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fixed term contract under contract of employment in malaysia

Updated on March 4, 2011

Fixed term contract

The employment relationship comprises not only employer and employee but also the particular of the employment contract between them. Contract of employment is one kind of contract which states clearly the terms and conditions between employers and employee. Either party who has breach the contract, they all can bring legal action according to the contract. Basically, contract of employment is an agreement on what is the employer and employee duty, holiday that available, salary, benefits and etc that binds employers and employee. But there are many types of contract that exits in this employment world and one of them is fixed term contract.

Generally, fixed term contract can be defined that a contract that works as a temporary effect which the workers was employed for finishing certain duties/jobs or for certain period of time. Even though that, the fixed term contract didn't entitled to enjoy the same benefit as what enjoyed by the permanent workers. Normally, their salary is a bit higher but they lose all the right as employee especially termination benefit. It is because once their term was expired or the job is finished, the employers have no duty to extend it and the employee can't take any action or claim any compensation for losing their job

Function of fixed term contract

Fixed term contract usually used by the companies to retain key employee who had reaches their retirement age. This kind of situation normally happens when the company overlooked the employee retirement and they failed to find the suitable replacement for that key employee whom had a very vast experience on that particular job. In this kind of situation, the employers will enter into contract for a specified period of time which usually 2 or 3 years time with the employee in order the employer can find the suitable candidate and ensure a smooth transition of responsibilities to the new employee.

This kind of contract also used for employees who haven’t attains the age of retirement. In this kind of situation, the employee will not be required for long term employments but for a certain period of time which they can finish up that project. For example, a company finds out that it does not have enough manpower to handle a project it has undertaken. The company anticipates that the requirement for additional manpower is only for the duration of the project. The company will then look for employees on a fixed term basis with the expiry date of the contract of employment tied to completion of the project.

But the above functions are several examples which the fixed term contract being used by the employer in putting the employee job at the temporary basis. There is still a lot of situation which fixed term contract be used and it is really depends on the situation itself.

Whether it is Genuine Fixed Term Contract?

If there is a fixed term contract, firstly, it is crucial for all the court to determine whether it is genuine fixed term contract or it just a disguise permanent contract behind curtail of fixed term contract. The use of fixed term contract must be genuinely related to operational reasons. The commercial reasons for employing a substantial number of workers on a fixed term contract are recognized as the need of the employer for a more productive and efficient work place. It is for the employer’s determination and the court cannot substitute its own view over the employer’s business arrangements. It is good for us to refer into the decision of Philips J in the case of Terry v East Sussex County Council :

... [T]here are many undertakings in which it is usual and necessary for the persons to be engaged for short periods upon fixed term contract: for example, in schools and universities teachers and lecturers are often engaged for a term or other short period, and in the construction industry it is not uncommon for qualified men to be retained for particular period or for particular jobs....

In Malaysia position, the principle of fixed term contract can be found in the case of Han Chian High School Penang Han Chiang Associated Chinese School Association v. National Union of Teachers in Independent School West Malaysia and Industrial Court of Malaysia12, since 1951, teachers were employed on a fixed term contract of employment. Some teachers had been on fixed term contract of employment for up to 20 years. 35 dismissed teachers of the school claimed that they had been dismissed without just cause and excuse. They maintained that their contract was not renewed upon expiry on the grounds that they were members of the union of teachers and that 12 other teachers got a renewal of their contract when they had renounced their union membership. It was argued that there was nothing wrong for the school in making an offer of a two-year fixed-term contract to the teachers but they should have been genuine offers. The Industrial Court in upholding the dismissal to be without just cause and excuse stated that the main reason for the school board requiring the teachers to apply to renew their two years’ contract was that they feared that the existence of teachers’ union would give them added problems.

The court observed that:

... [I]t would be an obvious loophole if any employer could evade the statutory protection by making a series of contracts of finite duration with his workmen. In other words, employers could engage their workmen on a succession of fixed term contracts of, say, three months’ duration each and simply fail to re-engage particular workmen whom they wanted to get rig off, without having to face a claim for reinstatement ... . The court however is aware that on the other hand there are genuine fixed term contracts where both parties recognise there is no understanding that the contract will be renewed on expiry. The court realises that such genuine fixed term contracts for temporary, one-off jobs are an important part of the range of employment relationship. Such jobs are found in seasonal work, work to fill gaps caused by temporary absence of permanent staff, training, and the performance of specific tasks such as research projects funded from outside the employer’s undertaking....

Based on the above two cases, it is vital for the Industrial Court on first to decide whether there is a genuine fixed term contract before it decide whether the dismissal is with just cause or reason. Basically, if the finding of the court shows that the contract is fixed term contract, then the court don’t need to decide on that case because it is just a temporary basis. After the case being identified as true fixed term contract, the court is obliged to decide on that case on whether the dismissal is just or not.

The validity of fixed term contract was further referred to the Employment Court in Kerry Lois Smith v. Radio i Ltd.22, the Employment Court presided by chief judge Goddard, referred to the provisions in the Employment Contracts Act 1991 and the decision in Actors Equity23 and the I.C.I’s24 case. His honour noted that:

[I]n view of the combined effect of the judgment of the Court of Appeal in the Actors Equity case and the fact that Parliament, when it significantly altered employment law in this country, made no express change to the developed state of the law on fixed term contract, it is not for this court to legislate in default and depart from established and conventional wisdom although that might in other respects arguably be consistent with the general tenor of the current legislation....

Breach Of Fixed-Term Contract Of Employment: Remedies

For the breach of a fixed term contract, damages recoverable by wrongfully dismissed employees are equivalent to the wages or the salary he would have earned if the contract had run to the end of its term unless of course the parties had agreed to a period of notice in the contract in the event the court will enforce the agreement35. In United Engineers (M) Sdn. Bhd. v. Jurgen H.H. Dorbecker36, the respondent an Australian citizen was employed as a technical advisor to the appellant for a fixed term of three years. At the end of two years his contract was terminated on the grounds that the local engineers were competent to handle such a task. The Industrial Court awarded compensation for the loss of employment from the date of termination to the expiry date of the fixed term contract.


In Malaysia position, fixed term contract is not well explained in the employment act but reference to case landmark case: Han Chiang High School v National Union of Teachers in Independent Schools will give a clear idea on how fixed term contract works. Basically, there is no proper protection for the employee of fixed term contract which they will not being given fair trial if they are proven to be genuine fixed term contract workers. Furthermore, there is no specific statutory which safeguard their right and it left the hole for the employers to manipulate and mistreat fixed term contract.

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