EMPLOYMENT CONTRACTS

INTRODUCTION

The relationship between an Employer and Employee is of contractual

nature. Obligations are expected from each side to enable the relationship

to proceed with harmony as each side owes duties to the other.

There are 2 basic ways in which an employer can engage services. Firstly

by a contract for service, such as engagement of a contractor to carry on

renovation works, which is a contract for work done and the relationship

between the parties is one of principal and ind ependent contractor. There

is no employment relationship.

Secondly by a contract of service, based on element of service and not

work done. There is a legal relationship as Employer and Employee,

where there are various legal duties and obligations.

W hether it is a Contract for Service or Contract of Service, various tests

are used by the Courts to determine whether the person engaged is an

independent contractor or an employee.

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The Control Test is the most widely used test to determine employment.

The test essentially determines an employment relationship by identif ying

the existence of command and authority that the employer has over the

employee. It has been stated in case law that a servant is a person

subject to the command of his master as to the manner in which he shall

do his work. Essentially the greater the scope of control that the

employer has over the employee, the more likely the law regards the

relationship as one of employment.

In another English case a Three Stage Test has been formulated, where

a contract of service exists if Three (3) conditions are fulfilled: -

(a) The employee agrees that in consideration of a w age or other

remuneration, he w ill provide his ow n w ork and skill in the

performance of that service for the Employer.

(b) The employee agrees expressl y or impliedl y that in the

performance of that service he w ill be subject to the other’s

control in a sufficient degree to make the other master.

(c) The other provisions of the contract are consistent with it being

a contract of service.

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LEGAL IMPLICATIONS OF AN EMPLOYMENT RELATIONSHIP

There are legal implications arising out of an employment

relationship and some of the basic ones, which are as follows: -

(a) the Employer is legally liable to third parties for the

tortious acts of his employees committed on the course

of employment. This is the concept of “vicarious liability”.

(b) the Employer is legally obliged to contribute towards hos

Employees Provident Fund (EPF).

(c) the laws of contractual termination and dismissal applies

to contracts of service and the remedy of reinstatement if

ordered by the Industrial Court.

(d) the Employment Act applies to most employees and

workmen and states certain basic and minimum

conditions of service.

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FORMATION OF CONTRACT OF SERVICE

The basis of an employment relationship is contract. Contractual

principles apply and the contract is formed as in other contracts.

Most contracts of service commence by the Employer inviting

candidates for an interview upon the employee applying for a

position in the company. All advertisements for vacanci es are

invitations to treat.

Contracts of Services must be supported by consideration i.e

that something must be given in return for a promise, that is the

payment of salary for services.

When a contract of service is formed, the employee is usually

required to confirm his acceptance by signing and returning a

copy of the letter of appointment. The formation of the contract

and the commencement date of the contract is often

differentiated. An employee who signs the contract os obliged to

perform the contract. If the employee fails to do so, he is in

breach of his obligation under the contract.

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EMPLOYEES’S DUTIES IMPLIED BY LAW

The law has implied certain duties on an employee in a contract

of service whether these appear in the contract or not. These

implied duties are:-

(a) implied duty of obedience.

(b) implied duty of care, capacity and competence.

(c) implied duty of good faith (or fidelity)

IMPLIED DUTY OF OBEDIENCE

The duty to obey all legal and reasonable orders of the

Employer. However, illegal, unlawful or which is likely to expose

an employee to prosecution need not be obeyed e.g falsifying

accounts or driving without licence. Even though a lawful order,

which is however not reasonable need not be obeyed, such as

an order to track down a female employee to see where she

goes. Therefore the question of reasonableness would depend

on socially acceptable standards of society.

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Insolence and rudeness can amount to a breach of the

employee’s duty of obedience. .

IMPLIED DUTY OF CARE, CAPACITY AND COMPETENCE

An employee is implied to have reasonable capacity and

competence to do the job that he has undertaken to do with

reasonable care and diligence. The standard of what is

reasonable is one of fact and depends on factors such as age,

experience, custom and other factors.

IMPLIED DUTY OF GOOD FAITH OR FIDELITY

It is implied that the employee works with honesty, loyalty and

integrity and not allow any conflict in his duty of fidelity with his

own interest. These include taking bribes, secret commissions

and secret profits. An employee is justifiably dismissed if he is in

conflict of interest and his employer can further recover the

tainted monies or losses. In addition, the duty of fidelity similarly

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prohibits the employee from saying things that might have the

effect of undermining the employer’s authority and reputation.

EMPLOYER’S DUTIES IMPLIED BY LAW

The Employer also has duties implied by the law, which include

the following:-

(a) provision of work

(b) salaries

(c) maintenance of safety

(d) cooperation with employees.

IMPLIED DUTY TO PROVIDE WORK

Generally the Employee cannot insists that the Employer

provides him with work as long as the salary is paid. However,

there are exceptions that impose an obligation on the Employer,

these include:-

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 (a) where the manner of the contract and the remuneration

clause requires the Employer to provide work e.g in

cases where the contracts where remuneration is based

on commissions or for pieces of work done.

(b) works that requires special skill.

(c) upon reinstatement, the employer is to restore the status

quo and provide him with work as in his previous position

before dismissal.

IMPLIED DUTY TO PAY SALARY

The implied duty to pay salary is an absolute duty and continues

so as the contract of service exists. This common law implied

duty is also provided in the Employment Act.

IMPLIED DUTY TO MAINTAIN SAFETY

The Employer is legally obliged to take reasonable care for the

safety of his employees. This principle appears from the

employer’s three fold duties: -

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 (a) To provide competent staff of men - employees

employed ought to be competent and qualified. In

addition sufficient employees for the work are to be

provided.

(b) To provide adequate materials – correct type of

materials and tools are to be provided to perform the

work. An employer who does not provide the proper

protection would be liable if the workers are injured.

(c) To provide a proper system or work and effectiv e

supervision – employer is to provide proper training and

instructions to the workers. The employer is not to

overwork the workers.

IMPLIED DUTY TO COOPERATE

This duty applies from the duty of good faith owed by the

Employee to the Employer. The Employer is to cooperate with

the employees and not to do anything that is intolerable act that

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is not reasonably be expected to put up with. This implied duty

encompasses matters such as sexual harassment or

victimization at the workplace. It also includ es not to do anything

that may cause the employee to suffer damage in his future job

prospects.

STATUTORY OBLIGATIONS OWED BY EMPLOYERS

Certain employees are protected by the Employment Act in the

provisions for minimum conditions of service that cannot be

contracted out or diluted to the detriment of the employee. The

Act applies to employees receiving monthly salary and who are

not holding executive, managerial or confidential positions.

Seamen, domestic servants and certain government or statutory

board employees are excluded.

The statutory obligations are in respect of the following: -

(a) Rest Days – a Sunday rest day is provided under the

Act. An employer cannot compel the employee to work on

the rest day unless the nature of the work requires it . If

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 employee agrees to work on rest day at the request of

the employer he is the entitled to an extra day’s salary.

(b) Hours of Work – the Act provides for maximum of 8

hours a day or 44 hours a week. There are exceptions

such as shift work, alternate weeks and emergency

situations. Overtime is allowed to a maximum of 72 hours

a week.

(c) Holidays – An employee is entitled to be paid on public

holidays. An employee who absents himself from work

without consent will not be entitled to be paid for that

day.

(d) Annual Leave – an employee is entitled to annual leave

in addition to the public holidays and the rest days.

Annual leave is prorated for any incomplet e year. An

employer who terminate the service of an employee is

obliged to pay the employee for the unconsumed leave.

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(e) Sick Leave – An employee is entitled to non hospitalized

sick leave and the sick leave must be certified by a duly

registered medical practitioner . Failure to do so would be

deemed to be absence from work without permission of

the employer and without reasonable excuse for the days

on which he is so absent.

(f) Retirement Benefits – the Act is relevant for the

retirement benefits or it is in accordance with the terms

of the Contract.

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CONTRACT OF SERVICE FOR CONSULTANCY SERVICES

THIS AGREEMENT is made on the ------- day of --------

Between

ABC SD BHD (Company No. ----), whose registered office at ----

(hereinafter “the Company”) of the one part; and

JOHN LEE (NRIC No. --) of --------- (hereinafter “the

Consultant”) of the other part.

WHEREBY IT OS AGREED as follows:-

Consultancy Services

1. The Company hereby engages the Consultant to provide

consultancy services to the Company relating to --- and the

Consultant agrees to provide such services as set out fully

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 at Appendix I which shall form part of this Agreement upon

the terms and conditions set out below.

Duration

2. This Agreement shall commence on --- and shall continue

for a period of --- terminating on the --- or unless terminated

by either party giving to the other not less than --- days

notice.

Hours of consultancy services

3. The Consultant shall provide on a non -exclusive basis the

independent advisory and consultancy services in the said

Appendix I to the Company for up to ---- hours during each

month of this Agreement at such times and at such

locations as the Company and th e Consultant shall agree

from time to time.

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 Responsibility of Consultant

4. The Consultant shall provide his services to the Company

with reasonable care and skill and to the best of his ability

in compliance with reasonable directions given to him by

the Company and for the interests of the Company.

Payment for Consultancy Services

5. The Company shall pay to the Consultant a total sum of

RM--- per month.

Obligation of Confidentiality

6. The Consultant accepts that in the course of providing

services, he would gain access to confidential information

belonging to the Company and he unconditionally agrees

that he shall not, during his performance or after the

termination of this Agreement, u se or disclose to any

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 persons, any information relating to the Company or its

trade secrets without the written consent of the Company.

Termination

7. Without limitation the Company may, by notice in writing

immediately terminate this Agreement id the Consultant

shall be:-

7.1 in breach of any of the terms of this Agreement; or

7.2 be guilty of gross misconduct and/or shall fail or

persistently neglect or refuse to carry out his services

reasonably and properly required by him.

8. The Company shall be entitled to recover all monies paid as

stipulated in Clause 5 in the event that this Agreement is

terminated in accordance with Clause 7 or for breach of

Clause 6 herein.

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9. The Consultant or his personal representatives shall, upon

termination of this Agreement, immediately deliver to the

Company all documents, computer discs and properties

belonging to the Company which may be in his possession

at the time under his control.

Entire Agreement

10. This Agreement shall substitute all previous agreements

and/or understandings relating to its subject matter whether

in wiring or oral form.

This Agreement shall be governed by the Laws of Malaysia.

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 IN WITNESS whereof the parties hereto have exe cuted this

document as a deed the day ad year first above written

SIGNED BY ----- )

For and on behalf of ________ )

In the presence of : )

SIGNED BY ----- )

For and on behalf of ________ )

In the presence of : )

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