Malaysia’s Federal Court lays down principles on fixed term contracts and permanent employment

28 April 2021

Ahmad Zahri bin Mirza Abdul Hamid v AIMS Cyberjaya Sdn Bhd [2020] 5 MLJ 58

In Ahmad Zahri bin Mirza Abdul Hamid v AIMS Cyberjaya Sdn Bhd, an expatriate (“Appellant”) was a consultant for AIMS Data Centre 2 Sdn Bhd (“ADC”). Three months after being appointed, the Appellant was given a contract for consultancy services by ADC for a fixed term of one year, which entitled him to participate in a performance bonus scheme. The contract was renewed annually over three consecutive years, during which time ADC’s merger with AIMS Cyberjaya Sdn Bhd (“Respondent”) saw the Appellant’s job position being reclassified. Upon the renewal of the contract for the fourth time, the Respondent decided to remove the Appellant’s entitlement to the performance bonus scheme. After the Appellant’s rejection, the Respondent offered him a three-month work contract which stated that it would supersede all previous contracts which the Appellant had had with ADC and the Respondent and that the said contract was determinable by the giving of two months’ notice. In purported exercise of that clause, the Respondent gave the Appellant two months’ notice of termination of the contract. The Appellant complained to the Industrial Relations Department that he had been unfairly dismissed from employment.

The Malaysia Industrial Court (“IC”) found in favour of the Appellant. On appeal, the High Court upheld the IC’s decision. The Court of Appeal (“COA”), however, set aside both the High Court’s decision and the IC’s award.

The Appellant was granted leave to appeal to the Federal Court on the following questions of law:

  • whether a need for a work permit was a material consideration in determining whether an employment contract was a genuine fixed-term contract; and
  • whether an employment contract which was renewed successively without application by the employee and without any intermittent breaks in between, was in reality a permanent employment.

The Federal Court allowed the appeal and laid down a few principles regarding fixed term contracts and permanent employment:  

  • The practice of courts in lifting or piercing the corporate veil in relation to group entities may still be accepted in the realm of industrial relations as the correct approach to reveal who is the employer in order to achieve social justice so that the workmen are not adversely affected. The Federal Court affirmed the principles laid down in Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers & Anor [1980] 1 MLJ 109 (Hotel Jaya Puri) and adopted the “common employer” approach taken by the Canadian, South African and English courts where an employee may be regarded as being employed by more than one legal entity within the same group of companies. The circumstances when the corporate veil may be lifted to find a group of common employers are as follows:
    • where there is ”functional integrality” between entities;
    • unity of establishment between the entities; 
    • the existence of a fiduciary relationship between the members of the entities and /or the extent of control;
    • there was essential unity of group enterprise; and
    • whenever it is just and equitable to do so and/or when the justice of the case so demands. 
  • The COA was wrong in holding that ADC and the Respondent were two separate legal entities and failed to treat the Appellant’s contract of employment as a continuous one from ADC to the Respondent. 
  • The intention of the parties, the employer’s subsequent conduct during the course of employment and the nature of the employer’s business have to be considered in deciding whether there is a genuine fixed term contract or an employment on a permanent basis. Based on the factual matrix of the present appeal, the Federal Court is satisfied that the Appellant’s contract of employment beginning with ADC before being terminated under the Respondent, was not one-off, seasonal or temporary, but was an ongoing, continuous employment without break. 
  • The citizenship of an employee has no bearing in deciding whether the Appellant was in permanent employment or under a fixed term contract.
    The decision of the COA that a foreign national cannot have a permanent contract of employment cannot withstand judicial scrutiny and is liable to be set aside, and the fact that the Appellant is a foreigner is irrelevant in determining whether the dismissal is with just cause or otherwise.

The decision of the Federal Court in respect of the test for a fixed term contract and the fact that the Industrial Relations Act 1967is applicable to foreigners is uncontroversial as these are trite principles. As for the lifting of the corporate veil based on the group entity principle, if the applicability is limited to cases under the Industrial Relations Act 1967, this too is uncontroversial. It is submitted that this should be how Ahmad Zahri is understood as the learned Federal Court Judge was at pains to point out that the principle in Hotel Jaya Puri “may not be suitable in present times” but it may still be accepted in the realm of industrial relations as the correct approach particularly where court must have regard to “equity and good conscience and the substantial merits of the case without regard to technicalities and legal form”.