BUSINESS AND ADMINISTRATION

JANUARY 2020

BBUI3103

EMPLOYMENT AND INDUSTRIAL LAW

.
MATRICULATION NO : 891016145928001
IDENTITY CARD NO. : 891016-14-5928
TELEPHONE NO. : 016-333 6704
E-MAIL : losni.m@maybank.com.my
LEARNING CENTRE : SHAH ALAM LEARNING CENTRE
 BBUI3103 | EMPLOYMENT AND INDUSTRIAL LAW

TABLE OF CONTENT

No Title Page
1.0 Introduction 3

1.1 Definition of Gig Economy Workers 4–

Figure 1: Definition of Employee as per EA 1955 and IRA 1967
Source: www.oum.edu.my
Explanation on the Differences between Contract of Service and Contract for
2.0 5–7
Service

3.0 Identification and explanation on available access to justice for employees. 8 – 10

The discussion on the relevant rules in respect of dismissal of an employee and

4.0 11 – 14
the rights of employees thereto according to the statutory provisions.

Evaluation on the extent the statutory rights applicable to gig economy

5.0 15 – 17
workers
Table 1: Pestle Analysis of Upwork 15
Recommendation on amendment to the existing laws so that laws can be
6.0 18
effectively secure the rights of gig economy workers.

7.0 Reference 19

1.0 Introduction

In recent years, the gig-economy has experienced exponential growth, leading to a rise in the
concern for employee rights (De Stefano, 2015). Technology has transformed the way in which
companies operate (Todolí-Signes, 2017). This has led to some companies having the capability
to run their entire core business through the use of workers on a self-employed or freelance basis
(Todolí-Signes, 2017).
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It highlights that these individuals must be protected to give workers in the gig-economy fairness
and that a clear distinction is needed for those who are genuine workers (Taylor, 2016). The
precarious employment relationship has led to the rights of gig-workers being questioned.

Thereafter, we will first describe and analyses the main problems that gig workers are facing at
the present moment and then we will expose a possible solution for these problems that we
consider can help to face the problems that the gig economy is producing in the labour market, in
order to finish with some conclusions on this discussion.

1.1 Definition of Gig Economy Workers

The general Labour Law that is applicable around the world in the domestic and the international
settings, was established many years ago within an economic context completely different from
the one we have nowadays. Labour markets are facing new situations for which law has no
responses yet.

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Globalization, innovation and technology transformed many employment relations. This leads to
the performance of tasks in a completely new way than decades ago, under different legal links
than the typical employment contract. A clear example of this are the jobs developed in the so-
called “gig economy”, which are increasing in popularity (especially within the youth). Those
jobs are more appropriate for a more mobile and flexible working force.

The “gig economy” is a phenomenon that started in the second half of the 2000`s, and refers
to a flexible labour market, in which short-term contracts or freelance work prevail, in contrast
to permanent or traditional labour contracts. Under this market, workers receive payment
according to the “gigs” they perform and they can have various contracts at the same time, of a
completely different kind and even for different clients or contractors around the world. It is
important to bear in mind that each platform is different and that the situation and the problems
arising from each one is not the same.

Figure 1: Definition of Employee as per EA 1955 and IRA 1967

Source: www.oum.edu.my

2.0 Explanation on the Differences between Contract of Service and Contract for Service

Contracts of service

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A contract of service establishes a legal relationship between the parties i.e. the employer and
employee. This legal relationship means that an employer is obliged to provide work for an
employee, and the employee is obliged to complete the work.

In the context of Malaysian employment law, the Employment Act 1955 (EA 1955) and the
Industrial Relations Act 1967 (IRA 1967) show that the employer-employee relationship is based
on an ordinary contractual relationship as provided for in the common law. EA 1955 recognises
such a contractual relationship as a contract of service, while IRA 1967 recognises it as a
contract of employment.

Contracts for service

On the other hand, a contract for service can either be in the form of a formal, written agreement,
or an informal arrangement between the contracting parties. It is not always expressed in writing.
Some contracts for service can even take the form of an oral agreement between the parties. In
addition, as mentioned earlier, clients do not owe independent contractors the same
obligations that the employers owe employees under the statute (i.e. Employment Act).

In the case of a contract for service, in the absence of an indemnity clause, independent

contractors or freelancers may sometimes find themselves facing unlimited liability for an act
that causes harm or injury to a third party, if it occurs in the course of a project or service. For
example, if an independent contractor is sued and does not have enough money, the court can
order him or her to sell personal assets like houses and cars to settle the lawsuit. Independent
contractors or freelancers need to ensure that they include an indemnity clause in their contracts
for service, to avoid incurring such unlimited liability.

Difference between a Contracts of service and a Contracts for service

Knowing the differences between the two types of contracts is also important when it comes to
legal liability for harm or injury to a third party. A contract of service is an agreement whereby

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one person agrees to employ another as an employee and the other agrees to serve his/her
employer as an employee. The employer would need to contribute EPF and comply with relevant
statutory benefits such as annual leave, sick leave and et cetera for its employees engaged under
a contract of service.

In contrast, a contract for service is an agreement whereby a person is engaged as an independent

contractor, such as a self-employed person or vendor engaged for a fee to carry out an
assignment or a project for the company. Under such a work arrangement, there is no employer-
employee relationship, and the employee is not covered by the Employment Act.

There is no single conclusive test to distinguish a contract of service from a contract for service.
Some of the factors to be considered in identifying a contract of service include such as Control
Test, Independence Test, Integration Test and Economic Reality Test.

Control Test. The traditional test, how much control is being exercised over the worker by the
employer. The more control that is being exercised, the more likely it is that the worker is an
employee regardless of what the contract says. The control test does not therefore look at
whether the employer is operating actual control, but rather asks whether the employer could
exercise control.

Independence Test. It’s pretty much the flip side of the control test, does the worker have
independence in deciding how his/her work is to be done, can he/she decide his/her own work
hours, subcontract out work, and et cetera.

Integration Test. One feature which seems to run through the instances is that under a contract of
service, a person is employed as part of the business and his/her work is done as an integral part
of the business whereas under a contract for service, his/her work, although done for the
business, is not integrated into it but is only an accessory to it.

Economic Reality Test. Is the worker dependent upon the job for economic survival (can other
employment be undertaken, for example).

Scenario 1:

An employee works on Saturday, Sunday and Monday from 9am to 5pm, has a fixed lunch hour
and Employee Provident Fund (EPF) is provided.
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In this scenario, it is very likely that the person is engaged in a contract of service. The individual
has fixed working days, fixed working hours and specific time for lunch break. The individual
also does not have the freedom to function outside the scope of which he is given. It appears to
us that the employer has complete control over the employee in terms of job scope, working
hours and so on. Furthermore, the fact that he is provided with EPF contributions would more
likely lean towards a contract of service.

Scenario 2:

A person is a 100m runner for a sports club called Larian Gempar. Every day, he will train from
6am to 8am and 5pm to 7pm. From 11am to 1pm, he will go to the gym. And from 2pm to 4pm
he will go for psychological training. He is not provided EPF but SOCSO and an allowance will
be given. After running for a tournament, he gets to keep 60% of the prize money while the
remaining 40% will go to the club.

In this scenario, it is more likely that the individual is engaged in a contract for services. While it
remains unclear as to whether or not his training schedule is fixed and the Control Test cannot be
applied, another element to take into consideration is that fact that he is given an allowance as
well as 60% of the prize money. There is also an absence of fixed salary being paid and zero
deduction of EPF is made/provided.

3.0 Identification and explanation on available access to justice for employees.

In post-conflict and fragile settings, laws, rules and standards may be partially or wholly
ineffective in the face of the power dynamics that influence justice processes. When these
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unequal power relations are not counteracted by, or within, the justice system, that is, when laws
are largely unenforced in practice, accessing justice by depending purely on a legal strategy will
not address the inequalities that led to the problem.

Justice from people’s perspective

A criterion that is common to all definitions of access to justice and arguably represents the core
of the notion of access to justice is that it should address the practical ability of the people to
activate their formal rights. As a corollary, access to justice is first and foremost concerned with
the case of people who experience the greatest challenges in upholding their formal rights, who
are usually the socially disadvantaged, the legally vulnerable and, in many cases, the women and
the children.

As a second corollary, access to justice has to address all justice institutions that people can turn
to in order to express their grievances, whether formal or informal, public or private, advisory or
adjudicatory. Dispute settlement should encompass the formal justice system, which consists of
courts, judges, lawyers, paralegals, prisons, police and official alternative dispute resolution
systems, but also customary and informal justice systems, and administrative procedures and
decisions.

Access to justice and the rule of law

The economic consequences of access to justice have been primarily investigated in the context
of development cooperation. As already noted, early interventions in this area focused on judicial

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reform and the performance of courts in enforcing private contracts, in line with the “rule of law
orthodoxy”.

Well-defined property rights, according to the theory, are necessary to provide economic agents
the assurance to enjoy the fruits of their labour; they are therefore the foundation for incentives
to invest in one’s property and education, and in the education of one’s children. For instance,
changes in land titling schemes in developing countries have been shown to have a substantial
impact on the entitled owners’ investments and education choices. Parenthetically, property
rights also create the ability to leverage property for credit purposes.

Theoretical contributions focus on two particular aspects of justice performance such as

independence from the executive, which ensures that the judiciary can protect investors from
government abuses; and efficiency, which makes the settlement of disputes over private
contracts predictable and reduces its cost.

Access to justice and inclusive growth

The work of the Commission on Legal Empowerment of the Poor from 2005 to 2008 constitutes
a key milestone in the integration of access to justice to the development agenda. In its final
report, the Commission advocated for focusing development policy on the justice needs of
disadvantaged populations through three channels: facilitating the creation of state and civil
society organisations that work in the interest of the excluded; making the formal judicial system
more accessible by integrating customary and informal legal procedures with which the poor are
already familiar; and supporting concrete measures for the legal empowerment of women,
minorities, refugees and internally displaced persons, and indigenous peoples.

The Commission also called for comprehensive legal reform to improve access to justice,
deeming it necessary “to audit all laws, regulations, procedures, and institutional set-ups” and to
critically assess and change “laws that discriminate against the rights, interests, and livelihoods
of the poor”. Some proponents of legal empowerment considered this proposal for a reform
strategy guided by the State contradictory to the very aim of putting the excluded at the centre.
Still, the work of the Commission reframed the global debate on justice.

Measuring access to justice: Legal needs surveys

As it is often the case for individual capabilities, access to justice is difficult to measure directly
and easier to approach through the states or actions that materialise it; in other words, by
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investigating the extent to and conditions under which people use justice services when they are
facing a problem related to their rights rather than their freedom and opportunities to do so.

A series of concepts have been introduced to this effect. Individuals are considered to have a
legal capability to address legal problems in their everyday lives. A legal problem is here
understood as any problem that has a legal dimension and can therefore be addressed, in part or
in total, through justice institutions.

The concepts of legal need and legal capability help to operationalize that of access to justice in
the particular area scrutinised in this White Paper, i.e. access to established and functioning
justice institutions on civil and administrative matters. It should be noted that these concepts are
not relevant for assessing access to justice in presence of systematic failures of justice
institutions, in the case of individuals who are excluded from the scope of the law, or on criminal
matters. Both concepts are also defined with reference to an existing legal system; changes to the
system by the means of legal and judiciary reform are therefore outside of their scope.

4.0 The discussion on the relevant rules in respect of dismissal of an employee and the rights
of employees thereto according to the statutory provisions.

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A workman who is dismissed or who considers his / her dismissal to be without just cause or
excuse may file a written representation to the Director General of Industrial Relations. This
representation must be filed in writing to the Department of Industrial Relations nearest to the
place of employment from which the workman was dismissed within sixty (60) days of the
dismissal. It may also be filed during the period of notice of such dismissal.

Both an employer and an employee can terminate a contract of service. A termination may arise
from the expiry of contractual terms (e.g. completion of specific project, completion of specific
period of time).

Termination of Contract with Notice

To terminate a contract means to end the contract prior to it being fully performed by the parties.
In other words prior to the parties performing all of their respective obligations required by the
contract, their duty to perform these obligations ceases to exist.

In general, the effect of the termination of a contract is to discharge the parties from their
unperformed obligations under the contract. However, termination does not affect liabilities of
the parties for breaches of the contract that occurred prior to the contract being terminated.

There are two basic types of termination there are termination for cause, otherwise known as
termination for default; and termination for convenience. A party’s right to terminate its contract
may originate from the general principles of contract law or it may arise out of the terms of the
contract itself. On the other hand, termination for convenience may originate only from the terms
of a contract which provide for such termination, for there is no general contract principle
allowing termination for convenience. A termination for cause is available only in response to a
material breach of the contract by the other party.

Termination of Contract without Notice

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Termination Without Notice This Agreement and the Executive’s employment with the
Company may be terminated, without the Company being obligated to provide the Executive
with advance notice of termination or pay in lieu of such notice, whether under contract, statute,
common law or otherwise, in the following circumstances:

(a) Voluntary Resignation

In the event the Executive voluntarily resigns, except where the Executive resigns for Good
Reason as provided for in this Agreement, the Executive will give a minimum of ninety (90)
days’ advance written notice to the Company. The Executive will not be entitled to receive any
further compensation or benefits whatsoever other than those which have accrued up to the
Executive’s last day of active service with the Company. The Company may, at its discretion,
waive in whole or in part such notice with payment in lieu to the Executive;

(b) Cause

The Company may terminate the employment of the Executive at any time without notice for
Cause. The Executive will not be entitled to receive any further compensation or benefits
whatsoever other than those which have accrued up to the Executive’s last day of active service
with the Company. "Cause" is defined as any of the following:

i. participation in a fraud or dishonesty against the Company;

ii. participation in an act of dishonesty against the Company intended to result in your
personal enrichment;
iii. the intentional making by the Executive or any member of the Executive’s family of any
material personal profit at the expense of the Company without the prior written consent
of the Company;
iv. intentional significant damage to the Company's property by the Executive;
v. conduct by you that, in the good faith and reasonable determination of the Board,
demonstrates gross unfitness to serve provided that in such event, the Company shall
provide notice to you describing the nature of the gross unfitness and you shall thereafter
have ten (10) days to cure such gross unfitness if such gross unfitness is capable of being
cured.

Changes to Employee's Terms and Conditions of Work

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Any modifications or amendments to this Agreement must be in writing and signed by all Parties
or else they shall have no force and effect. Notwithstanding the foregoing, the Company may
assign this agreement to a Member Company, without the consent of the Executive.

In the absence of agreement or contractual flexibility, employers may find it safer to dismiss staff
and offer to re-engage them on revised terms and conditions. Such an approach is not without its
risks – the risk of losing staff altogether, the risk of tribunal claims and the near certainty of an
adverse impact on staff morale. Provided proper notice of dismissal is given or a payment in lieu
of notice is made, affected staff will not have a claim for breach of contract (but they may have a
claim for unfair dismissal). The revised contract must be offered to start immediately the old one
comes to an end.

Rejection of an employee's resignation

An employer has no right to reject the resignation of its employee, for whatever reason. The law
is that a notice of resignation of an appointment becomes effective and valid the moment it is
received by the person or authority to whom it is addressed. This is because there is absolute
power to resign and no discretion to refuse to accept; and it is not necessary for the person to
whom the notice of resignation is addressed to reply that the resignation is accepted.

Compensation from employees for terminating a contract

Alternatively, a well-prepared contract would already have express provisions stipulating the
sum of money to be paid by the contract-breaker in the event of a breach, known as “liquidated
damages”. This principle applies in many scenarios where employment is direct between an
employer and an employee, and also where employment is between a recruitment agency and an
employee. In most cases, you would have to pay the sum of money as compensation, stipulated
in the relevant clause, if you chose not to perform the employment contract. However,
exceptions do arise. If the sum of money is deemed to be a penalty clause, it would not be
enforceable and a contract-breaker would not be required to pay such a sum.

A compensation clause is likely to be a penalty clause if, it stipulates an excessive sum of money
to be paid upon a breach of contract, disproportionate to the amount of loss actually suffered by
the innocent party. If you breached a direct employment contract with your employer, he would

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likely incur losses from your absence at work. If you breached an indirect employment contract
with a recruitment agency, the agency would suffer losses, such as the loss of commission
payable by the employer. In order to be enforceable, the compensation stipulated has to be a
genuine estimate of actual loss suffered by the innocent party. In the recent years, there have
been many cases where courts have held compensation clauses unenforceable for their penal
nature, allowing for employees to avoid coughing up extravagant sums of money.

5.0 Evaluation on the extent the statutory rights applicable to gig economy workers.

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Laudon (2017) maintained that, in case study analysis, it is critical to identify key issues
surrounding the case. Thus, researchers should identify the problem and deter-mine why it is
occurring. In reviewing the freelance website, the first evaluation utilized is the PESTLE
Analysis. PESTLE is an environmental analysis of several critical factors, including political,
economic, social, technological, legal, and ecological (Palmer et al., 2017). Upwork was
reviewed not only in relation to other professional freelancing sites such as Freelancer.com and
Clickworker.com, but the company’s business practices were also assessed in context to other
well-known freelancing sites such as Grab (see Table 1).

Table 1: Pestle Analysis of Upwork

Political:

From the political perspective, there is a lack of government laws to protect freelance workers. In
fact, gig economies are exempt from certain governmental taxes (Wells and Chemi, 2016).
Owing to their status as self-employed entities, many workers do not enjoy the assurances and
rights that unions and laborers’ developments have spent over a century battling to accomplish
(Marx, 2016). Freelancers make their way in this new segment, yet they have no protection and
are at the impulse of the platform(s) with which they have associated them-selves (Marx, 2016).
This reality may cause changes in regulations in the future for gig economies.

Economical:

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Using PESTLE analysis, individuals can see that there are dramatic changes that emerge from
gig economies; this economy is a new way of working compared to traditional jobs. Gig
economies have grown dramatically over the past five years, despite reporting lower wage
earnings when compared to equally educate traditional workers. Rapid growth in this sector has
caused gig economies to quickly become a large part of the global economy. In today’s
environment, there is a multigenerational workforce (Green and Roberts, 2012). Workers can
create their own hours and their own workload.

Technological:

From the technology perspective, Upwork, as part of a gig economy, displays tremendous
innovation in the work process when compared with the traditional work fields. Gig economies,
such as Upwork, as an industry do not consume considerable raw resources, such as paper, in
their work. They do not need large office spaces for employees or prestige. They also save
employees’ time by communicating with clients through the company website, phone, or other
online methods.

Legal

Legal issues abound in the gig economy. Owing to the success of companies such as Grab and
Expedia, many government regulators have started paying attention to these types of internet-
based businesses and the United States’ outdated labor laws. In the gig economy, there is no
union and no clear laws to protect workers. Kennedy (2016) maintained that these labor laws
have not kept up with the fast pace of the gig economy. In general, labor laws regulate the
relationship between an employer and its employees. Yet, freelancers in the gig economy often
operate independently, negotiating with different clients (Kennedy, 2016).

Environmental

Environmental factors have minimal impact. With freelancing, there is no need to com-mute to
work, reducing environmental concerns such as pollutant emissions. Furthermore, Palmer et al.
(2017) argued that physical factors, such as environmental concerns, can create external forces
that garner management attention. Freelancers utilize computers and software. Utilizing the
PESTLE analysis for Upwork can assist the strategists in forging the right decisions and taking
advantage of other opportunities in the market.

Competitive analysis

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Additionally, understanding the competitive environment is critical to Upwork’s future success.

Conducting a competitive analysis is very helpful, because the results can strengthen an
organization’s strategic approach. In a competitive analysis, strategists evaluate the business’
competitors in order to assess and predict the durability of any competitive advantage. In fact, a
successful strategy requires some barriers to competition that prevent others from entering the
business’ market and replicating its core competencies (Harris and Lennox, 2013).

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6.0 Recommendation on amendment to the existing laws so that laws can be effectively secure
the rights of gig economy workers.

The government’s plan to enact a new law on protecting workers in the gig economy should also
address their legal status in the workforce, said an economist.

Creating a Third Category of Workers

The first option is to create a third category of workers. This would recognize that a grey area
has opened up between the traditional roles of employee and independent contractor. Workers
who fell within this third category could be protected by a combination of some of the existing
laws and new laws written especially for them. A paper commissioned by the Hamilton Project
at the Brookings Institution recently advocated this approach. Workers who use platform
intermediaries to sell or rent their goods (such as Grab and Expedia) would not be included in
this category

Tailoring Specific Laws to Achieve Their Intended Purposes

The ideal approach is also comparatively complex and politically difficult in identifying that the
coverage of each labour law should be driven by its purpose and the nature of the problem that
Congress was trying to solve, rather than by whether a worker is classified as an employee for
purposes of tort liability. Law professor Richard Carlson advocated this approach over a decade
ago, and this report borrows heavily from his analysis. Under such an approach, instead of most
laws applying to all employees but not to independent contractors, individual laws would apply
when it made sense given the nature of the work, the degree and control exercised by the
employer, and the best interests of the immediate parties.

Creating a Special Carve-Out for Internet Platforms

A third way to begin restructuring labour law for the gig economy would be to create a special
exemption from many of the labour laws specifically for gig platforms. Despite their rapid
growth, they are also a small enough part of the workforce that treating them differently would
not upend the broader labour markets. An exemption, even if it lasted only 5 or 10 years, would
give Congress a chance to experiment with the application of labour laws to a new century. The
temporary nature could motivate firms to provide more services to their workers in order to
persuade Congress to extend and broaden it.

(Total words 4425)

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8.0 References

Journals

 Ross Eisenbrey and Lawrence Mishel, “Uber Business Model Does Not Justify a New
‘Independent Worker’ Category” (Economic Policy Institute, March 17, 2016), | April
2016 Page 23 this paper see, Joe Kennedy
 Cappelletti, Mauro, and Bryant Garth, “Access to Justice: The Worldwide Movement to
Make Rights Effective-a General Report.” (Milan: Dott. A Guiffre Editore, 1978)
 Golub, Stephen, “Beyond Rule of Law Orthodoxy: The Legal Empowerment
Alternative”, Carnegie Endowment for International Peace Rule of Law Series, Nr. 41,
Oct. 2003
 James M. Cooper, “Latin America in the Twenty-first Century: Access to Justice,” 30
Cal. W. Int’l L. J. 629, Spring 2000
 David M. Trubek and Marc Galanter, “Scholars in Self-Estrangement” 25 AM J. Comp.
L., 492 (1977)
 Todolí-Signes, Adrian, The 'Gig Economy': Employee, Self-Employed or the Need for a
Special Employment Regulation? (January 16, 2017). Transfer: European Review of
Labour and Research. Online version 28 April 2017.

Websites

 http://www.epi.org/publication/uberbusiness-model-does-not-justify-a-new-independent-
worker-category/.
 https://doi.org/10.1108/13673271011059491
 https://www.undp.org/content/undp/en/home/governance/justice.htm
 https://www.researchgate.net/publication/318753756_WORKERS_IN_THE_GIG_ECO
NOMY_Identification_of_Practical_Problems_and_Possible_Solutions
 http://www.innovationfiles.org/labor-law-and-the-gig-economywhy-stick-with-an-
antiquated-system/.
 https://ssrn.com/abstract=2960220

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