Introduction
Fixed-term employment contracts are employment contracts for a stipulated period, defined by a specific start date and an end date.[1] Upon expiry, there is no dismissal as the employer-employee relationship naturally comes to an end due to effluxion of time.[2]
While fixed-term contracts are commonly used in various industries, the distinction between a genuine fixed-term contract and a permanent contract is often unclear. In some cases, fixed-term contracts are actually permanent contracts in disguise.
This Article explores the legal principles underlying fixed-term contracts and considers how their classification influences claims brought before Industrial Courts.
Distinguishing a Genuine Fixed Term Contract from a Permanent Contract
In the Federal Court case of Ahmad Zahri Mirza Abdul Hamid v. AIMS Cyberjaya Sdn. Bhd. [2020] 6 CLJ 557, it was held that there are three issues to consider in determining whether a contract is a genuine fixed-term contract:
- The intention of the parties
- Employer’s subsequent conduct during the course of employment
- Nature of the employer’s business and the nature of work which an employee is engaged to perform
- Intention of Parties
In Hasni Hassan & Ors v. Menteri Sumber Manusia & Anor [2013] 6 CLJ 74, the Industrial court held that the Company had genuine intentions to offer fixed term contracts to their senior management officers to improve the performance of government-linked companies and gave them the option to either remain under the current terms of their permanent employment or accept the fixed term contract.
On the other hand, in A Gilbert D’cruz v. Sapuraacergy Sdn Bhd & Anor [2022] 1 CLJ 49, the Court of Appeal held that the employee’s contract of employment was not a genuine fixed term contract because the Company had treated the Claimant as a permanent employee by allowing him to continue his employment without a contract for a period of 45 months.
- Employer’s subsequent conduct during the course of employment
In Malaysia Airlines Bhd v. Michael Ng Liang Kok [2000] 3 ILR 179, the Industrial Court dismissed the Company’s argument that the Claimant was employed on a genuine fixed term contract because evidence showed that the Claimant had been promoted, given increments and received bonuses like other employees so his contract was an ordinary employment contract disguised as a fixed term contract.
That being said, salary increments do not always indicate that parties intend to be bound by a permanent employment relationship.[3]
- Nature of the employer’s business and the nature of work which an employee is engaged to perform
In Han Chiang High School Penang Han Chiang Associated Chinese Schools Association and National Union of Teachers in Independent Schools, W. M’sia [1988] 2 ILR 611, the Industrial Court pointed out that Section 11 of the Employment Act 1955 envisages the types of work which are temporary in nature in which fixed term contracts are most suitable:
10 The Court, however, is aware that on the other hand there are genuine fixed term contracts, where both parties recognise there is no understanding that the contract will be renewed on expiry. The Court realises that such genuine fixed-term contracts for temporary, one-off jobs are an important part of the range of employment relationships. Some such jobs are found in seasonal work, work to fill gaps caused by temporary absence of permanent staff, training, and the performance of specific tasks such as research projects funded from outside the employer’s undertaking. These are the types of work envisaged in Section 11 of the Employment Act, 1955, which may be embodied in contracts of service for a specified period of time. This type of fixed-term contracts are therefore to be differentiated from the so-called fixed-term contracts which are in fact ongoing, permanent contracts of employment.
Nevertheless, there are certain jobs which are integral to a company’s business and are not considered temporary in nature like the Claimant in Audrey Yeoh Peng Hoon v. Financial Mediation Bureau [2015] 3 ILR 371 who had been employed by the Company as a Mediator and the Industrial Court held that the non-renewal of her fixed term contract amounted to a dismissal.
In short, fixed-term contracts, even if labelled as such, may be treated as a permanent contract if the courts, after considering the three factors discussed above, determine that to be the case.
Continuous Renewals of Fixed Term Contracts
There is a common “saying” that a continuous renewal of a fixed-term contract will convert it into a permanent contract.[4] However, that is not always the case, such as when an employee is retained by their employer on a fixed-term contract after passing the age of retirement.
This is what transpired in Thavaratnam Thambipillay v. OM Education Sdn Bhd [2010] 2 ILR 201, where the Industrial Court dismissed the Claimant’s claim and stated the following:
[19] Being age 56 at the time the claimant had some four years to go before reaching that retirement age and when these four years ran out and he had thereby reached this contracted retirement age the respondent, in keeping with clause 7 aforesaid, invited him to apply for re-employment on a one-year fixed term contract renewable yearly at the mutual consent of both parties. He did so then but he now complains that the respondent had taken away his security of tenure by giving him a one-year contract. The court finds this complaint to be untenable because if he had really believed that to be the case he should have rejected the one-year contract and claimed dismissal at that time, but, no, not only did he accept that first one-year term contract in 2000 but also he went on to accept five more such contracts for the years following, ie, 2001, 2002, 2003, 2004 and 2005 with apparent alacrity. Having received the benefit of gainful employment past the age of retirement (this must be emphasised) under these contracts he cannot now be heard to say that the one-year stipulation therein has no effect and that he is actually entitled to permanency of employment. This court, as a court of equity and good conscience, cannot allow the claimant to approbate and reprobate in this manner.
However, if a fixed term contract is repeatedly renewed over a long period of time, for instance, over 20 years and the nature of the employee’s work indicates that they are a permanent employee, the courts are likely to believe that the employee was on a permanent employment contract disguised as a fixed term contract.[5]
Filing a Claim in the Industrial Court
While fixed term contract employees do not have security of tenure, they are still entitled to bring a claim in the Industrial Court if their contract has been prematurely ended before the expiry of its term, without just cause or excuse as provided under Section 20 Industrial Relations Act 1967 (IRA 1967).[6]
However, the compensation awarded to a fixed-term contract employee varies from that of a permanent employee. Backwages awarded to fixed-term contract employees are limited to the remaining period of the contract[7] as opposed to the maximum of 24 months’ backwages for permanent employees provided in the Second Schedule IRA 1967.
Unfortunately, fixed-term contract employees are not entitled to compensation in lieu of reinstatement because such employees do not have the same expectation of an indefinite length of employment as permanent employees.[8]
In some instances, courts may exercise its discretion to grant an exemplary award for victimisation besides backwages to fixed-term employees. In Pelabuhan Tanjung Pelepas Sdn Bhd v. Thangasamy Brown Dn Gnanayutham [2003] 1 ILR 62, the Claimant, a fixed-term contract employee, had left the Company on the basis of constructive dismissal was awarded 3 months remuneration as exemplary compensation by the Industrial Court because of the Company’s conduct of “deplorable acts of victimisation”. This decision was later affirmed by the Court of Appeal.[9]
If an employee suspects that their fixed term contract is a permanent contract in disguise, they may also file a claim in the industrial court in which any non-renewal of contract will be construed as a dismissal under Section 20 IRA 1967 (if the contract, in reality, is a permanent contract).[10] In such circumstances, the Company will then bear the burden of proof to prove to the court that the fixed term contract is genuine as per Section 103 Evidence Act 1950 and the dismissal was with just cause or excuse.[11]
Conclusion
Some fixed-term contracts are genuine, but if they are frequently renewed, this may lead employees to believe that they are in fact permanently employed. Further, an employer’s conduct during the course of employment may reinforce this expectation. Employers should therefore exercise caution in drafting fixed-term contracts and be consistent in managing such arrangements, otherwise, it may give rise to an unfair dismissal claim, especially after a decision not to renew a fixed-term contract.
Post-script
Thank you. We hope that the above article is useful; it was written with the assistance of our Pupil-in-Chambers Ms Amelia Lo.
Additionally, we are also organising a complimentary masterclass titled “How Modern HR Digital Tools Can Transform KPI & Performance Management Leading to Better Employee Performance” – all details here: http://bit.ly/4jM8TKd
Please join us.
[1] Mohamed Mohamed Tolba Said v. Marsha Sdn Bhd (Kolej Pengajian Islam Johor) [2018] ILRU 1718
[2] Rozainah Awang v. Misc Berhad [2020] 3 ILR 605
[3] Zahir Abdullah v. Lang Education Sdn Bhd [2010] 2 LNS 0275
[4] Robert Henry Hawkins v. Rusch Sdn. Bhd. [2010] 4 ILR 175
[5] Muhamad Fawaid bin Daud v Airod Sdn Bhd [2024] IRLU 0836
[6] Omar Othman v. Kulim Advanced Technologies Sdn. Bhd. [2019] 7 CLJ 18
[7] Subramanee Veeran v. Ngan Yin Groundnut Factory Sdn Bhd [2010] 2 ILR 435
[8] Subramanee Veeran v. Ngan Yin Groundnut Factory Sdn Bhd [2010] 2 ILR 435
[9] Thangasamy Brown Dn Gnanayutham v. Pelabuhan Tanjung Pelepas Sdn Bhd & Anor [2009] 6 CLJ 144
[10] Colgate Palmolive (M) Sdn Bhd v. Yap Kok Foong [1998] 3 ILR 843
[11] Toko Inomoto & Ors v. Mahkamah Perusahaan Malaysia & Anor [2017] 1 LNS 201