BUSINESS LAW

BB103
EMPLOYMENT LAW (1)
Content
• The Act applicable;
• The contract of service;
• Terms and conditions
• Termination with notice
• Termination without notice
• Misconduct: domestic enquiry – rules of natural justice;
• Constructive dismissal
• Wrongful dismissal- reinstatement under s.20 Industrial Relations
Act 1967
• Rights of a probationer
The Governing Law
• Relationship between employer and workman: the Industrial
Relations Act 1967
• Terms and conditions of employment:
• Peninsular Malaysia: The Employment Act 1955
• Sabah: Sabah Labour Ordinance
• Sarawak: Sarawak Labour Ordinance
Contract of Service & Contract for Service
• It is important to differentiate between an employment relationship
involving an employer and an employee under a contract of service
and one involving an employer and an independent contractor who is
self-employed or running his own business under a contract for
service.

• Many rights, protections and liabilities apply to an employment

relationship under a contract of service.
Contract of service
Governs the relationship between the employer and employee;
Can either be in writing or oral;
For those who are not governed by the Employment Act or Sabah
and Sarawak Labour Ordinance, it is vital to pay extra attention to the
terms and condition
A contract of service is regulated by the EA and the IRA.
Contract for service
(independent contractor)
Why engage independent contractors:
 Payment is based entirely on work performed /result achieved
 Cost of supervision is less & less overhead costs
 As an independent contractor and his employees get paid for the results
actually achieved, there is less likelihood of absenteeism
 Increase in production

A contract for service, on the other hand, does not create an employment
relationship and therefore, the EA and IRA do not apply to it
 Difference between COS and CFS
Employee -Contract of Independent
Service contractor –Contract
for Service
Social Social security refers to Not payable to
Security benefits payable to an independent
employee such as SOCSO contractors.
payment for medical benefits
and EPF or pension rights.
Employment Employees get statutory Independent
Protection protection from terminations Contractors have no
and dismissal via notice such protection as their
requirement and domestic contract may be
inquiry requirements, terminated at any time.
compensation for
redundancy and unfair
dismissal, pecuniary benefits
such as paid leave and
maternity benefits. ..cont.

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scs/Topic7 7
 Difference between COS and CFS
Employee -Contract of
Service
Taxation An employer is required to
deduct income tax, make
and deduct EPF and
SOCSO payments from the
wages of an employee.
Employer’s If an employer becomes
bankruptcy bankrupt or in the case of
a company, which goes
into liquidation, an
employee will have priority
of payment over other
creditors with regard to
any arrears of pay or
wages payable to the
employee.
scs/Topic7
Independent
contractor –Contract
for Service
An Independent
Contractor is responsible
for paying his own taxes.
An Independent
Contractor does not get
any special treatment and
must wait in line with the
other creditors for any
money owing to him.
..cont.
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8
 Difference between COS and CFS
Employee -Contract of Independent
Service contractor –
Contract for Service
Common Both the employer and employee Both parties owe only
law duties owe each other certain duties a limited range of
under the common law. E.g. the duties such as the
employer owes an employee the duty of care in the
duty to pay his wages, to take case of negligence
reasonable care to keep the work which is owed
premises safe for the employee generally by one
etc. The employee is also under a person to another to
duty to the employer to provide take care when they
personal service, to be loyal and go about their work or
act in good faith and to obey the business not to injure
employer's lawful instructions. other people.

Vicarious An employer is usually liable or An Independent

Liability responsible for the wrongful acts Contractor is himself
of his employee committed while responsible for any
in the course of employment. wrongful acts.

scs/Topic7 9
Terms & Conditions of the Contract
• Hours of work;
• overtime
• Rest day
• Public Holidays:
• Working on public holiday
• Working overtime on public holiday
• Annual leave;
• Sick leave;
The Employment Act 1955
• Applicable to:
• Non-manual workers: any employee who earns RM2,000 and below
• Manual: no wage ceiling

• Minimum provisions:
• EA is basic terms and conditions.
• Better provisions are most welcome
• Lesser provisions: becomes null and void and the statutory provisions will
automatically be applicable to replace the lesser provisions
An Overview of Employment Act 1955
• Employment Act provides the basic and the minimum terms and
conditions of employment.
• Contract of service cannot stipulate terms and conditions which are
less favourable to the employee than the terms provided in the Act.
• The EA declares that the contract of service can stipulate better terms
and conditions other than the terms and conditions legislated by the
Act.
• The EA prohibits any contract of service from restricting in any way
the exercise by an employee of his trade union rights.
Less favourable terms (S. 7 of the EA)
• Subject to section 7A, any term or condition in the contract of service
which is less favourable to the employee than a term or condition
prescribed by this Act or any subsidiary legislation... Shall be void and
of no effect to that extent and the more favourable provisions of this
Act or any subsidiary legislation.. Shall be substituted therefor.”
More favourable
• S.7A: “...nothing in section 7 shall be construed as preventing an
employer and an employee from agreeing to any term or condition...
Which is more favourable to the employee than the provisions of this
Act or any subsidiary legislation.”
Notice to terminate the contract
S. 12 of the EA:
“ Either party to a contract of service may at any time give to the other
party notice of his intention to terminate such contract of service.”
In the absence of notice period, EA
• Less than 2 years
• not less than 4 weeks’ notice
• 2- 5 years
• not less than 6 weeks’ notice
• 5 years or more
• not less than 8 weeks’ notice
Indemnity in lieu of notice (s.13)
• “Either party to a contract of service may terminate such contract of
service without notice or, if notice has already been given in
accordance with s.12, without waiting for the expiry of that notice, by
paying to the other party an indemnity of a sum equal to the amount
of wages which would have accrued to the employee during the term
of such notice or during the unexpired of such notice.”
Termination for misconduct (s.14)
1. An employer may, on the ground of misconduct inconsistent with the
fulfilment of the express or implied conditions of his service, after due inquiry:

a) dismiss without notice the employee;

b) downgrade the employee;
c) Impose any other punishment as he deems just and fit, and where a
punishment of suspension without wages is imposed, it shall not exceed
a period of 2 weeks.
… cont
2. For the purposes of an inquiry under subsection(1), the employer may
suspend the employee from work

a) for a period not exceeding 2 weeks but shall pay him not less than half of
his wages for such period.
b) Provided that if enquiry does not disclose any misconduct on the part of
the employee, the employer shall forthwith restore to the employee the
full amount of wages so withheld.”
Breach of contract (s.15)
(1) An employer shall be deemed to have broken his contract of service
with the employee if he fails to pay wages in accordance with Part
III.

(2) An employee shall be deemed to have broken his contract of

service with the employer if he has been continuously absent from
work for more than 2 consecutive working days without prior leave
from his employer, unless he has reasonable excuse for such
absence and has informed or attempted to inform his employer of
such excuse prior to or at the earliest opportunity during such
absence.
Types of dismissal
• There are 2 types of dismissal;
a) direct dismissal – where employer decides to end the employment
relationship and dismisses the employer
b) a constructive dismissal is less straightforward, it’s a situation where
an employee leaves the organization without any notice accusing the
employer of a contractual breach
Constructive Dismissal
• You may treat that you are being constructively dismissed if you think that the
employer is varying your terms (fundamental terms) and conditions of
employment to your detriment:

• Not involving misconduct on your part;

• Benefits and perks taken away;
• Spoken words lead to the assumption that you are no longer needed by
the organisation
Examples of constructive dismissal
• Benefits and perks taken away;
• Spoken words lead to the assumption that you are no longer needed by the
organisation;
• Transferred to a lower rank and position without holding any domestic
enquiry (though there is no changes in the salary)
• Constructive dismissal is also called constructive discharge occurs
when an employee leaves because their employer’s behavior has
become so intolerable or made life so difficult that the employee had
no choice but to resign.
• In this case resignation is not voluntary, it is in effect a termination.
What is Constructive Dismissal?
In employment term
- constructive dismissal refers to an act of an employee leaving his
employment contract due to the breach of the contract committed by
the employer
- The breach committed must be so severe that it has altered the
essential terms of the employment contract leaving the employee no
choice but to resign
- Although the is no direct dismissal by the employer it can still amount
to an unfair dismissal due to the actions of the employer .. hence ..
the word ‘constructive’ in the ‘constructive dismissal’
Constructive Dismissal provision in EA 1955
• Section 13 – Termination of contract without notice
• Section 13(2) – Either party to a contract of service may terminate such
contract of service without notice in the event of any willful breach by
the other party of a condition of the contract of service.

• Section 14 – Termination of contract for special reasons

• Section 14(3) – Termination of a contract by the employee without
notice where his or his dependents are immediately threatened by
danger to the person by violence or disease such as the employee did
not by his contract of service undertake to run.
• Whenever there is a claim for constructive dismissal that is referred to
the Industrial Court for determination, the court will examine whether
these 4 essential elements are proven in order to establish constructive
dismissal;
1) There must be a breach of contract by the employer
2) The breach must be sufficiently important to justify the employee
resigning
3) The employee must leave in response to the breach and not any
other unconnected reasons
4) The employee must not delay
Wrongful Dismissal
• As long can show that you are a ‘workman’
• Not the ‘brain of the company’/not the directing mind of the company

• Within 60 days of termination, can file a representation under s.20 Industrial

Relations Act 1967 to the Industrial Relations Dept:
• Negotiation- arbitration
…cont
• If the Industrial Court is satisfied that the dismissal is wrong/mala fide:

• Reinstatement (plus back pay up to 2 years), or

• If the Industrial Court is of the opinion that the relationship between the
employer and employee is not harmonious, thus the Court may order
compensation in lieu of reinstatement (back pay up to 2 years plus
compensation, i.e 1 month salary for each year of service)
The Rights of a Probationer
• Malaysian employment law does not differentiate whether an employee is
confirmed or not. As long as they are employed under a contract of service,
they enjoy similar protections

• The probationary period is for the employer to test the suitability for the job
assigned to him:
• The employer may test the aptitude, attitude, ability or adaptability of the
employee for the job;
• The right to terminate at the end of the probationary period; or
• to extend the period- informs the employee’s weakness & room for
improvement
Paari Perumal v Abdul Majid Hj Nazardin & Ors (2000) 4 CLJ 127

 A clerk on 3 months’ probationary period;

 In his contract of employment- he is entitled to annual leave once he is being
confirmed.
 The employer did not expressly confirm him, yet he was given the annual
leave
 Q: Is he now deemed a confirmed staff?
 The High Court held that the employee was confirmed in employment
despite not being expressly confirmed (the employer’s act in granting of
annual leave).
…cont
• Court of Appeal:

• The Court of Appeal affirmed the High Court’s decision;

• The important factor in this decision is the existence of the element of

granting the right of a permanent employee to the probationer.
... cont
• A person who is in the probationary period enjoys similar rights as the
confirmed employees:
• Dismissed while in probationary period?
• Misconception that an employer may terminate a probationer without notice
and without giving any reasonable ground;
• An employer must serve notice accordingly;
• If the grounds for termination/dismissal is unreasonable, the probationer may
file his representation that he was wrongfully dismissed
• An employee who is in probationary period must give notice accordingly to
employer to terminate his service