A corporate organisation can operate in multiple countries through the incorporation of local subsidiaries. While these subsidiaries are usually centrally controlled by a parent company, they are still separate and distinct legal entities from that parent company. This is a distinction that is often blurred in today’s borderless world and may often raise legal issues that are not easily answered.
In the context of employment law, it is not uncommon to see an employee being hired by a foreign company even though the employee is based in Malaysia and their job scope relates to duties performed in Malaysia. To complicate matters, if the employee himself is a foreigner, the employer stated on his employment pass may be the local Malaysian company, although his contract of service may be with a foreign entity.
In such situations, the question of “who is the employer?” becomes relevant, especially if the employee is dismissed and seeks relief from the Malaysian Industrial Court.
The recent Industrial Court case of Lars Kruse Thomsen v Hot-Can Sdn Bhd (Award No. 1629 of 2017), decided on 9 November 2017, dealt with this very issue. The brief facts are:
- The employee alleged that he was employed by the Malaysian Company, Hot-Can Sdn Bhd (“Malaysian Company”) as a Chief Commercial Officer (CCO). When he was not paid his salary, he claimed constructive dismissal and lodged a claim against the Malaysian Company.
- The Malaysian Company, in defending the unfair dismissal claim, alleged that the employee’s employer was Hot-Can PLC, a company in the United Kingdom (“UK Company”).
- The employee entered into an Independent Service Provider agreement with the UK Company (“Agreement”)
- However, he had a work permit with the Malaysian Company.
- The employee’s salary was paid in Malaysia by the Malaysian Company.
- The employee had a security access tag with his name on it and the name of the Malaysian Company.
- The employee’s e-mails and call cards included the address of both the Malaysian Company and the UK Company.
- When the dispute first arose, there were settlement discussions held between the employee and the UK Company.
The Industrial Court ultimately determined that the employee’s real employer was the UK Company and not the Malaysian company. The implication of this was that the employee’s unfair dismissal claim automatically failed because the Industrial Court has no territorial jurisdiction over foreign employers.
In finding that employer was the UK Company, the Industrial Court took into account the following evidence:
- The employee was not required to reside in Malaysia under the Agreement, but rather voluntarily chose to stay in Malaysia as he and his family were already settled there for some time. As the employee chose to be stationed in Malaysia, he requested payment of his salary to be made in Malaysia. Since the UK Company did not have an account in Malaysia, payment of his salary was therefore made by the Malaysian Company on behalf of the UK Company.
- The Employee attended board meetings for the UK Company as the CCO and presented papers on the commercial outlook of the UK Company. He never reported on any issues relating to the Malaysian Company.
- The employee had entered into an Agreement with the UK Company and is therefore bound by the terms of the written agreement.
- Under the Agreement, the employee’s job description was mainly to do global marketing. The Malaysian Company was strictly for manufacturing and did zero marketing. As such, there was no logical purpose why the Malaysian Company would have engaged the employee.
- The employee’s business cards introduced himself as the CCO of the UK Company, with a phone number and fax number in London. The Industrial Court found that this was an acknowledgment by the employee that he was an employee of the UK Company.
- The Malaysian Company was not involved at all in the settlement discussions between the employee and the UK Company. The fact that the employee discussed settlement with the UK Company is an acknowledgment by the employee that he is an employee of the UK Company and not the Malaysian Company.
The Industrial Court in Malaysia derives its jurisdiction to hear unfair dismissal claims through the Industrial Relations Act 1976 (“Act”). The Act does not have extra-territorial jurisdiction. As such, in order to bring a claim before the Malaysian Industrial Court, the employer in question must be a Malaysian entity. The Industrial Court cannot entertain claims against foreign employers even if the employee is Malaysian and based in Malaysia.
Employees in Malaysia may, for tactical reasons or from ignorance or confusion about their actual employment relationship, lodge unfair dismissal complaints against the “wrong” employer entity in Malaysia. The Industrial Court still has the jurisdiction to determine whether the entity being sued is the correct employer. In determining the employer, the Industrial Court will consider all relevant evidence and surrounding circumstances, including the conduct of parties. The existence of a contract or a work permit in its own may not be conclusive evidence of the true identity of an employer.
Multinational corporations should be mindful when employing employees across different jurisdictions and examine these key elements to ensure that liability is not unintentionally assigned to a wrong subsidiary:
- Nature of the contract and the contracting parties
- Nature of the employee’s work and job functions, and jurisdiction in which the functions are to be performed
- The employee’s regular place/country of work
- How salary is paid and which statutory obligations have been complied with
- Whether name cards, e-mail signatures, internal directories and other documentations/arrangements correctly reflect the identity of the employer
About the Author: Donovan Cheah heads the employment law and dispute resolution practice group in Donovan & Ho. He has been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific 2017. He has written for publications such as the The Edge and the Star, as well as for the Malaysian-German Chamber of Commerce and Industry.
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