In Muhamad Fawaid bin Daud v Airod Sdn Bhd [Award No. 836 of 2024], the Industrial Court considered whether: (a) an employee who had been on multiple fixed term contracts could be construed as a permanent employee; and (b) if so, whether the non-renewal of the fixed term contract could amount to an unfair dismissal.
Brief Facts
- The Claimant commenced employment with the Company on 1 August 1988.
- Over the years, he was promoted several times, eventually becoming the Senior General Manager of a department.
- His employment status was converted to a fixed term basis starting 1 January 2000.
- His fixed term contracts were automatically renewed, until 31 December 2020, when the Company informed him that his contract would not be renewed.
- The Claimant asserted these fixed term contracts were not genuine and that he was a permanent employee.
- The Claimant filed a complaint of unfair dismissal against the non-renewal of his fixed term contract.
Industrial Court’s Findings
The Court examined the Claimant’s employment and the consistency of contract renewals. The Claimant’s fixed term contracts were renewed regularly with no application from his side, except in 2019, when he filled out a form at the Company’s request.
The Company maintained that the fixed term contracts were genuine and necessary due to the managerial level positions held by the Claimant. However, the Court found discrepancies in the Company’s rationale, noting that the Claimant’s initial 1988 contract already involved managerial responsibilities but was not on a fixed term basis.
The Court concluded that the continuous renewals over 20 years, and the nature of his work indicated he was a permanent employee. Therefore, the multiple fixed term contracts were a guise.
The Company’s actions, including failing to properly explain the conversion of the Claimant’s permanent employment to a fixed term contract, the abrupt end of his contract and the late introduction of an application process in 2019, were deemed as unfair labor practices designed to circumvent the Claimant’s rights as a permanent employee.
The Claimant’s dismissal was without just cause and excuse and he was awarded RM1.13 million (comprising 24 months of backwages, and 32 months of salary as compensation in lieu of reinstatement).
Key Takeaways
Here, the Claimant worked with the Company for 32 years, out of which 20 years were on fixed term contracts of employment. The Court considered the Company’s conduct in still insisting that these fixed term contracts were genuine was “out of touch with its own touted objective of being a source of pride not only to its employees, [but] to their families who depend on these employees for financial support.”
Fixed term contracts should not be used to disguise permanent employment. Where there are continuous and automatic renewals of fixed term contracts over a long period, it can create a legitimate expectation of permanent employment. The Industrial Court, being a court of equity, can look beyond what is written in the contract and assess the true nature of an employee’s employment.
Therefore, in assessing whether an employee should be put on a fixed term contract, the employer should consider the nature and function of the role, as well as the commercial reasons for having it on a fixed term. The employer should also ensure their conduct is consistent with the type of contract they have placed the employee on.
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This article was written by Donovan Cheah (Partner). Donovan has been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific for 2017-2022, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.
