Fixed Term Contract

In 2004, the government announced a GLC Transformation Programme in an effort to spur higher performance from our government linked companies. One of the initiatives involved requiring all senior level appointments to be placed under fixed-term contracts. The rationale here was that by limiting  these senior level appointments to a fixed-term contract of between two to three years, these senior levels would be incentivised to perform with the tacit understanding that if they did not, they would face the risk of their contract not being renewed.

However, this GLC Initiative is at odds with our law which states that an organisation can only engage an employee under a fixed-term contract if the job position involved is genuinely required for a short or fixed-term duration.

For years, the question that has perplexed legal experts and HR practitioners has been determining which took precedence over the other; i.e. would the Industrial Courts recognise the right of government linked companies to place their senior level executives under a fixed-term contract. This question has apparently finally been answered and the answer is NO. Please see below details of a case just was very recently decided in our Industrial Court three weeks ago.

Best Regards,

Shawn Sher

 

Lim Boon Leong      

            v

Sime Darby Auto Selection Sdn Bhd   

[Industrial Court Award No. 2483 of 2018]

Overview

This update addresses the following question:

“Can a managing director whose employment status was earlier converted from permanent to fixed term be later terminated at the end of the fixed-term contract period on grounds of performance?”

In 2004, the government announced a GLC Transformation Programme in an effort to spur higher performance from our government linked companies. One of the initiatives involved requiring all senior level appointments to be placed under fixed-term contracts. The rationale here was that by limiting  these senior level appointments to a fixed-term contract of between two to three years, they would be more driven to perform with the knowledge that if they did not, they would face the risk of their contract not being renewed. However, this GLC Initiative is at odds with our law which states that an organisation can only engage an employee under a fixed-term contract if the job position involved is genuinely required for a short or fixed-term duration.

For years, the question that has perplexed legal experts and HR practitioners has been determining which took precedence over the other; i.e. would the Industrial Courts recognise the right of government linked companies to place their senior level executives under a fixed-term contract. This question has apparently finally been answered and the answer is NO.

In our feature case, the claimant commenced employment with the Sime Darby group in 1995 as a Project Manager for Sime Darby Hong Kong and during his time with the group was regularly promoted and transferred to various divisions within the company (both locally and internationally.

On the 29th of April 2013, the Claimant was informed of his promotion to the position of Managing Director, Auto Bavaria Division of the Company effective 1st May 2013. It was also stated that as his promotion would entail him moving up to a Vice President Job Grade level within the group, his employment status would need to be changed from permanent to fixed term where he would be placed under a three-year contract from 1st May 2013 to 30th April 2016.

Upon being presented with this fixed-term contract, the claimant voiced his concerns about the change of his employment status from permanent to fixed-term. He was however assured by the company that he had nothing to fear and that his contract would be routinely renewed. However, on 25 February 2016, the claimant received a letter from the company informing him that his contract would expire on end April 2016 and that the Company would not be considering any further renewal of his contract. This led to his present claim for unfair dismissal.

What the Industrial Court Held

The Industrial Court held in favour of the claimant, holding that he had been  unfairly dismissed. In coming to this conclusion, the court first addressed the issue of whether the company had met the test for proving that it had a genuine business reason for engaging the claimant under a fixed-term contract wherein it cited the following:

Quotation/Citation 1

“The importance of the principle of security of tenure of employment was emphasised by the Industrial Court in the case of MALAYSIA AIRLINES BERHAD v. MICHAEL NG LIANG KOK [2000] 3 ILR 179 where it was held:-

"The principle of security of tenure guarantees an employee's legitimate expectation to continue in his employment and to earn his livelihood unless his employer has just cause or excuse to terminate his services. Where it is plain that an employee's services are required on an ongoing basis rather than for a definite term he ought to be engaged in the ordinary way instead of upon a contract for a fixed term which automatically expires at the end of the said term. Otherwise the security of tenure afforded to an employee will be a mirage as his tenure in the job can be terminated by the mere act of non-renewal notwithstanding that the employer has no just cause or excuse for terminating his service by the mere inaction of not renewing his contract of employment.”

Quotation/Citation 2

“The evidence before the Court clearly shows that the Claimant was placed under the fixed term contract for the sole purpose of promoting him to the position of Managing Director, Auto Bavaria Division (Vice President I) and that it was the Company's policy to do so. However, the Company had not provided this Court with any proof of this policy or the justification for the existence of such a policy in the Company. Here we have an employee who had given his heart and soul to the Company for the past 18 years before he was dangled with a carrot for the position in senior management. Every employee has his or her own ambition to climb up the corporate ladder.

…Such a policy is clearly open to abuse as any Company who is dissatisfied with a particular employee who has had a long-standing service with that company, puts that employee under a fixed term contract for say 2 or 3 years and simply doesn't renew the contract thereafter, claiming the contract had simply come to an end due to effluxion of time. By which time, the employee's long years of service with the company would have counted for nothing. The employee would have lost the benefits he would have received had he remained under permanent employment... As stated above, the sole purpose of placing the Claimant under a fixed term employment contract was due to the fact he was being promoted to the position of Managing Director, Auto Bavaria Division (Vice President I). No other reason exists to justify such a placement. The nature of business that the Claimant was to undertake under the fixed term employment contract was the same as that which he had been doing prior to him entering into the fixed term employment, i.e. selling cars. There was no specific or particular business that the Claimant had to undertake in a one-off nature under the fixed term contract…

…the Company had not produced any evidence that the business which was undertaken by the Claimant under the fixed term contract had also ceased upon the expiry of the Claimant's fixed term contract on 30th April 2016." 

Upon finding that the company did not have a genuine business reason for placing the claimant under a fixed-term contract, the court went on to address the issue of non-performance pleaded by the company wherein it said the following:

"In fact, if there was any poor performance, it is attributable to the Company itself and the economic climate at the material point in time. The Company had admitted in their letter to the Claimant dated 151 July 2015 (at pg. 24 of CLB):-

"The financial year 2014/2015 has been much more challenging than the previous year. Some of the countries we operate in are facing challenges as a result of the rough economic climate. This economic situation is expected to prevail for quite a while. Notwithstanding the above, I want to thank you personally for your continuous dedication and contributions during these difficult times".

This is the clearest indication that the Company accepted the fact that it was going through a rough economic climate and challenging times in 2014 and 2015. If there was a drop in the Company's business, it was not due to the Claimant. In fact, the Claimant was even given a final rating of "3" or "Good" as well as an increment of RM1 ,230.00. It is indeed baffling that the Company saw it fit to reward the Claimant if he was indeed a poor performer as per their allegations. Both COW-1 and COW-2 however testified that they had a meeting with the Claimant on 6th May 2015 wherein a discussion was held pertaining to the Claimant's poor performance. A perusal of the Notes on Performance Discussion dated 6th May 2015 (at pg. 6 of COB-1) however does not indicate anywhere that the Claimant's performance was poor or that he was being warned of his alleged poor performance and that he needed to improve. It was not a warning letter to say the least…

…From the evidence proffered before this Court, it would seem evident that the Claimant was being made a scapegoat for the Company's deteriorating performance. No cogent evidence of the Claimant's poor performance had been put forward by the Company. The Court therefore finds that the Company has failed to discharge its burden of proof that the Claimant was a poor performance and that it was justified in terminating the Claimant along those grounds."

How Your Organisation Can Benefit From This Case

Having a Policy Stating That Senior Level Appointments Can Only Be Appointed under a Fixed-Term Contract Will Not Suffice

While this court decision did not state explicitly that a company cannot hire a new senior level employee under a fixed-term contract, it has clarified that in situations where an employee is a permanent employee and is later promoted to senior management, a company cannot rely on a blanket policy stating that all senior appointments must be under a fixed-term contract as justification for converting an employee from permanent to contract.

This case decision has appeared to clarify the point that organisations; be they government-linked, multinationals or small business operators cannot simply rely on policies stating that all senior level appointments must be placed under a fixed-term contract. An organisation here will still need to justify that the job role/function involved is genuinely only needed for a short term to justify placing the employee under a fixed-term contract.

It would be interesting to see if this decision is appealed!

Managing Performance Issues for Employees Under a Fixed-Term Contract

The second lesson we can take from this court decision is to ensure that even where an employee is under a fixed-term contract, evidence of any under or non-performance court must still be documented; be they in the form of e-mails, performance notices or even warnings. The court here found that given that the claimant’s contract was not a genuine fixed-term contract, any decision to terminate his services due to poor-performance needed to be supported with documentary evidence.

Hence, ensure your organisation documents any evidence of an employee’s performance issues, even if they are under a fixed-term contract and do not simply rely on the fact that his/her contract will be expiring soon as sufficient justification for not renewing the contract.

                   ___________________________

This case can be found under our September 2018 Industrial Court Awards section of the Malaysian Employment Wizard.

If you are looking for a course to train your line managers on how to practically their day to day staffing issues pertaining to dealing with performance issues, misconducts and medical leaves, this course below will be of interest.

 

How to Practically Manage Your People Issues

A Two-Day In House Training Programme (HRDF Claimable)

Overview

One common misconception among managers is that Malaysia’s law on managing staff is legalistic and complex. Part of the reasons for this are due to legal concepts like show-cause letters and domestic inquiries which give managers the perception that managing their staff is too technical and best left to human resources to manage.

In reality, Malaysia’s employment law isn’t complex or technical. The law operates on the principle of ‘fairness’ as opposed to legal technicalities. This means doing the ‘right thing’ when it comes to managing your staffing issues. This includes giving regular feedback, setting clear expectations and documenting staffing issues in a constructive, non-threatening manner. This also means being directly accountable for managing your staffing issues.

This two-day programme is designed for any manager or supervisor within your organisation with people management responsibility. Over two days, you will learn practical solutions on how best to manage the myriad of staffing situations you encounter at work, including answers to the following questions:

1)    What is the best way to manage an under-performing staff under probation?

2)    What is the practical way to manage staff abusing their medical leave or emergency leave entitlements? 

3)    How to manage a discussion with an under-performing staff?

4)    How to deal with 'attitudinal' issues affecting your staff?, and

5)    How to manage a staff under a fixed-term contract? 

Agenda

Day One

9.00am – 10.30am

Understanding the Law on Managing Your Staffing Issues

·        Common misconceptions about Malaysia’s employment law

·        Moving away from a legalistic approach to a ‘fairness’ based approach

·        Why the discipline approach to management no longer works in today’s work environment

·        The law’s requirement for documentation (burden of proof) and fairness (equity) when managing staff productivity and performance

10.45am – 12.45pm

Managing Your Staff Productivity Issues the Right Way

·        Common misconceptions about managing absenteeism, tardiness and medical issues

·        What the law actually requires the direct manager to do when dealing with a staff absenteeism, tardiness and medical issues

·        Dealing with medical and hospitalisation leave – how to prevent abuse

·       Recent decisions by the Industrial Court on what managers are expected to do in showing fairness when managing their staff absenteeism, tardiness, medical and leave issues

·       Managing prolonged illness issues

2 pm – 3.30pm

Managing Your Staff Performance the Right Way

·        How to manage situations involving probationers that are under-performing

·        Managing staff abusing their medical leave entitlement while under probation

·        The three requirements of the law when managing any confirmed staff performance

·        How to manage employees under a performance improvement plan

·        How to deal with a fixed-term contract staff that is under performing

·        Differentiating negligence from a performance issue

3.45pm – 5.00pm

Dealing with Grievances, Major Misconducts and Resignation Issues

·        What to do when an employee raises a complaint: – how to respond a) verbally, and b) in writing

·        Knowing the difference between a performance issue and a misconduct

·        The managers role when a major misconduct occurs

·        How to manage a situation where the employee claims victimisation or unfair treatment

·        How to manage employees absences and late-coming while serving their resignation notice

Day Two

9.00am – 10.30am

Presentation by Participants of Key Concepts Learned

·        Group presentation by each group on key concepts learned on:

o   Managing productivity issues

o   Managing staff performance

o   Managing misconducts and staff grievances.

10. 45 am - 1 pm

Managing The Staff Performance Discussion the Right Way

·        Role playing the performance review discussion

·        How to move the staff performance discussion to a solutions focused conversation – video presentation

·        Role play by all participants of the case scenario

·        How to set clear performance expectation – minimising confusion on what is important on the job

2 pm – 3.30 pm

Managing the Staff Performance Discussion the Right Way (continued)

·        Documenting the performance discussion correctly

·        Case study discussions on how to manage difficult employee situations during the performance review and PIP discussions

·        Dealing with difficult employees during the review/PIP discussion (video presentation on managing six difficult personality types):

o   The ‘silent’ employee

o   The ‘non-committal’ employee

o   The ‘unmotivated’ employee

o   The ‘defensive’ employee

o   The ‘emotional’ employee

o   The ‘aggressive’ employee

·        Role-play of a performance review discussion with a ‘difficult’ employee

3.30 pm to 5 pm                                          

Managing Compliance Issues Under the PDPA

·        Managing personal data you come into contact with interviewing/recruiting an employee into the organisation

·        Managing sensitive personal data such as medical information (do’s and don’ts)

·        Managing requests for employee personal data from third parties

·        Dealing with personal data involving third parties such as customers and suppliers

_______________________________