also has poor ventilation, and to lack rest and kitchen areas.

Top Glove’s shares declined 17 percent with about RM11 billion in market capitalisation reportedly wiped out because of the allegations.

The danger of non-compliance supplier

Risk of not following governmental legislation:

Like anti-discrimination laws, data privacy regulations, and background check laws. Agencies invest in comprehensive training for their consultants and establish robust compliance protocols. They also rely on technology solutions that help automate compliance checks, ensuring that each step of the hiring process adheres to the relevant legal requirements.

Reputation Damage:

Engaging with an unethical HR supplier can tarnish the reputation of the client's business. News of unfair labor practices, discrimination, or other unethical behavior can spread quickly, causing public backlash and negative perceptions among customers, employees, and stakeholders.

News agency Bernama stated that labour department in Malaysia has acted against 400 companies so far this year for breaking labor regulations. According to V. Sivakumar, the ex-minister of Ministry of Human Resources MOHR) fined 272 employers a total of RM2.17 million, and the courts punished 128 employers a total of RM242,000. Among the labor infractions were unauthorized wage deductions.

Employee Morale and Productivity:

Unethical HR practices, such as unfair treatment, harassment, or exploitation, can significantly impact employee morale and job satisfaction. Low morale can lead to decreased productivity, increased turnover, and difficulties in attracting and retaining top talent.

Recent accusations of mistreatment of migrant workers, who are mostly employed in the nation's industrial and plantation sectors, have resulted in US sanctions on Malaysian corporations. Among the accusations of forced labor are financial bondage, long work hours, passport retention, and filthy dorms.

Operational Disruptions:

Unreliable HR suppliers may not fulfill their contractual obligations, leading to operational disruptions for client businesses. Delays in payroll processing, benefits administration, or other HR functions can hinder the smooth operation of the business and affect employee satisfaction.

Financial Risks

Non-compliant HR suppliers may engage in fraudulent activities, putting client businesses at risk of financial losses. This could involve embezzlement, inaccurate financial reporting, or other financial mismanagement that could negatively impact the client company's financial stability.

Loss of Focus on Core Business Activities

Dealing with the fallout from unethical HR practices can divert the management's attention away from core business activities. Businesses should ideally be able to trust their HR suppliers to handle HR functions competently and ethically, allowing the company to focus on its primary goals and objectives.

Attraction of Legal Liabilities

Engaging with an unethical HR supplier may expose the client business to legal liabilities arising from the supplier's actions.This can include lawsuits related to discrimination, wrongful termination, or other labor-related issues.

In summary, businesses in Malaysia, like anywhere else, should prioritise ethical HR practices to maintain legal compliance, protect their reputation, ensure employee satisfaction, and mitigate various risks associated with unethical behavior. Choosing reputable and ethical HR suppliers is crucial for the long-term success and sustainability of any business.

Contact us here if you want to know more about our recruitment compliance or any hiring needs.