FIXED TERM CONTRACTS: AN ANALYSIS ON THE CHALLENGES FACED BY THE EMPLOYERS
A “fixed” term contract is an employment agreement entered between an employer and an employee for a specific duration. Typically, a fixed-term contract is used by an employer for temporary roles or a specified project with a fixed duration. In Malaysia, an employee on a fixed-term contract enjoys the security of employment if the contract is renewed multiple times or if the employee is treated similarly to a permanent employee.
The genesis of a fixed-term contract in Malaysian Courts began in 1988 via the case of Han Chiang High School Penang/Han Chiang Associated Chinese Schools Association V. National Union of Teachers in Independent Schools, W. M'sia[1]. In this classic case, the Industrial Court distinguished between a genuine fixed-term contract and a sham contract by referring to the intention of the parties. The Industrial Court ruled that placing the teachers on multiple fixed-term contracts which were renewed automatically shows that the fixed-term contracts are not genuine.
Over the years, the law surrounding the genuineness of a fixed-term contract has evolved. In 2020, the Federal Court in the case of Ahmad Zahri Mirza Abdul Hamid v. AIMS Cyberjaya Sdn Bhd[2] affirmed the decision in Han Chiang High School. The Federal Court listed three (3) considerations for the Court to determine the genuineness of a fixed-term contract as below:-
- The intention of the parties;
- Employers’ subsequent conduct during the employment; and
- The nature of the employer’s business and the nature of work which the employee is engaged to perform.
In deciding the genuineness of a fixed-term contract, the judiciary is empowered to lift the corporate veil to determine the motive of why the employer chose a fixed-term contract as opposed to permanent employment.
As for the second consideration, the issue of bonus and increment payout (if any) were given to the fixed-term employee. Other than this, the length of the employee’s service with the employer i.e. the number of renewals of the fixed-term contracts would also be of paramount consideration of the judiciary. At this juncture, the judiciary would also analyse whether there was any conduct by the employers that made the employee consider himself as a permanent employee.
Under the third consideration, the judiciary is tasked to determine whether the position held by the employee (on a fixed-term contract) is integral to the employer’s business and whether the fixed-term contract is a one-off, seasonal, or temporary employment.
If all the answers to these considerations are in the affirmative, it is most likely for the judiciary to decide the non-genuineness of the fixed-term contract.
Now, upon getting to know the considerations taken into account by the judiciary, the biggest question that most employers will have been; “in what circumstances can the employer offer a fixed-term contract”. The answer to this is simple, it is only doable for a position that is meant to be one-off, seasonal, and temporary.
By: Sujatha Selliah
[1] [1988] 2 ILR 611
[2] [2020] 6 CLJ 557