LETTER | Although an employee generally expects some permanency in employment as opposed to temporary employment, the law nevertheless recognised employer’s prerogative to hire workers on a fixed-term contract.

There are several reasons why the employer engages workers on a fixed-term basis such as seasonal work, to fill gaps caused by the temporary absence of permanent staff on long term leave and for the performance of specific tasks, among others.

It is common for the construction industry to hire workers for a specific period which is project-based. Likewise, the expatriates or migrant workers are hired on a fixed-term duration.

The employer’s prerogative to hire workers on a fixed-term basis, however, should be subjected to the rule that it must be based on genuine commercial reasons related to the operational requirement of the undertaking or establishment of the employer.

The employer should not resort to fixed-term engagement as a means to deprive workers of job security which is enforceable by recourse to statutory remedies under the Industrial Relations Act 1967.

In a genuine fixed-term contract, both the parties have agreed that the contract would terminate lawfully at the end of the stipulated time-frame and such termination will not constitute dismissal from employment. In such a situation, there is neither resignation nor termination and the company is under no obligation to state the reasons for the non-renewal of the contract.

The recent Federal Court’s decision in Ahmad Zahri Mirza Abdul Hamid v Aims Cyberjaya Sdn Bhd held inter alia, that engaging workers on a fixed-term contract has become a trend in Malaysia particularly, involving the employment of expatriates and in the construction industry and such engagement has to be based on genuine needs of the company.

The question of whether the company has a genuine need for the services of an employee on a fixed duration will have to be determined with reference to the intention of parties, the subsequent conduct of the employer, nature of the employer’s business and nature of work the employee is engaged to perform.

In relation to a reference under Section 20 of the act for dismissal without just cause or excuse, the Industrial Court will consider inter alia, whether the contract was a genuine fixed-term contract or permanent employment guised as a fixed-term contract.

If the court finds the contract as a genuine fixed-term, in the sense that there were no ulterior motive or victimisation on the part of the company in employing workers on a fixed-term basis, the court would dispose of the dispute without going into the merits of the case namely, whether there was a dismissal and if so, whether it was with just cause or excuse.

However, if the court declares the fixed-term contract as not genuinely related to the operational requirement or undertaking or establishment of the employer, the court will hold the employee’s engagement as on a permanent basis and the non-renewal of the contract upon its expiry as dismissal without just cause or excuse.

In the past few years, numerous cases involving the non-renewal or extension of fixed-term contracts had successfully been litigated in the Industrial Court. The emphasis is that the employer’s commercial reasons to engage workers on a fixed-term duration must genuinely relate to their business needs. 

If a fixed-term engagement is not bona fide or genuine, the court would pierce such arrangement and thereafter hold the contract as permanent employment ie, a permanent employment guised or dressed up as a fixed-term contract.

ASHGAR ALI ALI MOHAMED is a law professor at the International Islamic University Malaysia (IIUM).

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.