In the recent Industrial Court case of Alexander Jovcic v Shell Global Solutions Malaysia (Award 1189 of 2019, 12 April 2019), the claimant filed a complaint against the company, alleging that the company’s decision to terminate him on redundancy grounds was unfair.

When the case came before the Industrial Court for adjudication, the court found that the claimant’s claim could not succeed because the company he named in the lawsuit was not really his employer.

What happened in this case?

The claimant was employed by Shell Global Solutions Malaysia (“SGS”) in Malaysia in 2006. He was subsequently transferred to another company, Qatar Shell GTL Ltd (“Qatar”), to carry out an international assignment, and had executed a new employment agreement with Qatar.

Notwithstanding the new employment agreement, the claimant maintains that he was still an employee of the company. The Claimant argued that although he was providing services in Qatar, his “Base Country” was still Malaysia.

Qatar eventually made the decision to terminate the claimant’s employment on grounds of redundancy, and informed the Claimant that he will be paid redundancy payment. Not satisfied with the decision, the claimant filed an unfair dismissal claim against SGS.

What was the court’s decision?

The court found that the claimant was an employee of Qatar, not SGS, and therefore could not succeed in his claim against SGS for unfair dismissal. In reaching its decision, the court took into account the fact that (among other things):

  1. The claimant had entered into a new employment agreement with Qatar;
  2. The employment agreement with Qatar contained clauses which:
    • superseded the claimant’s previous employment agreement with SGS;
    • set out the claimant’s employment terms with Qatar, such as duration, governing law, salary, and had expressly named Qatar as the employer;
  3. The fact that the Claimant’s employment agreement with Qatar specified Malaysia as his “Base Country” does not indicate the current status of his employer, but rather is used as a point of reference for elements of the Claimant’s pay and benefits to be linked. In other words, the company uses the “Base Country” as a reference to calculate expatriate pay when the employee is transferred to an international assignment.
  4. The termination clause in the employment agreement with Qatar expressly stated that the right to terminate lies with Qatar
  5. During the Claimant’s employment with Qatar, the claimant’s remuneration was paid directly by Qatar.
  6. The evidence showed that during his employment with Qatar, the Claimant rendered his services full time to Qatar and there is no evidence that during this time he also rendered services to SGS
  7. There is also no evidence that SGS continued to issue directions to the Claimant or exercised any control over the performance of his duties.

The court also referred to Niall Atholl Murray v. Baker Hughes (Malaysia) Sdn. Bhd. & Anor (“Niall’s case”) which dealt with the issue of determining who the real employer is.

In Niall’s case, the employee was employed by International Professional Resources Limited (“IPRL”) and was assigned to work for a Malaysian entity, BJ Services (M) Sdn Bhd (“Baker Hughes”). As part of the employee’s assignment in Malaysia, the employee was required to enter into an employment agreement with Baker Hughes. On the basis of that employment agreement, the employee argued that Baker Hughes was his employer and was therefore required to justify the employee’s termination.

Even though there was an employment agreement with Baker Hughes, the court nonetheless held that IPRL was the employer, not Baker Hughes because:

  1. The employment agreement with Baker Hughes was entered into for immigration purposes to enable the employee to obtain the requisite Malaysian employment pass to carry out his assignment;
  2. The employment agreement with Baker Hughes did not specifically spell out the usual terms of employment (e.g. benefits, termination notice, sick leave, etc.) therefore lending support to the argument that the agreement was merely a vehicle for immigration purposes, among other things;
  3. The employment agreement with IPRL contained clauses which provide that the employee was required to enter into a local employment contract to comply with local employment law. In such event, the local employment contract will be an addendum to the employment agreement.

Although the facts of Niall’s case were distinguished from this case, it can be discerned from the court’s reasoning that it had applied the same methodology in deciding the issue, namely by examining the facts and circumstances of the case to determine the intention of the parties.

What is the test/principle for determining who the real employer is?

In most cases, the employer is the party who has entered into the employment agreement with the employee. However, due to the many ways in which the employee’s manner of work can be arranged to suit the employer’s business needs, the relationship can become less apparent in certain situations, especially when an employee attends to cross-border work / international assignments, or has functions which extend beyond Malaysia.

Other complications may arise when the employee is seconded to another entity (referred to as the “Host”) whereby the employee is required to report for duty with the Host. To further add to the confusion, in some cases, as a matter of agreement between the employer and the Host, the Host will also pay the employee’s remuneration which will be reimbursed by the employer at a later date.

Thus, as shown in the above-mentioned cases, what is of relevance in cases like this is the intention of the parties, which is demonstrated by the parties’ conduct and documentary evidence. Factors that become relevant include who has the control over the performance of the employee’s duties, who has the right to terminate the employment, which party signs the employment agreement, and which party pays the employee’s remuneration.

As such, where the intention is for Company A to remain as the employer, the terms of the agreement (and other ancillary documents) must be drafted clearly to express that intention. More importantly, parties should ensure that they conduct themselves in accordance with that agreement, so that there is no confusion later as to who the real employer is.

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This article was written by Donovan Cheah (Partner) and Adryenne Lim (Legal Executive). Donovan has been named as a recommended lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018 and 2019, 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. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory.  Have a question? Please contact us.

 

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