Malaysia - What Is A Genuine Fixed Term Contract?

Legal News & Analysis - Asia Pacific - Malaysia - Dispute Resolution

6 April, 2019

 

Fixed term employment contracts are employment contracts for a specified period (eg: 1 year or 2 years).  These contracts are commonly used when an employee is engaged for seasonal or temporal work, or for a specific project which is not anticipated to be long term.  Fixed term contracts are also used for the engagement of expatriate employees, since the employment of these employees are subject to the validity of their employment pass which is for a specified/fixed time period.

 

The Industrial Court in Peter James William Dyer v Yayasan UEM (Award No. 1014 of 2019, 21 March 2019) recently considered the issue of whether a non-renewal of a fixed term contract can amount to unfair dismissal.

 

Brief Facts

 
  • The Claimant, a British Citizen, commenced employment with the Company effective 1 February 2012 as a teacher. His contract for employment was for a fixed term, expiring on 30 June 2014.
  • The Claimant alleged that based on an understanding between him and the then Headmaster of the college, his contract of employment was actually a permanent contract, and the “fixed term” period mentioned was just a formality because of the work permit requirements for an expatriate employee.
  • In July 2013, the Claimant was diagnosed with vocal cords dysfunction and there was a possibility of relapse.
  • As such, the Company decided not to offer him a new contract upon expiry of his employment contract. However, the Claimant appealed for the Company to reconsider as he would be undergoing 2 operations in London which he claimed would improve his voice condition. The Company decided to defer issuing him the letter of non-renewal until the operations were completed.
  • In January 2014, after the Claimant’s operations, the Company noted that there was an improvement in his voice, and therefore reappointed him as a teacher via a fresh employment contract. This second employment contract was also on a fixed term from 1 July 2014 to 30 June 2016.
  • However, in January 2016, the Company noted that the Claimant’s voice condition appeared to be deteriorating based on the attending physician’s confirmation. As such, the Company issued him a letter informing him that they would not be renewing his contract once it expires on 30 June 2016.
  • The Claimant claimed unfair dismissal as he contends that his contract of employment was in fact a permanent one and not a fixed term contract. 

 

Court’s Findings

 

In a case involving fixed term contracts, the Industrial Court must first consider whether the employment contract is a “genuine” fixed term contract. If the fixed term contract is genuine, then there is no “dismissal” if the contract is not renewed upon expiry.

 

However, if the fixed term contract is not genuine and is in fact a permanent contract disguised as a fixed term, then the Court will consider whether there is a dismissal and whether it is with just cause and excuse.

 

The Claimant has the burden of proving that the fixed term contract is not genuine. Here, the Claimant’s contention was that there was a verbal representation made by the Company that the permanency of the Claimant’s employment will override the fixed term nature of the contracts signed by the Claimant. However, the Court did not accept this evidence because the fixed term was expressly stated in the employment contract and accepted by the Claimant.

 

The Court in deciding that the Claimant’s employment was on a fixed term basis, took into account the following:

 

  • Both employment contracts executed by the Claimant stated that they were on a fixed term basis
  • The Claimant, being a British Citizen, required an employment pass before he could validly work in Malaysia. The Company therefore was not in a position to employ him on a permanent basis, or guarantee automatic renewal, given that his employment is always subject to the issuance of a valid employment pass which is solely at the discretion of the Immigration Department.
  • The Industrial Court distinguished the case of Han Chiang High School [1988] 2 ILR 611 which had previously decided that it is possible for a permanent employment to be disguised as a fixed term contract. In the Han Chiang High School case, the employees were Malaysian citizens, who were dismissed for their desire to create a union. In this case, there was a necessity to place the Claimant on a fixed term contract as he was an expatriate subject to Malaysian immigration laws.
  • The fact that the Claimant’s job functions were ongoing and continuous does not override the fact that foreign employees’ employment in Malaysia is contingent upon the issuance of a valid employment pass.
  • The Industrial Court referred to the Court of Appeal decision in AIMS Cyberjaya Sdn Bhd v Ahmad Zahari bin Mirza Abdul Hamid [Court of Appeal Civil Appeal No. W-02(A)-287-02/2017) which held that an expatriate employee who requires an employment pass to work in Malaysia cannot be a permanent employee.

 

Given that the Industrial Court found that the Claimant was on a genuine fixed term contract, the non-renewal of his contract does not amount to a dismissal. His employment had simply come to an end due to effluxion of time. There is therefore no obligation on the Company to inform, or explain the reasons for non-renewal to him. The Claimant’s claim for unfair dismissal was therefore dismissed.

 

Takeaways

 

It is not uncommon to see employees file complaints of unfair dismissal when their fixed term contracts are not renewed. While it is possible that some fixed term contracts are in reality permanent contracts that have been “disguised”, the Industrial Court will still examine all factual circumstances to form a conclusion whether a contract is a genuine fixed term contract.

 

This case highlights a presumption that fixed term contracts for expatriate employees (who require an employment pass) are genuine, since permanency of employment cannot be guaranteed due to the requirement of the employment pass which is out of the control of the employer.

 

However, if other factors are present (eg: employee is Malaysian or does not require an employment pass, or there is evidence to suggest an ulterior motive for placing the employees on a fixed term contract such as in the Han Chiang High School case), the Industrial Court may “convert” a fixed term contract into a permanent employment and deal with the non-renewal as a dismissal. In such a case, the non-renewal may be an unfair dismissal. Read our previous article about fixed term contracts for more information.

For further information, please contact:

 

Donovan Cheah, Partner, Donovan & Ho

donovan@dnh.com.my