Job terms

A fixed term contract can be deemed permanent if repeatedly renewed.

In Malaysia, once an employee is confirmed in his job, he enjoys security of tenure. This means an employee cannot arbitrarily have his employment terminated, and this applies whether one is in the government or private sector. The employment is thus viewed as being “permanent”.

However, there are occasions when an employee is not hired on a permanent basis but on contract. Of course the employment even when permanent is also based on a contract. But in practice, the word “contract employment” is used to mean that the person is employed for a fixed period and not permanently.

The word “permanent’ itself is ambiguous. To start with, nothing in life is permanent. But “permanent” in this context means continued employment until the person reaches the age of retirement.

In the past, 55 years was regarded in many jobs as the age for retirement. There have been changes to this age limit in recent years. Readers will no doubt be aware of the ongoing discussions by stakeholder on the issue of retirement age.

Whatever the age limit, the law provides security of tenure until retirement. Accordingly, in the non-government sector, the Industrial Relations Act 1967 ensures that an employee cannot be dismissed without just cause.

Short-term needs

So how does an employer meet his short term needs? By engaging an employee under a “fixed term contract”.

This would be employment for a definite and fixed period of time.

A person employed under a fixed term contract is also entitled to statutory contributions like those to the Employees Provident Fund and Socso. Where the Employment Act 1955 applies, other minimum standards must also be complied with. Otherwise, the contractual terms will prevail.

In a way, a person engaged on a fixed term basis is a temporary employee. However, this does not mean that such an employee can be asked to leave at the whims and fancies of the employer. A contract worker is assured of employment at least for the agreed period.

In the case of United Engineers Malaysia Bhd vs Jurgen H. Dorbecker, the plaintiff’s engagement as an engineer for a three year-period was terminated after two years. In the Industrial Court it was held that the termination was in breach of the contract of employment and he was awarded compensation equivalent to his earnings for the remaining period.

If for example a person is engaged for five years, the employer must allow the contract – in the absence of breaches on the worker’s part – to complete the five years. The employer is of course free to dismiss the employee if there is any misconduct or justifiable breach. In all other cases, the contract cannot be terminated by notice before the expiry of the fixed term.

The need for engaging a person on a fixed term basis is often dictated by a variety of factors. This is referred to in Han Chiang High School vs National Union of Teachers in Independent Schools in the following words:

“Such fixed term contracts for temporary on-off jobs are an important part of the range of employment relationship. Some such jobs are found in seasonal work, work to fill gaps caused by temporary absence of permanent staff who are on training, and the performance of specific tasks such as research.”

Termination and extension

In the case of fixed term contracts, unless a termination occurs earlier, the employment contract would come to an end by itself. This is reflected in Section 11(1) of the Employment Act 1955:

“A contract of services for a specified period of time or for the performance of a specified piece of work shall, unless otherwise terminated in accordance with this part, terminate when the period of time for which such contract was made has expired or when the piece of work specified in such contract has been completed.”

Any continued employment will depend on whether there is further arrangement made. Whether it is called extension, renewal or new contract, there is in reality no automatic right to continue.

But employers must realise that entering into fixed term contracts when the intention is actually to prolong the employment can cause problems. Continued renewals may give rise to an expectation in the mind of the employee that the contract will keep on being renewed.

In Han Chiang High School vs National Union of Teachers in Independent Schools, the teachers were engaged on annual contracts which were terminated at the end of each year and new contracts were provided the following year. The Industrial Court hence ruled that the teachers were employed on a permanent basis and not on fixed term contracts.

The law on this subject seeks to draw a balance between employers who are forced to engage personnel for a fixed term, and to protect employees from being deprived of permanent employment through so called fixed term contracts.

In this connection, the words of Phillips J in Terry vs East Sussex County Council are appropriate: “The great thing is to make sure that the case is a genuine one – on the one hand, employers who have a genuine need for a fixed term employment, which can be seen from the outset not to be on going, need to be protected. On the other hand employees have to be protected against being deprived of their rights through ordinary employment being dressed up in the form of temporary fixed term contracts. What we are saying in this judgment in that there is no magic about fixed term contracts.”

Thus in Bhattacharyya vs Secretary General of UN, it was held that “as a general rule a fixed term appointment does not carry the right of renewal. Nevertheless the tribunal is competent to examine the surrounding facts in which the letter of appointment was signed. The tribunal has to consider the contract as a whole not only by reference to the letter of appointment but also in relation to the circumstances in which the contract was concluded.”