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Fixed Term Contracts in Malaysia

Is putting some employees on what is known as a fixed term contract in Malaysia a beneficial thing? Some employers think that it is. One of the reasons for this belief is that it makes things much easier to terminate an employee who turned out to not be a good fit for the company, since employers would have the option of either renewing or terminating the contract if they wanted to.

However, many employers fail to realize that fixed term contracts doesn’t necessarily allow for that to happen under the Malaysian labour law stipulations, and by doing so, they could very well put themselves at risk of a wrongful termination claim if they choose not to renew an employee’s contract.


Fixed Term Contract – The Law in Malaysia

In Malaysia, the law does recognize that employers do have the right to hire the employees the select on a fixed term contract basis, provided that there is a genuine need to do so. One very important condition which a fixed term contract needs to abide by is that it has to be a genuine contract.

Once the fixed term contract of the employee has expired, it acts as a self-termination, technically meaning that no dismissal or resignation has taken place. This way, if the employee is unhappy or dissatisfied that their contract has been renewed, they would have to accept it because the employer is not obligated to provide them with a renewal.


Consistent Renewal of Fixed Term Contracts

There are instances where employers consistently renew the contracts of employers who have been engaged on a fixed term contract. However, employers would need to be wary in this case because the consistent renewal will be seen as an indication that the job is not as temporary or seasonal as initially predicted.

If brought to court, the court may be likely to treat and see the contract as a permanent one if there is evidence that it has been renewed multiple times. If that is the case, then an employee can only be terminated if there is enough cause and reason to do so. If the employer fails to provide a cause, then the employee is entitled to lodge a complaint of unfair dismissal under Section 20 of the Industrial Relations Act.

The court will interpret the rights of an employee based on the fair labor practice, good conscience and equity to help ensure that the principle of the tenure security is not undermined.

Therefore, before an employer decides to hire an employee on a fixed term contract, they need to carefully consider and evaluate whether there is a genuine need to place that employee on such a contract. If there is no valid reason to do so, then it would be better to put the employee through a probationary period under a proper contract of employment.


A Genuine Contract Explained

A genuine contract can be interpreted as a contract where both parties recognize that there is no understanding that the contract will be renewed once it has expired. This is applicable in cases where jobs are either temporary, a one-off thing or seasonal jobs which are necessary to fill a current demand or a need for it. Therefore, once those temporary positions have been fulfilled, there is no obligation by the employer to renew the contract if there is no need for it.

A genuine contract does not have a statutory explanation to it. The employer, however, would need to have a genuine reason to provide if a contract is not being renewed.


What Employers Should Do

Employers should get their contracts reviewed and checked out by a lawyer to ensure that there are express clauses which are consistent with a fixed-term contract so the employer’s case is supported in the event they need to go to court.

Employers should also ensure that there is a mutual understanding between them and the employee before employing them that the arrangement in question is only for a fixed term contract. Employers need to ensure that there is no misunderstanding and the employee does not confuse the contract with a full term one or a permanent position. Make it clear to the employees from the start the terms and conditions of the contract being offered and clarify that they understand what they are signing up for.