Employment Law: Fixed Term Employment Contracts in Malaysia

Introduction:-

Fixed-term employment contracts are contracts of service for a specified period of time.

The nature of such employment is favour for the purpose of hiring an employee for a specific job which is to be completed within a stipulated period of employment.

General Legal Principle

A fixed-term employment contract was defined in the recent case as follows:-

‘A fixed term contract is one which has a definite beginning and a definite end. In common law, when a contract for a fixed term expires, it terminates of itself: it has not been “terminated” by either party. In the conventional sense, there is neither dismissal nor resignation. This is implicitly affirmed in the Employment Act 1955, Section 11.’

In other words, as long as an employment contract was for a specified period of time, it can safely be concluded as a fixed-term employment contract.

The legal implications being, once a fixed-term employment contract has formally brought to an end:-

(1) there was no obligation for the employer to state reasons for the non-renewal the said contract; and

(2) thus, the issue as to whether there was a dismissal and whether that dismissal was with just cause or excuse does not arise upon its expiry and non-renewal.

This principle is as stated in the cases of M. Vasagam a/l Muthusamy v Kesatuan Pekerja-Pekerja Resorts World, Pahang & Anor [2003] 5 MLJ 262, Mong Pak Nyong v IJM Plantations Bhd (Award No: 657 of 2010)

and Colgate Palmolive (M) Sdn Bhd v. Yap Kok Foong [2001] 4 MLJ 97.

Exception:

1. Employer’s action tainted with mala fide and a colorable exercise.

Having said that, the employer must beware that is fixed term contract must be a genuine one. For it is a contract which is of a permanent nature but dressed up as a fixed term contract, the Court may still require the company to justify whether the dismissal is with just cause or excuse and in line with the principle of natural justice implied under section 20 (3) of the Industrial Relation Act 1967. This principle was founded in the case of Han Chiang High School Penang Han Chiang Associated Chinese Schools Association v. National Union of Teachers in Independent Schools, West Malaysia [1988] 2 ILR 611 (Award No. 306 of 1988)

The question of whether a fixed term contract is a genuine one or it is a contract which is of permanent nature but dressed up as a fixed term contract depends on the facts of each particular case. Therefore the burden is on the employee to prove his case.

2. Continuous renewals/extensions

Employers must also be mindful of continuous renewals of a fixed term contract may give rise to the expectation that such employment can become permanent and may even be used as evidence that the employment was not of a temporary nature.

However, the recent Court of Appeal in the case of Aims Cyberjaya Sdn Bhd v Ahmad Zahri bin Mirza Abdul Hamid [2018] MLJU 1975 held that in respect of an expatriate employee, there cannot be permanent employment. The court affirmed the decision of Nasha’at Muhy Mahmoud v Malaysian Airlines System Bhd [2014] 1 ILJ 458, the case involved a pilot who was a foreign national who was engaged under a series of successive contracts which had been renewed several times. He claimed that he was a permanent employee. The learned Chairman Nayagam held that:-

“This is the normal practice where companies employ foreigners to work for them as a stop gap measure as it requires a valid work pass, which is only for a limited period and can be cancelled if there has been a breach of any condition attached to it. This is reason the claimant’s contracts were subject to him obtaining a work pass. In the circumstances, it is not reasonable for the claimant as a foreign workman to say that he expected to work in Malaysia on a permanent basis, just because his fixed term contract was renewed.’

3. Termination prior to the expiry of contracts

Arbitrary termination of such fixed-term contracts is not allowed. In the event where an employee contests his dismissal, it is for the employer to prove that the dismissal was with just cause and excuse.

Such termination is also in breach of the fixed term contract under Section 74 (1) of the Contracts Act 1950. In the event the employee chose to go to civil court, the employee shall be entitled to compensation equivalent to the employee’s earnings had he not been wrongfully terminated. This was exemplified in the case of Nong Chik Abu Bakar v Umpan Jaya Sdn Bhd [2013] MLRHU 1.

Conclusion:-

All in all, the Court is shall be acting according to equity, good conscience and the substantial merit of the case without regard to technicalities and legal form as required under Section 30(5) Industrial Relations Act 1967, in arriving at its decision accordingly.

About the Author: 

This article was written by Chia Swee Yik, Partner of this Firm, who endeavors to provide practical advice on employment law.

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