CONTRACT OF SERVICE
1. What is a Contract Of Service (COS)?
The Contract of Service is also known as the Contract of Employment.
When one person A agrees to work for another person B, and B similarly agrees to accept A as his employee, a contract of employment is considered to have been formed.
Such an agreement could have been made orally, in writing or even impliedly. Specifically the Employment Act includes an apprenticeship contract as a COS.
So one must always be careful of the provision that contracts made orally or impliedly - because there always exist the possibilities of:
?contracts made unwittingly
?terms being offered and forgotten, or
?terms being ambiguous
That can spell lots of trouble and headaches when arguments arise. To avoid unnecessary headaches, put all contracts of service in writing, and put the terms in writing as well. In that connection, a letter of appointment constitutes a contract of employment.
{ Where to Look : Section 2 "contract of service }
2. Are there any situations where the COS must be in writing?
Sure. If you employ a person to carry out a specific job which is likely to take more than a month to complete, or for a fixed period of time (example temporary or seasonal workers), then the law specifies that the contract must be in writing. However, that does not mean that for these types of employees the contract could not have arisen orally, or impliedly.
{ Where to Look : Section 10(1) }
3. What if an employee starts work without signing the letter of offer?
The contract is still there. The minute the employee starts work, he has accepted the contract (except that the terms of the contract are not expressly stipulated. Now that creates room for some nitty gritty bickering if either side gets bitchy. Fortunately such negative behavior does not always happen, or does it?) Signing it is a matter of formality.
4. Is a Collective Agreement a contract of service?
A collective agreement is a contract on the terms and conditions of employment signed between the employer and the trade union. The terms are applicable to members of the union working in the company.
It is not a Contract of Service per se between employer and an employee, but rather serves as the terms of employment relating to that employee's contract of service.
5. What happens when certain terms are left silent in the COS?
Well, that does happen and when it does, there are certain recourse such as:-
?to revert to the appropriate provisions of the Employment Act.
?to look for customary practices and implied conditions
?to try proving or disproving claims of oral promises.
Messy, messy.
6. How does the law ensure that the minimum provision on the benefits prescribed?
The law specifically states that any term of employment which is less favorable to the employee that those provided by the law "shall be void and of no effect" and the provisions of the Act or the provisions made under subsidiary legislation "shall be substituted therefore".
Of the law also specifically provide that it does not prevent the employer and the employee from agreeing to terms which are more favorable to the employee than what it has been provided for.
{ Where to Look : Section 7 & 7A }
7. Under the law, what is the minimum notice period for termination of service?
First of all, the Employment Act allows for the employer and employee to agree on the notice period between themselves and stipulates that :-
?any notice period agreed upon shall be the same for employer and the employee
?any provision for such notice shall be made in writing.
Then it goes on to say that if there is no such provision in writing, then the notice period SHALL NOT BE LESS THAN:-
?4 weeks' notice if the employee has been employed for less than 2 years
?6 weeks' notice if the employee has served for 2 years and up to less than 5 years
?8 weeks if the employee has served 5 years or more.
This answers the common question why is it that the law provides for one set of notice of period and yet the one in the appointment letter provides for a different set. It also answers the question as to what happens if the notice period is not stated.
{ Where to Look : Section 12(2) }
8. Under what circumstance does the minimum notice period by law become compulsory?
In normal situations, we tend to see the notice period coming into play when an employee resigns from his job. That being so, the notice period in the appointment letter is observed.
However, an employer may also terminate the services of an employee for several reasons. The requirement for notice period may differ according to the grounds for the termination. Where the grounds for termination is related to retrenchment whether it is due to closure of business, shrinkage of operations, restructuring or reorganization, change of ownership or that the employee refuses to accept a transfer to a different location because he is not contractually obliged to accept such an order, then the law requires that the notice period is not less than it has provided for.
This means that once retrenchment is being used as a ground for termination by the employer, the employer had better do some comparison of the requirement for notice period, employee by employee. If in any specific case, the notice in the COS is more beneficial to the employee, then that notice period is to be observed. If in the case of any employee it is found that the notice period in the COS is less beneficial to the employee, then the provision of the labor laws is to be observed.
{ Where to Look : Section 12(2) }
9.What happens when a person fails to provide any notice for terminations?
Then the one that fails to provide the notice period has to pay to the other indemnity in lieu of notice. The rate of indemnity is equal to one day's wage for each day of notice short of the required period.
Incidentally, many organizations are using the formula of one month's wages divided by 26 days for computing a day's wages for the purpose of determining the indemnity to be paid. I got another surprise for them. The denominator to be used is the actual number of days in the month in which the notice is served!
The laws specifically provide for the 26 days denominator to be used only in respect of Parts IX and XII!
10. Is there any situation where the notice period need not be given?
Sure there are. Notice need not be given in the following circumstances: -
? if the party that is supposed to receive the notice agrees to waive it. For example, an employee is required to give 1 month's notice before resigning but he needs to go off earlier. So he applies to the employer to waive the notice period and the employer agrees to it. See - Simple, isn't it?
{ Where to Look : Section 12(2) }
in the case of the employer dismissing the employee for misconduct
{ Where to Look : Section 14(1)(a) }
in situations where the termination is caused by willful breach of contract of service by either party, such as :
the employer terminating the employee for being absent from work for more than 48 hours without prior permission and without good reasons, or without attempting to inform the employer of the reasons { Section 15(2) }; or
the employee terminating the contract of service because the employer fails to pay wages in accordance to the requirements of the law (e.g. not paying within 7 days of the closing of the pay period) {Section 15 (1)}; or
the employee terminating the contract of service because of immediate threat to his or his family's safety (violence or disease) which arise out the employer compelling him to face situations which he is contracted to face {Section 14(3)}.
In case you have not noticed, the catchword here of course, is WILFULL. You find out whatever that means in realize.
{ Where to Look : Section 14(2)(a) }
11. What is the effect of notice for termination which is given orally?
Ahaa! Never allow the practice of serving or receiving notice of termination by word of mouth. The labor laws specifically states that "such notice SHALL be written….."
Besides, it is bad management practice anyway.
Bear in mind too that when it comes to the crunch, since the law specifically provided for notice to be written form, it means that the oral notice becomes invalid and is treated as not having been given in the first place.
{ Where to Look : Section 14(2)(a) }
12. How can an employer terminate an employee?
Terminate is really a big word. When we say a contract is terminated, it is so general that we disregard the manner in, and the grounds under which the terminated is effected. In actual practice, the grounds for termination and the manner of termination becomes more important. o, it will do well to do some work on your own in understanding the following common grounds for termination exercised by the employer:-
i) dismissal due to misconduct, non-performance, inefficiency, incompetence
ii) retrenchment, where employee is terminated because of reasons connected to the health of the organization or restructuring of its operations, etc. and not because the employee has done anything wrong
iii) termination simpliciter - or contractual termination, meaning the termination occurred naturally upon the completion of a specific task for which an employee is employed to perform, or completion of a specified period of service
iv) retirement - where the employee leaves service upon attaining a specified age
v) breach of contract - where the contract is terminated because an employee fails to honor the terms of his employment
vi) frustration of contract - where the employee is unable or is prevented to honoring his contract of service due to specific situations which may be beyond the employee's control.
Actually in respect of items (iii), (iv) and (iv) the contract expires, not that the employer actually terminates it.
{ Where to Look : Attend Training Programs on the subject, read up Industrial Court Reports, Make mistakes and learn the hard way }
13. What can an employer do to the employee who is absent for more than 2 consecutive days?
Employees are considered to be contractually obligated to attend at work as scheduled by the employer. Of course there will be times when the employee is unable to attend at work. But it is for the employee to apply for leave due to him and obtain approval before he goes off. He has no right to take off as and when he likes. That's the law.
On the other hand, he may have good reasons for not being able to obtain permission in advance. The law is reasonable and accepts this fact. And therefore the law provides some leeway in Section 15(2) that if he is to be absent for more than 48 hours without prior permission, he better have a "reasonable excuse" for it. And not only that, he better make sure that he has attempted to inform his employer of those "reasonable excuse" "prior to or at the earliest opportunity during such absence".
If he fails to do so, he "shall be deemed to have broken his contract of service with the employer".
However, employers must never take the reasoning that just because an employee has been absent for 48 hours he has therefore automatically terminated himself. For that matter, the employer should also not automatically terminate him either.
a) if the employee continues to be absent into the 3 day and beyond, the employer has an option of immediately writing to him to demand he return and show cause and then, a) if he returns and wants to continue working, check out his reasons, make a decision whether it is reasonable or not reasonable. If the excuse is not reasonable, then exercise the right to consider that he has breached the contract of service and is therefore terminated. Do check his attendance and track record before terminating him though.
b) if he does not return, write another letter to him informing him that in view he has failed to respond, you consider he has absconded from work. The company therefore considers he has terminated his service without giving prior notice of termination, and will proceed to take action against him to recover indemnity in lieu of notice through the Labor Office under Section 69 of the Employment Act. And the employer should proceed to do so.
Don't ever believe those people who tell you that the employer has an automatic right to consider the employee terminated upon the magic 48 hours time limit being breached.
14. How can an employee terminate the COS?
As many as there are for the employer to do the same. Resignation is always the main cause of employee initialed termination. Employees can also terminate the COS on grounds of breach of contract by the employer.
Employees do abscond in which case they commit the breach of contract. It is then left to the employer to either take action to terminate the contract, or to handle it in such a way to reflect the true situation, that is, the employee resigned without notice and therefore becomes liable to pay indemnity to the employer.
How about being dead? Actually I would group being dead as coming under frustration of contract. It is not like the employee does not want to come back, right? He just can't. So the contract just lapses.
{ Where to Look : Attend Training Programs on the subject, read up Industrial Court Reports}
15. Is the employer's right to terminate unfettered?
Malaysian laws recognize the right of the employer to dismiss an employee, or to terminate for other cause. But what is not acceptable is the abuse of that right where the employer carries out dismissal in an unjust and unfair manner or for camouflaged reasons.
To provide check and balance, aggrieved employees have several channels to obtain remedy such as through the Labor Office or through the Industrial Court machinery, or even through the Civil Courts.
Therefore, employers must always be prepared to defend their actions in most cases where their decisions are challenged, although in specific instances the employees who raise the challenge carry the onus to prove the charges.
{ Where to Look : Attend Training Programs on the subject, read up Industrial Court Reports}
16. What is the law governing probationers?
Laws on Probation?! What laws? There are no such laws. But just treat them as any other employees except that they are under the employer's observation on their suitability to be regular employees.
And forget that notion about probationers not being entitled to sick leave and stuff like that without properly checking out the facts first. Never forget that probationers are not differentiated under the law. They continue to be entitled to the minimum benefits stipulated by the Employment Act, 1955. If you want to do any differentiating, do it on those parts of the benefits which you have provided beyond the minimum provisions of the Employment Act, 1955.
{ Where to Look : Read between the lines of the Employment Act, 1955 }
17. How long can probation periods be?
The probation period can be as long as the employer thinks he can get away with, really. Come to think of it, we have heard of one year probation in the government service, haven't we? But that's another issue.
In the private sector which is governed by the Employment Act, 1955 certain standard practices have developed over the years. So, probation period of 3 months have become more or less the norm for non-executive positions while 6 months probation is common for executive and managerial positions.
But as is said earlier, there is no law governing it. If you want to be different you can waive notice period or set it as 10 years if anyone wants to join you. You are not breaking any laws.
{ Where to Look : Read between the lines of the Employment Act, 1955 }
18.How many times can an employer extend the probation period of an employee?
Again, as many times as he wants as long as he feels he is dissatisfied with employee's performance, but do not want to terminate the contract; and that employee continues to like working for him under probation for the rest of his life. But of course in this matter, the employer must first ensure that he has not unwittingly signed away that right to extend probation in any way by the way he has described probation and extension of probation in the letter of appointment.
{ Where to Look : Read between the lines of the Employment Act, 1955 }
19. Can probationers be terminated without notice or reasons being given?
Part One first. It depends on the terms in the COS with that employee. If the COS provides for a person under probation to be terminated without notice, then it can be done. But most letters of appointment would state that the notice period while under probation is 24 hours, both ways. But there is increasing incidence of the notice period now being set at 2 weeks - thanks to the tight labor market situation.
As for Part Two of the question. Without reasons??? An employer must be very old-fashioned and out-of-date if he continues to put in the condition that probationers can be "terminated without any reasons being provided" in the letter of appointment.
The practice of Industrial Relations in the country has long set the standards that an employer is only allowed to terminate a probationer on grounds related to his performance of the job or his conduct which adversely affects the job and or the interests of the company. That means that employers are required to provide evidence to support their decision to terminate the services of a probationer when challenged.
For this reason, it is always advisable that the employer takes the trouble to maintain written records of non-performance by any probationer during the period of probation and the communications with him about the matter. By doing so the poor fellow cannot be surprised at the end of the period with the shock that the employer has actually not been happy with him all along. If he continues to be shocked despite those communications, then at least the employer won't be shocked by his inability to find supporting evidence.
{ Where to Look : Read between the lines of the Employment Act, 1955 }
20. What should an employer do in the following situation?
"A new employee starts work without signing the COS, which specifies a notice period of 2 weeks if he wishes terminate the COS while under probation. After the 4th day he absents himself. On the 10th day, he comes back saying he is no longer interested in continuing with the job and demands that he be paid for the 4 days of work done."
Nothing like a case study here to understand applications better, right?
Big deal if he comes demanding. Work out his pay slip for him for the 4 days of work, compute in there the deductions for SOCSO and EPF, and top the deductions with a claim against him for indemnity in lieu of notice of termination. The balance should show a negative figure. Otherwise something is wrong with your calculations.
So he ends up paying the employer instead. If he doesn't want to pay, then a case can be taken up against him under Section 69 of the Employment Act, 1955 at the Labor Office.
The reason it can still be done is that the minute he starts work on the appointed day, he has accepted the terms of employment. Signing the COS is a mere formality which makes things neat and tidy. Of course that means that if it is not signed, the employer has only to prove that he has received the letter with the terms in it or that he knows about it when he started work.
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