INTRODUCTION

Labour law deals with the main legal aspects of the employer and employee relationship from
both common law and statutory viewpoint.
Including contracts of service and contract for services.
In Malaysia, the employer-employee relationship is regulated principally by the Employment
Act 1955 (EA) and to some extend by the Industrial Relations Act 1967 (IRA).
Both Acts perceive the employer-employee relationship as being essentially contractual in
nature.
But while the EA describes the employment contract in terms of the well known "Contract of
Service", the IRA describes it in terms of the more modern "contract of employment".

Definition of ‘Employee’

Section 2 of Employment Act 1955 (EA) defines employee as someone included in any
category in the First Schedule to the extent specified therein; or in respect of whom the
Minister (Minister of Human Resources) makes an order under Section 2(3) or Section 2A
of EA.

Paragraph 1 of the First schedule of EA states that an employee is one who earns less than
RM2,000.00, irrespective of his occupation, entered into contract of service with an
employer. In the case of Milan Auto Sdn. Bhd v Wong Sen Yen, the High Court ruled that a
mechanic who is paid RM600.00 is an employee according to paragraph (i), First Schedule,
Employment Act 1955.

According to the First schedule of EA, paragraph 2-5, an employee is any person who,
irrespective of the amount of wages, has entered into a contract of service with an employer
in pursuant of manual labour including such labour as an artisan or apprentice; operation or
maintenance of any mechanically propelled vehicle operated for the transport of passengers
or goods or for reward or for commercial purpose; supervise or oversees other employee in
manual labour employed by the same employer; engaged in any capacity in any vessel
registered in Malaysia; or a domestic servant.

In Chang Kim Chiang v Mariadas, the court defined domestic staff as a person who is
employed in connection with the work of a private dwelling-house and not in connection with
any trade, business or profession.

Definition of ‘Workman’:

Definition of ‘Workman’ can be found in Section 2 of the Industrial Relations Act 1967
(IRA). It states that “Workman” means any person, including an apprentice, employed by an
employer under a contract of employment to work for hire or reward; and for the purposes of
any proceedings in relation to a trade dispute includes any such person who has been
dismissed, discharged or retrenched in connection with or as a consequence of that dispute or
whose dismissal, discharge or retrenchment has led to that dispute.

In Dr A Dutt v Assunta Hospital, Chang Min Tat FJ in Federal Court mentioned that the term
“workman” is to be interpreted liberally and flexibly. Whether an individual is a “workman”
or not for the purposes of the IRA is a mixed question of fact and law, and it is for the
Industrial Court to determine this question. The label attached to the workman is irrelevant, it
is the functions and duties of the particular workman that was discharged and the purpose of
the engagement which is important.

In Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor, the Federal Court postulates
that the Claimant is not a workman as the written ‘fixed term contract’ contract between the Claimant
and the Company shows that the Claimant did not enjoy security of tenure which facet is a basic tenet
of a contract of service. Secondly, that the Claimant was appointed for a special project to be
completed in twelve months. Also, the Company maintained that on the basis of the Claimant’s
testimony that he need not report his presence at work, the Company did not exercise control on the
whereabouts of the Claimant. (‘the control test’)
Whether managing director = workman?
In another landmark case of Inchcape (M) Holdings Bhd v R B Gray, the Supreme Court
held that Grey being an Executive Director of the Company has the distinct functions as the
directing mind in the Company and therefore cannot be classified as a workman under the
Act. As such, the general understanding of the term “workman” will therefore cover all
categories of employees irrespective of wages, levels and titles as long as they are not
Directors or Managing Directors, who have the functions or authority that are deemed to be
the directing mind of the Company.

In Chong Kim Sang v Metatrade Sdn Bhd, the Court of Appeal held that an employee who
was appointed a director remained an workman under the Industrial Relations Act. The
appellant who was the executive director commenced an action against the respondent
company for wrongful dismissal without just cause and excuse, claiming reinstatement to his
former position. The Court of Appeal held that based on the evidence, the appellant was a
workman under the Act who was engaged under a contract of service. The Court said that the
evidence further indicated that the contract of employment between the appellant and the
respondent, whereby the former was appointed as an executive director, was a contract of
service. It was the Court’s view that the appellant was an employee who was initially
employed as a general manager and was later appointed as executive director. The appellant
was therefore an employee, notwithstanding his appointment as a director. Also, the fact that
the respondent made contributions to the Employee Provident Fund on the appellant’s behalf
indicated that the appellant was considered an employee.

 
Definition of ‘Employer’:
Section 2 of the Employment Act 1955 (EA) defines an employer as any person who has
entered into a contract of service to employ any other person as an employee and includes
the agent, manager or factor of such mentioned person.
Factor = agent, representative.
Contract of Service vs Contract of Employment
What is CONTRACT OF SERVICES?
Under Section 2 of EA, a contract of service is defined as any agreement, whether oral or in
writing and whether express or implied, whereby one person agrees to employ another as an
employee and that other agrees to serve his employer as an employee and includes an
apprenticeship contract.
Whether CONTRACT OF SERVICE must be in WRITING?
Section 10 of EA states that a contract of service for a specific period of time exceeding one
month or for the performance of a specified piece of work exceeds or may exceed one month
shall be in writing.
What is APPRENTICESHIP CONTRACT?
Section 2 of EA defines a written contract entered into by a person with an employer who
undertakes to employ the person and train or have him trained systematically for a trade for a
specified period which shall not be less than two years in the course of which the apprentice
is bound to work in the employer’s service.
What is CONTRACT OF EMPLOYMENT?
Under Industrial Relations Act 1967, contract of employment is defined as any agreement,
whether oral or in writing and whether express or implied, whereby one person agrees to
employ another as a workman and that other agrees to serve his employer as a workman.
What is CONTRACT FOR SERVICES?
A distinction is made between an employee and an independent contractor.
It is important to determine the legal consequences of the relationship between the parties
to a contract.
Chye Hin Co. (Perak) Ltd v Public Prosecutor [1960] MLJ 137
Norafizal bin Japperi v Asian Supply Base Sdn Bhd [2010] 3 MLJ 403
Mary Colete John v South East Asia Insurance Bhd [2004] 6 MLJ 483 (High Court);
[2010] 2 MLJ 222 (Appeal Court); [2010] 6 MLJ 733 (Federal Court)
 
Differences between Contract of Service vs Contract For Services
Briefly saying, a contract of service is an agreement (no matter orally or in writing) binding
on parties who are commonly referred to as “employer” and “employee”. For example, a
customer service consultant working in a telecommunications company. However, it is still
important to look at the terms of the contract to determine the type of contract. S.2 of EA
states that “contract of service” means any agreement, whether oral or in writing and whether
express or implied, whereby one person agrees to employ another as an employee and that the
other agrees to serve his employer as his employee and includes an apprenticeship contract.
In contrast, a contract for services 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.
For example, a property agent who helps to sell your house. Generally, a person engaged via
a contract for services is not an employee.
Differences between Contract of Service vs Contract For Services
However, sometimes it is difficult to distinguish between a contract of service and a contract
for services as Lord Denning in Stevenson, Jordan & Harrison Ltd v Macdonald & Evans
Ltd mentioned that “it is often easy to recognise a contract of service when you see it, but
difficult to say wherein the difference lies”.
The distinction between a “contract of service” and a “contract for services” is vital in
determining an individual’s legal position. Only an employee under a contract of service will
be entitled to invoke the jurisdiction of the Industrial Court in the event where his rights
under the statute had been violated by the employer. If not, the claimant can only seek
remedy for a breach of contract in a Civil Court (independent contractor under contract
for services).
The distinction is crucial as it determines the statutory protection that applies as well as the
rights and remedies that can be claimed under the different courts. Only an employee or
workman under a contract of service will be entitled to invoke the jurisdiction of the
Industrial Court in the event where his rights under the statute had been violated by the
employer. If not, the claimant can only seek remedy for a breach of contract in a Civil Court
(independent contractor under contract for services).
Before a person can bring an action at the Industrial Court, for example, under s.20 of the
Industrial Relations Act (IRA) 1967, a person has to be qualified as a workman before he
can make a claim to be reinstated in his former employment for dismissal without just cause
or excuse.
Determination Tests
Therefore, determination tests have been developed to determine the type of the contract i.e.
whether it is a contract of service or contract for services. The three tests include the control
test, the organization test, and the multiple control test.
Control test
According to Black's Law Dictionary, the definition of a control test is "a test to decide if
someone is an employee or is self-employed, used for purposes of tax assessment." Webster's
defines control in these terms as well: "the power to direct, manage, oversee and/or restrict
the affairs, business or assets of a person or entity." These definitions combined with a review
of employment status contribute to the control test. However it is seen to be Inadequate in
determining the type of contracts and the courts further created the Fourfold Test. In City of
Montreal v. Montreal Locomotive Works Ltd. et al., it has been suggested that a fourfold test
would in some cases be more appropriate, a complex involving (1) control; (2) ownership of
the tools; (3) chance of profit; (4) risk of loss. Control in itself is not always conclusive.
Also, in Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia, Gopal Sri Ram JCA stated
that it is necessary to determine whether a contract is one of service or for service, the degree
of control which an employer exercises over a claimant is an important factor, although not
the sole criterion. The more control that is being exercised over the individual by the employer, the
more likely the worker is an employee of the company. The terms of the contract between the
parties must first be ascertained to determine the nature of the claimant's duties and functions.
However, in a majority of cases, there are facts which show the nature, degree and extent of
control, and these include the conduct of the parties at all relevant times.
In the case of Chye Hin Co. (Perak) Ltd v Public Prosecutor, the court used the control test
to decide the status of the workers who made the claims. From the observations made, the
court decided that all the saws belonged to the company. The workers worked at a factory.
Therefore, the company did not have control over the workers. However, the company had
the right to reject any wood that was wrongly sawn and also the right to dismiss the workers
collectively. Based on this, the court decided that the workers were not employees as per the
contract of service. Thus, the company did not have any responsibility to make contributions
to the EPF.
Organisation Test
Limitations of the Fourfold Test led to development of an Organisation Test / Integration
Test. Integration/Organization test was used instead of the control test to explain why
professional and skilled workers had a large degree of independence of how they carried out
their work. The control required within an integration/organization test depends on the
circumstances of a workers performance for example the working hours, location
of the job, and rate of pay.

This test was introduced by Lord Denning in Stevenson, Jordan & Harrison Ltd (supra).
The test was whether the work being performed under the contract is integral to the operation
of the business structure as a whole, or it only works on the side of the main business. In this
case, it was stated that an employee is a person who is integrated with others in the work
place or business even though the employer does not necessarily exercise a detailed control
over what the employee does.

In Stevenson Jordan and Harrison, Ltd v Macdonald and Evans, it was held that under a
contract of service, a man is employed as a part of the business, and his work is done as an
integral part of the business. Whereas under a contract for services, although a man’s work is
done for the business, is not integrated into it but is only accessory to it.
In the case of Mayer v J. Conrad Lavigne Ltd, it was held that an independent contractor has
the right to exercise his/her discretion on how, when etc. the work is done. It was also
mentioned that the organisation test is necessary but not necessarily sufficient to determine
the status of the relationship. Federal Court Judge Suleiman, referred to this test in the case of
Employee Provident Fund Board v M S Ally & Co Ltd.

In a very recent case of J Mathew Miranda v Bahtera Glokal Sdn Bhd, the claimant claimed
that he has been constructively dismissed without just cause or excuse by the company.
However, the company contended that the claimant was not an employee of the company,
thus not falling within the meaning of “workman” under s.20(1) of the 1967 Act. The burden
then falls on the claimant to prove that he is indeed an employee of the company before the
issue of constructive dismissal can be assessed by the court. The company exercised little or
no control over the claimant as the latter was free to come into and out of the office as he
liked. Also, the claimant failed to prove that he was a workman under the Act as, inter alia,
there was no evidence from the claimant of the requirement for him to observe the working
hours of the company as what regular employees must do. Furthermore, there was no
evidence offered by the claimant that his works were integrated into the business. Thus, the
claimant’s claim of constructive dismissal was dismissed.

Multiple Control Test

The multiple control test is widely used today. It is a common sense approach/ holistic
approach. Totality of circumstances, including comparing certain situations with one another,
such as all situations and factors in connection with employment must be exercised.
This test is established in the case of Ready Mixed Concrete (South East) Ltd v MPNI. In
determining the type of contract, the degree of control, hours of work, mode of remuneration,
right to delegate, provision of equipment, entitlement to annual leave, method of paying tax,
parties belief as to their working arrangement etc. are taken into account.
In Short v Henderson, it was held that there are 4 indications of a contract of service, i.e. the
master’s power of selection of its servant, the payment of wages or other remuneration, the
master’s right to control the method of doing the work, and the master’s right of suspension.
In Morren v Swinton and Pedlebury Borough Council, the issue was whether an engineer
who worked for a local authority was engaged under a contract of service or a contract for
services. The council had the right to dismiss him, paid his salary, travel and subsistence
costs and insurance. However, the Council was not responsible for directing or controlling
Mr Morren’s work. The court held that Mr Morren was employed under a contract of service.
The court indicated that the presence or absence of the right of the master to control was an
important factor but was not a determining criteria in the case of a contract of employment of
a professional man.
In the case of Lim Kim Hai Electric (M) Sdn Bhd v Mokhtaruddin bin Mohamed, the
appellant selected the respondent for employment as a guard. He had right to determine what
work the respondent had to do and how the respondent was to carry out that work. The
respondent had engaged to perform the guard duties not as a person in business of his own.
Thus, he was employed on a contract of service. The appellant had the right to dismiss the
respondent for misconduct during duty hours and also the right to terminate the respondent’s
services for industrial misconduct.