Fixed or Forever? Unveiling the Complexities of Fixed-Term Contracts

Whether an employee is a fixed term contractor or a permanent employee is important because it directly impacts an employee’s remedies if they claim unfair dismissal. In an unfair dismissal claim, a fixed term contractor is only entitled to the remaining period of his/her contract.

However, a permanent employee is entitled to a maximum of 24 months of back wages (1 month of salary for every year of service). Before moving any further it is essential to understand the key differences between these three:

• Fixed Term ‘Contractors’: A fixed-term contractor, they will have a ‘contract for service’, with the client. The contract again must be ‘fixed term’ and will end on a particular date, when a specific task or outcome has been completed or when a particular event occurs. But for any disputes/claims the contractor is only entitled to the balance of the unexpired term of his/her contract.
• Fixed Term ‘Employees’: A fixed-term employee, they must have an employment contract, or ‘contract of service’, directly with the client, or employer. That contract must be ‘fixed term’, so it again must end on a particular date, when a specific task or outcome has been completed or when a particular event occurs. But the entitlement to remedies and treatment of the employee is like any other permanent employee.

An analysis of these following cases provides practical guidelines for employers to navigate fixed-term contracts effectively and to avoid legal disputes often arise due to the hidden rules governing fixed term contracts.

Azalina binthi Adham v. Bursa Malaysia Berhad (Award No. 1087 of 2023)

Facts: The claimant joined the company in June 2001 and became a permanent employee. In March 2012, she accepted a fixed-term contract as Head of Strategy and Transformation, knowing that it would end her permanent employment. Despite this, she agreed to the fixed-term contract. Subsequently, in 2015, she accepted another fixed-term role as Director of Strategy and Transformation, followed by a Chief Operating Officer position in 2017. The Company informed the Claimant that her “fixed term” employment will expire on 14.02.2020 and that there will be no extension. The Claimant contends that this amounted to a dismissal from employment wherein no reasons were given for the said dismissal.

Held:

1. The worker was not a full time employee of the company.
2. The fixed term contracts offered to the claimant were not successive.
3. There was no automatic renewal of the fixed term contracts without the claimant’s application (e.g. for the third contract, the claimant underwent a specific assessment before she was appointed as the Chief Operating Officer).
4. There were intermittent breaks between the three (3) fixed term contracts.
5. The nature of the claimant’s job was different for each fixed term contract.

A Gilbert D’Cruz v Sapuraacergy Sdn Bhd & Anor [2021] MLJU 2010

Facts: The employee initially joined the company on a fixed-term contract, subject to possible extensions. The contract was renewed four times before its expiration, and then extended three more times, with retroactive employment periods. When the contract wasn’t renewed again, the employee alleged unfair dismissal, asserting a permanent employment status.

Held: 

1. The worker is a full-time employee of the company, and their employment agreement isn’t a legitimate fixed-term contract.
2. The company automatically renewed the employee’s contract for seven years without requiring the employee to apply for renewal. Although the renewal periods were not consistent, they were retroactive and had a continuous effect.
3. There was also a 45-month period during which the employee continued to work without a formal contract. Allowing the employee to work without a contract for such an extended period suggests that the company treated the employee as a permanent staff member and had no intention of adhering to a fixed-term contract.
4. This perception is reinforced by emails from the company’s top management, expressing an intention to transition the employee to a permanent position. The emails indicate that the company valued the employee’s services and recognised that their employment was not temporary or project-based. Additionally, it is undisputed that the employee was not hired for a specific project but was involved in all of the company’s projects, both locally and internationally.

 Ahmad Zahri Mitzi Abdul Hamid v AIMS Cyberjaya Sdn Bhd [2020] 6 CLJ 557

Facts: In late 2008, a Singaporean citizen invested in AIMS Data Centre 2 Sdn Bhd (ADC) and later became a shareholder.

The individual received a consultancy appointment in May 2009 and a contract for consultancy services from August 2009 to September 2010, along with an appointment as Vice President Product Development. Contract renewals occurred in 2010, 2011, and 2012 without changes. In October 2012, a new contract for consultancy with ADC’s subsidiary was received, followed by a re-designation to Vice President in January 2013 when ADC merged into the subsidiary.

The contract was renewed until September 2013, but the company attempted to exclude the performance bonus scheme in the next offer. The employee disagreed, resulting in a 3-month renewal with the original terms. However, the company terminated the contract prematurely in mid-October 2013, leading to the employee claiming unfair dismissal. The key issues were whether: 

1. A contract of employment which is renewed successively without application by the employee and without any intermittent breaks in between, is in reality a permanent employment; and
2. Whether a need for a work permit is a material consideration in determining whether an employment contract is a genuine fixed term contract.

Held:

1. The Federal Court was satisfied on the facts that the employee’s contract of employment, which began with ADC before being terminated under the Company, was not one-off, seasonal or temporary employment. It was an ongoing, continuous employment without a break from 2009 to 2013 and he was therefore in reality a permanent employee.
2. The Federal Court held that the citizenship of the Appellant/Claimant had no bearing in deciding whether the Appellant/Claimant was in permanent employment or employment under a fixed term contract.
3. The Industrial Relations Act of 1967 does not delineate distinctions between Malaysian citizens and non-citizens in this regard. Malaysia, as a constituent of the International Labour Organisation (ILO), subscribes to ILO conventions that explicitly stipulate the obligation of states to foster and ensure equality of opportunity and treatment between migrant workers and nationals.

Avoid Making Them Permanent! – The Do’s and Don’ts with Fixed Term Contracts

1. Clearly Specify Terms: Clearly outline the terms of fixed-term contracts, including the duration and any specific conditions. Ensure that both parties understand the temporary nature of the employment.
2. Document Contract Renewals: If there are contract renewals, document them clearly, and ensure that any extensions are communicated and agreed upon in writing. Avoid automatic renewals of fixed-term contracts without proper assessment or without the employee’s application for renewal.
3. Assessment for Renewal: If considering renewal, conduct a specific assessment of the employee’s performance and suitability for the role before extending a fixed-term contract.
4. Maintain Breaks between Contracts: Introduce intermittent breaks between fixed-term contracts to avoid the appearance of continuous and automatic renewals. Ensure that each contract stands as a separate agreement. Be cautious about allowing employees to work without a formal contract for extended periods, as this may imply a permanent employment relationship.
5. Differentiate Job Roles: Clearly define and differentiate the nature of the job roles in each fixed-term contract to avoid potential claims of continuous and permanent employment. Avoid treating fixed-term employees as permanent. Be mindful of actions and communications that may imply a long-term or permanent commitment to employees on fixed-term contracts.
6. Communicate Clearly: Provide clear communication to employees about the temporary nature of fixed-term positions, especially when informing them about the non-renewal of a contract. If non-renewal of a fixed-term contract amounts to dismissal, provide clear reasons for the decision to avoid claims of unfair dismissal.
7. Review and Revise Contracts: Periodically review and, if necessary, revise fixed-term contracts to align with business needs and changing circumstances.
8. Consider Consultancy Agreements: If engaging individuals as consultants, ensure that consultancy agreements are distinct from employment contracts and clearly outline the terms of the consultancy.
9. Do not exclude benefits (e.g. performance bonuses) unilaterally: If there’s a change in contract terms, especially regarding benefits such as performance bonuses, consult with the employee and avoid unilateral decisions.