Law On Fixed Term Employment Contracts In Malaysia

• Published date: 05 October 2020
• Subject Matter: Employment and HR, Contract of Employment, Unfair/ Wrongful Dismissal
• Law Firm: MahWengKwai & Associates
• Author: John Chan

It is common practice for employers to hire employees under fixed term contracts in Malaysia. A fixed term employment contract is a contract for a specific period of time only. An employer's primary intention in offering a fixed term employment contract is usually so that the employer does not have to commit to the permanent employment of the incoming employee. However, employers should be mindful that the Courts may enquire whether a particular fixed term contract is in fact a permanent contract in the event of an unfair dismissal claim in the Industrial Court brought by the employee. This question and dispute usually arises when the employer does not renew the employee's fixed term contract. This article will set out the industrial relations legal principles on fixed term employment contracts.

General principle: No dismissal when fixed term contract ends

The general legal principle is that the issue of unfair dismissal does not arise at all when a fixed term contract comes to an end and is not renewed by the employer. This is because there was no termination or dismissal by the employer in the first place.

In the case of Marsha Sdn Bhd [2018] ILJU 142, the Industrial Court described a fixed term contract as follows:

"A fixed term contract is one which has a definite beginning and a definite end. In common law when a contract for a fixed term expires, it terminates of itself it has not been "terminated" by either party. In the conventional sense, there is neither dismissal nor resignation This is implicitly affirmed in the Employment Act 1955, Section 11."

The Industrial Court in Han Chiang School, Penang Han Chiang Associated Chinese Schools Association v. National Union of Teachers in Independent Schools W. Malaysia [1988] 2 ILR 611, held that in the case of a conventional fixed term contract, "the workman may have a grievance that he has not been hired by his employer under a fresh contract, but ordinarily an employer is not under any obligation in law to enter into a contract. At common law, therefore, there is simply no remedy."

Is the fixed term contract genuine?

The primary question that the Court will ask and determine is whether the employment contract in dispute is in fact a genuine fixed term contract OR a permanent contract disguised as fixed term instead.

The Industrial Court in Han Chiang School explained what are genuine fixed term contracts:

"... there are genuine fixed term contracts, where both parties recognise there is no...