It's not legal to keep at all, you can't hold other people's passport unless you're the authorities, but at the same if your foreign employees go MIA you as an employer (not guardian) will kena by immigration.
That's the answer I get when I asked immigration office last time about employing foreign workers. Even live-in maid you can't control if she suddenly go AWOL one day, why employers kena?
When asked how can I make sure the employees don't go missing he replied 'Itu encik kena fikirkan la macam mana'. He wants me to chain him to the workplace or what?

Sometimes the ridiculousness of bureaucracy creates stupid situation too.