EMPLOYMENT LAW

(LLB 405)

Lecture 2
Definition of Contract of Service/Contract of
Employment
Definition of Employee/Workman
 Learning Objective
• To appreciate the importance of the
determination of an employer-employee
relationship
• To define the contract of employment, who is
an employer and employee
• To know and analyse the application of the
various tests in determining whether it is a
contract of service or a contract for services
 EMPLOYMENT RELATIONSHIP
EA 1955

 CONTRACT OF SERVICE – S2
• any agreement
• oral or in writing
• express or implied
• one person agrees to employ another as an
employee
• other agrees to serve his employer as an employee
• includes an apprenticeship contract
 EMPLOYMENT RELATIONSHIP
EA 1955
 EMPLOYER
• any person who has entered into a contract of service
• to employ any other person as an employee
• includes agent, manager or factor of first mentioned person

 EMPLOYEE – S2 & First Schedule

• any person who has entered into a contract of service with an employer;
• whose wages do not exceed RM2,000 per month (excluding commission, subsistence
allowance & overtime payment);
• who are employed in specified occupations, i.e. manual labour, domestic servants;
• includes part-time & full-time employees (see definition of part-time employees in S2 : person
included in 1st Schedule & whose average hours of work per week must be more than 30%
but should not exceed 70% of the normal hours of work per week of a full time employee
employed in a similar capacity in same enterprise);
• includes foreign employees but not foreign employees who are permanent residents of
Malaysia : see S60O. See definition of foreign employees, permanent residents in S2.
 EMPLOYMENT RELATIONSHIP
EA 1955
• EA also protects employees (including part-
time & foreign employees) whose wages
exceed RM2,000 but not RM5,000 per month
– see S69B. However, such employees may
only raise disputes in respect of wages or
other payments in cash due to them under
individual contracts of employment or under
EA.
 EMPLOYMENT RELATIONSHIP
IRA 1967
 CONTRACT OF EMPLOYMENT – S2
• any agreement
• oral or in writing
• express or implied
• one person agrees to employ another as a
workman
• other agrees to serve his employer as a
workman
 EMPLOYMENT RELATIONSHIP
IRA 1967
 EMPLOYER
• any person or body of persons
• corporate or unincorporate
• who employs a workman under a contract of
employment
• includes the government & any statutory
authority unless otherwise expressly stated in
this Act.
 EMPLOYMENT RELATIONSHIP
IRA 1967
• ‘Government’
• ‘Statutory authority’

 WORKMAN
• any person including an apprentice
• employed by an employer under a contract of employment
• to work for hire or reward
• for the purposes of any proceedings in relation to a trade dispute, includes any
such person who has been dismissed, discharged or retrenched in connection
with or as a consequence of that dispute, or whose dismissal, discharge or
retrenchment has led to that dispute.
• ‘trade dispute’ = any dispute between an employer & his workmen which is
connected with employment or non-employment or terms of employment or
conditions of work of any such workmen : S2
 EMPLOYMENT RELATIONSHIP
EA & IRA
• For EA/IRA to apply, there must be :
a) an employer; &
b) an employee or workman; &
c) a contract of service or contract of employment
• No basic difference between ‘contract of employment’ &
‘contract of service’
• But scope of ‘contract of employment’ is clearly wider
than the scope of the ‘contract of service’.
• ‘Employer’ and ‘workman’ defined more broadly in the
IRA than ‘employer’ and ‘employee’ in EA.
 EMPLOYMENT RELATIONSHIP
• Contractual in nature – EA & IRA
• ERMS Management Sdn Bhd v Gilbert Ang
(Award 20 of 1994):
 fundamental terms, especially those
affecting the security of tenure of employee,
must be clearly spelt out in writing in the
contract
 must be communicated to the employee
 EMPLOYMENT RELATIONSHIP
• Tractors Malaysia Sdn Bhd v National Union of
Commercial Workers Sabah (Award 176 of 1985):
 Fundamental terms, e.g. the period of employment or
the circumstances of termination must be clearly spelt
out;
 Fundamental terms cannot be implied
• Primason Sdn Bhd v Chin Ooi Leng (Award 593 of
1996):
 Terms of contract can be changed/varied only by
mutual consent of the parties
 EMPLOYMENT CONTRACT
• EA 1955 – ‘contract of service’
• IRA 1967 – ‘contract of employment’
• EA regulates the employment contract:
 Section 8 – prohibits any employment contract from
restricting in any way the exercise of an employee of his
‘trade union’ rights.
 Section 10 – fixed term contracts exceeding one month must
be in writing & must specify ways by which they can be
terminated by either party.
 Sections 11-15 EA describes how employment contract
can be terminated by either party
 EMPLOYMENT CONTRACT
 Section 7 – employment contract cannot stipulate terms and
conditions which are less favourable to the employee than the terms
& conditions prescribed by Act; less favourable terms shall be void &
more favourable terms in the Act shall be substituted therefor.
 Section 7A – employment contract can stipulate terms & conditions
which are more favourable to the employee than the terms &
conditions prescribed by Act.
 Section 7B – employment contract can stipulate terms & conditions
other than the terms & conditions prescribed by Act.

(Terms & conditions of employment in EA = basic & minimum terms &

conditions)
 CONTRACT OF SERVICE vs CONTRACT FOR
SERVICES
CONTRACT OF SERVICE/CONTRACT OF EMPLOYMENT vs CONTRACT FOR
SERVICES
• No distinction between contract of service & contract of employment :
American International Assurance v Dato Lam Peng Chong & Others
(Award 275 of 1988).
• Industrial Court has jurisdiction over only contract of service/contract of
employment : Nova Charm Bhd v Ooi Hock Huat (Award 220 of 2002).
• Only a contract of service/employment will give rise to an
employer/employee relationship under EA & IRA.
• A contract for service does not create an employer/employee
relationship & does not therefore come within purview of EA & IRA.
• Instead it creates only a contractual relationship between employer & an
independent contractor.
 CONTRACT OF SERVICE - TEST
TEST TO DETERMINE CONTRACT OF SERVICE/CONTRACT OF EMPLOYMENT
• American International Assurance v Dato Lam Peng Chong & Others
(Award 275 of 1988) :

 question whether claimants were ‘workmen’ depends on whether they

were employed by the company on contracts of employment/contracts
of service or on contracts for service.

 3 tests:
a) The ‘traditional’ or ‘control’ test;
b) The ‘organisation’ or ‘integration’ test; &
c) The ‘mixed’ or ‘multiple’ test .
 CONTRACT OF SERVICE - TEST
o Control test
Refers to the control over one person by another, not only as to what he must do but also as to
how and when he must do. KPI – modern day control by employers.
o Organisation/Integration test
Depends on whether the person is part & parcel of the organisation; that he is employed as part
of the business & his work is done as integral part of & not as an accessory to the business. The
greater the person is integrated into the company, the greater possibility that he is an employee.
o Multiple/mixed test
Applied in 2 stages :-
a. Is there control?
b. Are provisions of the contract consistent with a contract of service – is person an
entrepreneur rather than an employee? Has he invested in tools & taken chance of profit or
risk of loss?
 No test is conclusive – court will examine various elements of relationship; weight attached may
vary from case to case
 Question is one of law & fact
 CONTROL TEST
• Control test applied in Hoh Kiang Ngan v Industrial Court
[1996] 4 CLJ 687. Federal Court ruled:
 The definition of ‘workman’ applies to all contracts of service
but not to independent contractors who are engaged under
contract for services;
 Whether a contract is one of service or for services, the degree
of control, which an employer exercises over a claimant is an
important factor but may not be the sole criteria;
 Must also examine terms of the contract, the nature of the
claimant’s duties & functions & the manner in which he carried
them out.
 PROBLEM WITH CONTROL TEST
• Problem with Control Test
 Nowadays employees are more skilled &
professional & size & complexity of businesses
have increased.
 Control test became less effective and difficult to
distinguish between ‘right to control’ and ‘actual
control’.
 Control test unsuitable for employees who are
highly skilled
 ORGANISATION/INTEGRATION TEST
• Organisation/integration test applied in Stevenson Jordan & Harrison Ltd v MacDonald & Evans
[1952] 1 TLR 101; Mat Jusoh Daud v Syarikat Jaya Seberang Takir Sdn Bhd [1982] 2 MLJ 71;
[1982] CLJ 366; [1982] CLJ (Rep) 562.

• Control & integration tests employed in EPF Board v MS Ally & Co. Ltd [1975] 2 MLJ 89.
• Integration test important where person contracted to work does not devote himself entirely to
the other party.
• Integration test useful for identifying work done under a ‘mixed contract’ which is partly a
contract of service & partly contract for services.
• E.g. where employees employed with an employer in a particular capacity also perform other
tasks for other institutions or establishments.
• But test does not satisfactorily respond to the complex nature of employment relationships in
modern context of employment. A more multi-faced approach was developed.

• Multiple/mixed approach : Ready Mixed Concrete (South East) Ltd v Minister of Pensions &
National Insurance [1968] 2 QB 497; [1968] 1 AER 433; Airod Sdn Bhd v Wan Ahmad Kamal
(Award 1 of 2004); Casio Sdn Bhd v Wahab Idris (Award 322 of 2001).
 MULTIPLE/MIXED TEST
• Ready Mixed Concrete Case
 Represents significant development in the law of employment
 Recognises the complex conditions of modern industry
 Devises an approach that is as complex in its application
 Mackenna J – 3 conditions must be fulfilled for a contract of service to exist:
1) The servant agrees that, in consideration of a wage or other remuneration,
he will provide his own work & skill in the performance of some service for
his master;
2) He agrees, expressly or impliedly, that in the performance of that service
he will be subject to the other’s control in a sufficient degree to make that
other master; &
3) Other provisions of the contract are consistent with it being a contract of
service.
 MULTIPLE/MIXED TEST
• Ready Mixed Concrete Case (contd)
 ‘own work & skill’ = employee must perform duties under his contract
himself; he may not delegate it to others.
 Control remains an important element even in complex contracts in a
modern-day setting.
 Mackenna J – control includes power to decide what is to be done, how,
when, where it shall be done.
 Although some factors of control exist, other provisions of the contract may
point in a different direction, e.g. person may own assets, bear risks, provide
the means of performance at his own expense & accept payment by results
 Parties can choose to name their relationship but this will not be decisive
 Where there is doubt/ambiguity, court will examine parties’ intentions at
time contract was entered into.
 ENTREPRENEUR TEST
Entrepreneur test – a more flexible approach
• Market Investigations Ltd v Minister of Social Security [1969] 2
QB 173 – Cooke LJ formulated the entrepreneur test as follows:-
 ‘Is the person who has engaged himself to perform these
services performing them as a person in business on his own
account?’
 If the answer is ‘yes’, then the contract is a contract for services.
If the answer is ‘no’, then the contract is a contract of service.
 Control will no doubt always have to be considered, although it
can no longer be regarded as the sole determining factor.
 ENTREPRENEUR TEST
• Significance of Market Investigations Case:
 Gave legal recognition of work done by part-time or casual workers
(atypical workforce)
 Such work is not inconsistent with existence of a contract of service
 Contract can be of short duration & in such a case, non-provision of
sick pay or holidays would not be inconsistent with contract of service
 Need not always be a continuous relationship; can consist of a series
of contracts.
 A contract of employment could exist although relationship between
parties was intermittent, provided that such a relationship continued
for a prolonged period of time, i.e. there was a course of dealings.
TEST FOR ATYPICAL WORKERS - UK
• In UK, after Market Investigation case, in the 1980s a new
approach was developed by the common law
• Courts began to apply the doctrine of mutuality of obligations
for establishment of a contract of service for atypical workers
• There must be a continuing obligation on part of alleged
employer to provide work & a reciprocal continuing obligation
on part of alleged employee to accept & perform the work .
• It is insufficient that there is a series of contracts where work is
done and paid for.
• See Carmichael & Another v National Power Plc [2000] IRLR
43 (HL)
TEST FOR ATYPICAL WORKERS – MALAYSIA
Malaysian Cases on Contract of Service in Cases of Part-time Employees

• Malaysia Airline System Berhad v Abdul Aziz Muda [2003] 3 ILR 1438 –
Industrial Court held that the claimant was not a workman employed by the
company under a contract of service as there was ‘no proper control in the
real sense of the word by the company against the claimant’.
• Aminah Zaiton Amir Dastan & Anor v Star RFM Sdn Bhd [2008] 1 ILR 562 –
Claimants were hired as part-time producers/presenters by company.
Industrial Court found claimants had been ‘subject to the company’s control
to a sufficient degree to make the company their master’. Hence, there was a
contract of service rather than contract for service.
• Question – in these two cases involving part time workers, the court used the
control test to determine whether there was a contract of service. Do you
agree with the approach taken by the court?
 EMPLOYEE/WORKMAN vs
INDEPENDENT CONTRACTOR
WHO IS AN EMPLOYEE/WORKMAN?
• Hoh Kiang Ngan v Industrial Court [1996] 4
CLJ 687– a person is a workman if he is
engaged under a contract of service. But he is
an independent contractor & not a workman if
he is engaged under a contract for services.
Followed & applied by Court of Appeal in
American International Assurance v Dato Lam
Peng Chong & Others [1999] 2 CLJ 771.
 ‘HIRE OR REWARD’ – S2 IRA
MEANING OF ‘HIRE OR REWARD’ UNDER S2 IRA
• Aetna Universal Insurance Sdn Bhd v Tan Ann & Others
(Award 163 of 1997) – work must be for wages or other
remuneration. ‘Hire’ imports obligation to pay; remuneration
may be paid on a pro rata basis or even on a commission
basis. Thus, ‘commission’ comes within the word ‘reward’.
• Mathew Stuart Naismith v Horizon Healthcare Systems Sdn
Bhd [2008] 2 ILR 529 : definition of workman under S2 IRA
does not mean workman must be paid a salary; see also
Andrew Ong Beng Kiat v TA Centre Berhad (Award 1478 of
2010).
 PART-TIME EMPLOYEES
• Whether part-time workers are ‘employees’
must be proven through existence of contract
of service
• Although intention of EA clearly includes part-
time employees, this could be set at nought by
the court declaring the absence of a contract
of service, hence excluding the part-time
employee.
 PART-TIME EMPLOYEES
• Employment (Part-Time Employees) Regulations 2010
• Reg 3 clearly states that employment protection & rights not
extended to casual workers & home workers.
• Definition of casual worker – part-time employee who is engaged
occasionally or on an irregular basis, as & when needed, & whose
working hours in one week does not exceed 30% of the normal
hours of a full time employee in one week.
• Note parent statute, EA – part-time employee’s hours of work must
be more than 30% but should not exceed 70% of the normal hours
of work per week of a full time employee.
• Cf parent statute – does not prohibit part-time employees from
working from home.