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Contract of Employment: Contract of Service, Contract for Service & Termination

 

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u en a problem in a work relations ip results in court action t e courts will establis t e
existence of a contract of service/ employment before t ey consider t e specifics of a case.
T ey do t is by applying common-law 'employment' tests.

In investigating t e legal relations ip, t e courts are looking to define w et er one of two
types of employment contracts exists: eit er a 'contract of service' or a 'contract for service'. A
'contract of service' is taken to denote employment. A 'contract for service' does not involve
employment.

'()*+,)2c'-c.*/0,.c '()*+,)2c-'*c.*/0,.c

Èc Employer-Employee relations ip. Èc Employer-Independent Contractor

Èc |sually a continuous relations ip.
Èc A duty of care owed to employees,
Èc as t e employer
Èc T e employer is generally liable for
t e vicarious acts of employees.
Èc àrotective legislation applies to contract.
Èc uages/Salary payment met od.
Èc Subject of contract is to carry on
continuous work.
relations ip.
Èc A relations ip organized around t e
completion of a once-off piece of work.
Èc A duty of care, arising from occupiers¶
liability.
Èc T e employer is generally not liable for
t e vicarious acts of independent
contractors.
Èc In general, protective legislation does not
apply, except for t e Safety, Healt and
uelfare at uork Act, 1989 and t e
Equality Act.
Èc Oarious met ods of payment, including
lump sum per job.
Èc Subject of contract is once-off job

T e fundamental difference is t at:

4c An employee-employer contract is a contract 4
service
4c A contractor-client contract is a contract 4
services
In eac of t ese types of contract, bot parties ave specific rig ts and responsibilities, w ic
differ according to t e type of contract in place.

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Contract of Employment: Contract of Service, Contract for Service & Termination

&c 345'6.*.345'6..c,'()*+,)c'-c2.*/0,.c

àermanent employees ave a contract of service wit t eir employer. By definition, if a

worker as a contract of service wit an organization, t ey are an employee.

T e key rig ts and responsibilities of employee status under a contract of service are:

4c T e worker is controlled by t eir employer ± t ey must perform t e tasks t ey are

instructed to by a line manager according to t eir job description

4c T e worker is expected to work at a specific place during specific ours on specific days
(even flexi-time as core ours)

4c T e worker must present t emselves for work and cannot send someone else as a
substitute

4c Employees ave statutory rig ts to oliday pay, sick pay, maternity and paternity rig ts
and redundancy payments

4c Employees ave statutory rig ts regarding ow t ey can be asked to leave t eir

employment

4c Employees enjoy a range of additional benefits, w ic can vary according to t e

employer, but mig t include company cars, private ealt insurance, staff canteens, ealt
clubs and gyms and so on

4c Employees are not personally liable for any errors t ey make w en completing work for
t eir employer, nor are t ey expected to make good in t eir own time.

T ere is also a relations ip between an employee and employer called µmutuality of

obligation¶, often referred to in s ort and as µMOO¶. Mutuality of obligation is one of t e key
tests of employment status and w et er a contract is inside or outside of IR35.
Mutuality of obligation means t at an employer is obliged to provide work for an employee,
and t e employee is obliged to complete t e work. uit in t e scope of t eir job description,
employees ave to complete t e work t at µcomes down t e pipe¶, w ic is one of t eir
fundamental distinctions from a contractor.

If t e employee fails to fulfil t eir obligations, t e employer can take action t at may
ultimately result in t e employee¶s dismissal. Similarly, if t e employer does not fulfil t eir
obligation to t e employee, t e employee can take action t at mig t result in an industrial
tribunal.

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Contract of Employment: Contract of Service, Contract for Service & Termination

&c $&c'()*+,)'*,50.()c,'()*+,)c-'*c2.*/0,.2c

Contractors ave a contract for services wit t eir client or agency. Or to be more precise, t e
contractor¶s limited company or |mbrella Company as a contract of service wit t e client
or agency.

A contract for services is a strictly business to business contract between two firms on a buyer
and supplier basis. T e client, or agency, is a buyer and t e contractor¶s limited company or
|mbrella Company is t e supplier. T ere is no question of any employment relations ip.

Contractor¶s companies t at enter into a contract for services wit anot er organization
(including public sector organizations or not-for-profit companies) ave clear rig ts and
obligations.

T e key rig ts, obligations and responsibilities t at a contractor¶s limited company or

|mbrella Company as under a contract for services include:

4c A requirement to supply services to t e client according to t e contract sc edule¶s

specification

4c A requirement to complete t e project, and any milestones, according to t e contract

sc edule

4c A requirement to provide services to t e standard required by t e client as agreed in t e

contract

4c An obligation to make rig t any errors or defective work, wit out additional remuneration

4c Yiability for any errors or defects in work completed for clients, and t is may expand to
personal liability (assuming t e contractor is a director) for worst-case scenarios, suc as
corporate manslaug ter

4c T e rig t to be paid t e rate agreed in t e contract, assuming t e services ave been

provided according to t e contract¶s requirements

4c T e rig t to be paid according to t e terms agreed, suc as wit in 7 days, or 30 days

depending on t e terms agreed in t e contract

4c T e rig t to provide a substitute to complete t e work specified in t e contract

4c Often t e contractor is required to abide by any ealt and safety and security
arrangements w en working on t e client¶s site

4c T e client is obliged to provide a safe working environment for t e contractor.

As directors of t eir own limited companies, contractors also ave a range of duties,
responsibilities and potential liabilities under company law, w ic employees do not ave.

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Contract of Employment: Contract of Service, Contract for Service & Termination

If eit er party fails to fulfill t eir obligations under t e terms of t e contract, t ey are in
breac of contract and can take legal action to remedy t e situation.

In effect, t e relations ip between a contractor¶s limited company or |mbrella Company and

t e client or agency is no different from a major international corporation¶s relations ip wit
its suppliers.

Contractors w o are aware of t e full range of issues surrounding contracts of service and
contracts for service are in a muc better position to judge w et er t eir employment status is
affected by IR35, and can seek professional assistance accordingly.

u y is t e distinction important? T is is because only employees/workers (t ose employed

under a contract of service) get t e protections of employment legislation. T is includes wider
protection suc as compensation under workers compensation acts and protection under
occupational ealt and safety legislation.

&c
4450,+75.c.2)c
u en a dispute in a work relations ip results in court action, t e courts will establis t e
existence of a contract of service before t ey consider t e specifics of a case. T e courts do
t is by applying common law µemployment¶ tests, as mentioned below.

½
c³Control´ Test
It is t e "degree of control" exercised by t e employer over t e work performed by t e
employee. T is test was first introduced by t e court in ›

 
4 

 



 
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›
. In t e first
instance, t e court investigates if t e user of labor as t e µrig t to control¶ t e worker.
T ey will look at t e work relations ip for indicators of control.

F ts

Ready Mixed Concrete (Sout East) Ytd (³RMC´) was in t e business of making and
selling ready mixed concrete. T e company ad engaged an independent aulage
contractor to deliver t e concrete to customers but t at contract was terminated and
RMC decided to introduce a sc eme w ereby concrete was delivered by owner-drivers
working under written contracts.

T e owner-drivers entered into a ire purc ase agreement wit Ready Mix Finance
Ytd to purc ase a lorry but t e mixing equipment on t e lorry was t e company¶s
property. In 1965 t e company asked t e Minister of Social Security for a
determination of t e employment status of one of t e owner- drivers, Mr Yatimer.

c
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Contract of Employment: Contract of Service, Contract for Service & Termination

Ôeson

T e Minister decided t at Mr Yatimer was employed under a contract of service but,

on appeal to t e Hig Court, MacKenna J eld t at e was running a business of is
own. In summing up MacKenna J said t at Mr Yatimer was a ³small business man´
and not a servant. He concluded t at t e contract was not one of service but of
carriage.

u et er t e relations ip between t e parties to a contract is t at of master and servant

is a conclusion of law dependent upon t e provisions of t e contract. If t e...
contract... is t at of master and servant, it is irrelevant t at t e parties w o made t e
contract would ave preferred a different conclusion.´

In t e first instance, t e courts investigate if t e user of labour as t e 'rig t to control'

t e worker. T ey will look at t e work relations ip for indicators of control.

It was eld in a 

4 4
4



44 
a4!
 [1909] 2 KB 820 t at
nurses working in t e operation t eatre were not employees of t e ospital because
t ey took t eir orders from t e operating surgeon and not t e ospital aut orities,
alt oug t ey were employees of t e ospital for general purposes.

For t e case of Yian Ann Yorry Transport & Forwarding Sdn. B d. v Gonvidasamy
([1982] 2 MYJ 232), t e brief relevant facts of t is case are as follows:

T e respondent in t is case was employed on a daily rate wage of RM15 a day and
ad only sereved t e appellants 3 days. As t e result of t e accident w ic occurred on
t e fourt day of is employment, e became incapacitated and ad to cease
employment. According to t e appellant¶s managing director, t e respondent was put
on a daily rated wage because e was a new employee and ad e been treated as a
permanent employee on a fixed mont ly wage of RM90 per mont plus commissions
based on t e tonnage of goods transported by im.

Salle Abbas FJ stated t at:

³in our view, t e duration and nature of t e employment, be it temporary or

permanent, is immaterial for t e purpose of determining t e existence of a contract of
service. As long as t ere exists a relations ip of a master and servant or t at of an
employer and employee, t e law will infer a contract of service or t e employment is
intended by t e person in a position of master to be temporary or of a s ort duration
only. And t e law will imply t e existence of suc relations ip w ere a person is ired
by anot er as an integral part of t e latter¶s business. ( He referred to Stevenson Jordan
and Harrison Ytd v Mcdonald and Evans (1952) 1 TYR 101,111 and Ready Mixed
Concrete (Sout East) Ytd v Minister of àensions and National Insurance (1968) 2 QB
497,524). T e judge stated furt er t at. ³t e circumstances of t is case clearly s ow

¢c
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Contract of Employment: Contract of Service, Contract for Service & Termination

t at t ere was a contract of service between t e appellants and t e respondent because

t e respondent was employed as a part of t e appellant¶s transport business; t e term
of t e employment being t at t e respondent was placed on a temporary basis at a
daily wage of RM15 per day until e would eventually be absorbed into permanent
service or ot erwise ave t is employment terminated. T us, clearly t e respondent
was an employee.´

Next, we examine t e following Federal Court case: Ho Kiang Ngan v Ma kama

àerusa aan Malaysia & Anor (1995) 3 MYJ 369. T e relevant brief fact of t e case is
as follow:

T e appellent was employed by Dorf Industries àty Ytd (µDorf¶) as t e general

manager of its Malaysian company in 1977. In 1983, Dorf was taken by t e
respondent w ic continued to employed t e appellant under a fres agreement. T e
appellent was later promoted as t e group general manager of t e respondent¶s group
of company. However, in 1987, t e respondent broug t a c arge of misconduct aganst
t e appellant, w o was subsequently dismissed following a domestic inquiry. T e
appellant lodged a complaint under s 20(1) of t e Industrial Relations Act 1967 (µt e
Act¶) w ic was t en referred by t e Minister to t e Industrial Court for adjudication.
Before earing t e case on its merits, t e Industrial Court dealt wit t e preliminary
issue as to w et er t e appellant came wit in t e statutory definition of µworkmen¶
appearing in section 2 of t e act. T e court ruled t at t e appellant was a workmen
wit in t e Act and made an award in is favour. T e respondent t en soug t an order
of pro ibition in t e Hig Court to restrain furt er conduct of t e appellant¶s before
t e Industrial Court on t e ground t at t e appellant was not a workmen. T e
respondent¶s counsel furt er complained t at t e Industrial Court ad failed to make a
proper assessment of t e evidence and ad given wrong reasons fpr t e conclusion it
arrived at in t is case. T e Hig Court judge eld t at t e Industrial Court ad
committed an error of law in ruling t at t e appellant was a workmen and t us issued
an order of pro ibition restraining t e Industrial Court from earing t e appellant¶s
complaint on its merits. T e appellant appealed. In allowing t e appeal, t e Federal
Court stated inter alia,

(1)cu en ascertaining t e meaning of t e term µworkmen¶, it is important to bear in

mind t e nature of a legislation in w ic it appears so t at t e construction given
truly reflects t e collective will of àarliament. It is well settled t at t e Act is a
piece of beneficent social legislation by w ic àarliament intends t e prevention
and speedy resolution of disputes between employers and t eir workmen. In
accordance wit well-settled canons of construction, suc legislation must receive
a liberal and not a restricted interpretation. T us, t e expression µworkmen¶
appearing in t e Act s ould be liberally interpreted.
(2)cAs t e word µworkmen¶ is defined in t e Act, it is not permissible to ascribe to it
its common and ordinary meaning. T e fact t at t e definition ad been left
unamended despite several amendments made to t e Act, points to t e conclusion

c
c
Contract of Employment: Contract of Service, Contract for Service & Termination

t at àarliament intended to keep t e definition of µworkmen¶ flexible, wit a view

of being work out on a cases by case basis.
(3)cT e flexible and correct approac to determine w et er a claimant is a workmen
under t e Act is to ascertain w et er t e contract is one of service or for services.
A workmen under t e Act is one w o is engaged under a contract of service
w ereas an independent contractor engaged under a contract for services is not.
(4)cu ere it is necessary to determine w et er a contract is one of service or for
services, t e degree of control w ic an employer exercises over a claimant is an
important factor, alt oug not t e sole criterion. T e terms of t e contract between
t e parties must first be ascertained to determine t e nature of t e claimant¶s duties
and functions. However, in a majority of cases, t ere are facts w ic s ow t e
nature, degree and extent of control, and t ese include t e conduct of t e parties at
all relevant times.

In  !4 
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 [1968] 1
MYJ 236, t e Court of Appeal up eld t e decision of t e Hig Court t at s op
managers were employees of Bata due to t e considerable control w ic t e company
ad over t e s op managers.

However t ere was no relations ip of employer and employee between t e Bata S oe

Co. (M) Ytd and t e salesmen employed by t e s op managers of t e company. |nder
t e agreement between t e company and t e managers, t e managers were given
power to employ persons to assist t em and it was stated t at t e managers would be
responsible for payments under t e Employment àrovident Fund Ordinance. In t is
case, t e court states t at t e ³employee´ and ³employer´, in bot of w ic t e
essential feature is a ³contract of service´. u et er or not t ere was a contract of
service and between w o is a pure question of fact.

T e five tests are simply t ere to elp t e court to determine t e answer to t e

µfundamental test¶. As suc t eir application is really a matter of common sense.

½
cltF tor l Test

Anot er test will be applied by t e court is known as ³multi-factorial´ test. T is test
also includes t e met od of payment (payment on a commission basis is indicative of
self-employment) and t e payment of sickness and oliday pay (w ic indicates t e
existence of contract of service).

T e first case in w ic t is test was applied is Market Investigation v Minister of

Social Security (1969) 2 QB 173. As expressed in 



t e fundamental test to be applied is t is: ³Is t e person w o as engaged imself to

perform t ese services performing t em as a person in business on is own account?´
If t e answer to t at question is ³yes´ t en t e contract is a contract for services. If t e
answer is ³no´ t en t e contract is a contract of service.

ïc
c
Contract of Employment: Contract of Service, Contract for Service & Termination

It is also important to remember t at ³multi-factorial´ test also includes:

a)c T e met od of payment (payment on a commission basis is indicative of self-

employment); and
b)c T e payment of sickness and oliday pay (w ic indicates t e existence of
contract of service)

½
c ntegr ton Test

T e µintegration test¶ seeks to test if t e worker is 'part and parcel' of t e business

organization, and also involves study of eac and every specific situation. It test eit er
t e work being performed under t e contract integral to t e operation of t e business
structure as a w ole, or is it only work on t e side of t e main business.

T is test was decisive in t e below case:

In
  4
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 [1952] 1 TYR
101, a case on copyrig t, Denning YJ said t at:

"[T is case] raises t e troublesome question of t e distinction between a contract of

service and a contract for services. T e test usually applied is w et er t e employer
as t e rig t to control t e manner of doing t e work.

It is often easy to recognize a contract of service w en you see it, but difficult to say
w erein t e distinction lies... One feature w ic seems to run t roug t e instances is
t at, under a contract of service, a man is employed as part of t e business, and is
work is done as an integral part of t e business; w ereas, under a contract for services,
is work, alt oug done for t e business, is not integrated into it but is only accessory
to it"¶

Yord Denning gave t e illustrative comparison between t e captain of a s ip (an

employee of t e s ip-owners) and t e pilot w o boards t e s ip only to take it safely
into arbour (an essential service but not one w ic makes t e pilot an integral part of
t e s ipowners¶ business).

|nfortunately most situations w ere t e status of t e worker is an issue do not provide

suc clear cut differences. As a result t e µintegration test¶ as not played a large part
in t e evolution of t e law on t is matter.

T e test was employed by uan Suleiman FJ in  !4 
4 
"
4






%
4
 [1975] 2 MYJ 89. In t is case, t e Federal Court found t at working
assistants w o conducted and managed t e business of M S Ally &Co Ytd and were
rewarded by a s are of t e profits were employees of M S Ally as, inter alia, t ere was
a sufficiency of control over t e working assistants.

rc
c
Contract of Employment: Contract of Service, Contract for Service & Termination

Quoted to t e case of Employees àrovident Fund Board v MS Ally & Co Ytd [1975] 2
MYJ 89, in t is contention t at compensation was not wages for t e purpose of t e
Employees àrovident Fund (EàF) Act. It can clearly be distinguis ed t at in t is case
t e payment on w ic EàF contributions were based were s ares of profits w ic t e
Federal Court eld were not wages.

½
c
onom Re lty or
ntreprener Test

T e µeconomic reality test¶ focuses on t e inconsistency of seeking a profit from doing

t e work wit doing t e work as an employee.

T e idea underpinning t e development of t is "test" was t at it was not enoug to

establis t e degree of control exercised by t e employer over t e worker.

u at really distinguis es employees from independent contractors, it was said in a

number of cases, is t at t e independent contractor is working in t e ope of making a
profit rat er t an merely for a wage or salary.

In 
& 
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4


 
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 [1969] 2 uYR 1 Cooke YJ
came close to assigning primacy to t e economic reality test. But e did recognize t at
ot er tests mig t be more relevant or decisive in particular circumstances.

T is test offers real advantages w ere t e employer and worker ave dressed up a
master/servant relations ip in t e garb of a contract for services (usually to secure t e
tax advantages w ic accrue to self-employed persons).

T e usefulness of t e "working for profit?" test became most apparent in dealing wit
cases w ic involved t e µlump¶. T e µlump¶ was t e term used to c aracterize t e
common practice in t e construction industry of iring workers as µlabour-only sub-
contractors¶.

T is is t e one way of deciding w et er a person is self employed is to ask w et er e

can be said to be running a business of is own. In ot er words, t e only t ing t e
worker broug t to t e performance of t e job was is own skill and effort.

According to t e Yee Swee Seng (see

www.leesweeseng.com/newsletter05.asp12.11.2007), alt oug it is now widely
accepted t at t e first test to apply is t e economic reality test, it may be t at t e
circumstances of t e worker w ose case is at and also require t e application of a
furt er test, namely t e µmutual obligation test¶.

ðc
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Contract of Employment: Contract of Service, Contract for Service & Termination

½e
c t l Olg ton Test

It is said t at t e relations ip of employer and employee cannot exist unless t e

employer perceives and acts on an obligation to supply work; and t e worker feels
obliged to undertake any work offered.

Mutuality of obligation ± w et er t e employer feels obliged/compels to offer work

and t e worker feels obliged to take it w en offered - can be an important question
w ere casual working is involved. Bot parties to t e contract ave obligations to eac
ot er, t e employee to perform work as directed, t e employer to pay for t e work
performed.

Two questions arise about casual workers:

1.c Are t ey working in a contract for services or a contract of service?

2.c Does eac period of work stand separate from all t e ot ers - i.e. is eac spell of
work performed under a new contract? Or can all t e periods of work be said to
ave been performed under one global contract? T e answer to t is question can
be important in determining continuity of service.

þ c
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Contract of Employment: Contract of Service, Contract for Service & Termination

&c345'63.()c
.5+)0'(2804c

&c '*3c'-c'()*+,)c
Terms n Con tons n Contr t of Serve
A contract of service may be oral or in writing, but under Rule 5(b) and 8 Employment
Regulations 1957 t e following terms must be given to an employee in writing on or before
t e commencement of is employment:
a)c Name of employee and National Registration Identification Card No;
b)c Occupation or appointment;
c)c uage rates (excluding ot er allowances);
d)c Ot er allowances payable and rates;
e)c Rates for overtime work;
f)c 0t er benefits (including approved amenities and services);
g)c Agreed normal ours of work per day;
)c Agreed period of notice of termination of employment or wages in lieu;.
i)c Number of days of entitlement to olidays and annual leave wit pay; and
j)c Duration of wage period

Ot er optional clauses:
a)c Transferability
b)c Retrenc ment benefit
c)c Confidentiality clause
d)c Restraint of trade clause

àro ibitions in t e terms:

Èc Term in t e contract of service cannot be less favorable t an t ose prescribed under
t e provisions of t e Employment Act.[s. 7EA]
Èc A contract of service must not restrict t e rig ts of an employee to join, participate in
t e activities or in t e organizing of a trade union. [s. 8EA]

Terms and Conditions in Contract for Services

Èc T e following are some of t e terms and conditions in contracts for services (source
from Her Majesty Treasury) ( ttp://www. m-
treasury.gov.uk/About/about_procurement/about_procurement_service.cfm)
Èc Contractor¶s Status (àrincipal)
Èc Manner of carrying out t e Services
Èc Standard of uork
Èc Remedies in t e event of inadequate performance
Èc Oariation of t e Service
Èc Contractor¶s àersonnel
Èc àurc ases on be alf of t e Client
Èc Access to Client¶s àremises

þþc
c
Contract of Employment: Contract of Service, Contract for Service & Termination

Èc Yicence to occupy Client¶s àremises

Èc Offers of Employment
Èc Conflict of Interest
Èc àrogramme of uork and co-ordination
Èc Security of Confidential Information
Èc àrofessional Indemnity

.*/0,../.5c+9*..3.()c

T e following terms are particular in a Service-Yevel agreement:

Èc Confidentiality
Èc Termination clause
Èc Types of service provided
Èc Turnaround time
Èc Fees

Most employment contracts ave common elements suc as t e employee's start date, salary,
and benefits. Ot er provisions t at often appear in employment contracts are listed ere, so
t at you can t ink about w at kind of employment contract is agreeable to you before you
sign your next employment agreement. An employment law attorney can advise you about t e
pros and cons of agreeing to t e various provisions, and may also suggest ot er terms to
include.

1. CONFIDENTIAYITY AGREEMENT. An employee confidentiality agreement is a

contract (or part of a contract) in w ic t e employee promises not to s are any information
about t e details of t e employer's business or t e employer's secret processes, plans,
formulas, data, or mac inery. |sually a confidentiality agreement lasts even after t e
employee no longer works for t e employer.

2. NONCOMàETITION AGREEMENT. In t e noncompetition clause, t e employee agrees

t at for a certain amount of time after e or s e stops working for t e employer, t e employee
will not become employed by a rival company or any company engaged in a similar type of
business, and t e employee will not set up a company t at will compete wit t e employer's
business (or solicit t e employer's customers). |sually t e noncompetition clause is limited to
a particular geograp ic area.

3. OuNERSHIà OF INOENTIONS. T is provision applies to employees w o invent t ings

as part of t eir jobs. In t is part of t e contract t e employee agrees t at anyt ing e or s e
invents at work (or during a set period of time after termination) becomes t e employer's
invention, not t e employee's own invention. Additionally, employees usually agree to assign
t eir inventions to t e employer, cooperate wit t e employer in getting inventions patented,
and keep information about t e invention confidential like any ot er trade secret. In return,
sometimes t e employer agrees to s are wit employee-inventors a percentage of t e royalties
paid for inventions.

þOc
c
Contract of Employment: Contract of Service, Contract for Service & Termination

4. BEST EFFORTS. Alt oug it is often just assumed t at t e employee will work ard for
t e employer, sometimes employers add a best-efforts provision to t e employment contract.
It states t at t e employee promises to work to t e best of is or er ability, and to be loyal to
t e employer. Sometimes it also states t at t e employee specifically agrees to make
suggestions and recommendations to t e employer t at will be of benefit to t e company.

5. EXCY|SIOE EMàYOYMENT. In t is provision, t e employee promises t at as long as

e or s e works for t e company t e employee will not work for anyone else in t e same or
similar type of business. It may also extend to a promise not to be a s are older or director in
a similar business, or even to provide services voluntarily to a competitor business.

6. NO ADDITIONAY COMàENSATION. T e "no additional compensation" clause states

t at if t e employee becomes an elected director or officer of t e company or serves on a
company managing committee, t e employee will not be entitled to additional compensation
for doing t at work.

7. NO A|THORITY TO CONTRACT. Sometimes t is part of t e contract is called t e

"agency" provision. It makes clear t at t e employer and employee ave an employment
relations ip only, not an agency relations ip; t e employee as no rig t to enter into a
contract or ot erwise obligate t e employer, unless t e employer gives express written
consent to do so.

8. TERMINATION. A standard part of any employment contract is t e "termination" clause.

It states t at eit er party may terminate t e employment contract for any reason by giving a
certain amount of notice, suc as two weeks' notice. It may also give t e employer t e rig t
to just terminate t e contract wit out notice if t e employee violates t e contract in any way.
Anot er aspect of t e termination clause is a statement t at t e employer as t e rig t to
terminate t e contract if t e employee becomes permanently disabled because of ill ealt or
p ysical or mental disability suc t at t e employee can no longer do t e job.

9. ARBITRATION. Arbitration clauses are found in many types of contracts, including

employment contracts. In t is provision, t e parties agree at t e onset of t e relations ip t at,
if t ey ever ave a dispute about any aspect of t e employment relations ip, t ey will submit
t at dispute to arbitration rat er t an seek resolution by a court of law. T e "arbitration"
clause may include details about t e arbitration, suc as w et er t e arbitration decision will
be binding and ow t e parties will find an arbitrator w en t e time comes.

10. CHOICE OF YAu. Employment laws vary from state to state. Some states ave laws
t at are generally viewed as more favorable or beneficial to employers t an employees, or
vice versa. T e "c oice of law" provision in an employment contract is an agreement t at, if
t e parties ever ave a dispute t at results in a lawsuit, t e laws of a particular state will
govern it, no matter w ere t e lawsuit itself is filed.

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Contract of Employment: Contract of Service, Contract for Service & Termination

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T ere are four ways in w ic a contract of employment may come to an end:

1)c Resignation - termination wit /wit out notice on t e part of t e employee, due to t e
cause t at t e employer by is or er conduct, in breac of t e contract, as s own an
intention not to be bound by t e contract ;

2)c Dismissal ± termination wit /wit out notice by t e employer. u ere a contract of service
is considered broken, an employer can dismiss an employee.

A contract of service is considered to ave been broken w en an employee as been

absent from work for more t an 2 consecutive working days wit out prior leave from t e
employer or wit out informing or attempting to inform t e employer at t e earliest
opportunity during suc absence wit reasonable excuse.

An employee as t e rig t to terminate t e contract of service, w ere an employer fails to

pay wages wit in seven days after t e wages period.

A contract of service can also be terminated wit out notice :

-c by paying to t e ot er party or indemnity in lieu of notice

-c if t ere is a willful breac by t e ot er party of a term or condition of t e contract
of service

u ere t e contract of service as expired or work being completed, t e contract may also
be terminated. uritten notice being given by eit er party may also terminates a contract of
service.

An employer may terminate t e contract of service w ere t e employee is found guilty of

misconduct, misdemeanor or negligence.

3)c Expiry of fixed term employment - A limited-term contract is a contract for a fixed term
or t e performance of a specific task, or one w ic ends w en a specified event does or
does not occur.

4)c Mutual agreement to terminate employment.

þc
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Contract of Employment: Contract of Service, Contract for Service & Termination

½
c Seton 12: Note of Termn ton of Contr t

(1) Eit er party to a contract of service may at any time give to t e ot er party notice of is
intention to terminate suc contract of service.

(2) T e lengt of suc notice s all be t e same for bot employer and employee and s all be
determined by a provision made in writing for suc notice in t e term of t e contract of
service, or, in t e absence of suc provision in writing, s all not be less t an:

(a) four weeks' notice if t e employee as been so employed for less t an two years on t e
date on w ic t e notice is given;

(b) six weeks' notice if e as been so employed for two years or more but less t an five years
on suc date;

(c) eig t weeks' notice if t e as been so employed for five years or more on suc date;
provided t at t is section s all not be taken to prevent eit er party from waiving is rig t to a
notice under t is subsection.

(3) Notwit standing anyt ing contained in subsection (2), w ere t e termination of service of
t e employee is attributable w olly or mainly to t e fact t at:

(a) t e employer as ceased, or intends to cease to carry on t e business for t e purposes of

w ic t e employee was employed;

(b) t e employer as ceased or intends to cease to carry on t e business in t e place at w ic

t e employee was contracted to work;

(c ) t e requirements of t at business for t e employee to carry out work of a particular kind

ave ceased or diminis ed or are expected to cease or diminis ;

(d) t e requirements of t at business for t e employee to carry out work of a particular kind in
t e place at w ic e was contracted to work ave ceased or diminis ed or are expected to
cease or diminis ;

(e) t e employee as refused to accept is transfer to any ot er place of employment, unless

is contract of service requires im to accept suc transfer; or

(f) a c ange as occurred in t e owners ip of t e business for t e purpose of w ic an

employee is employed or of a part of suc business, regardless of w et er t e c ange occurs
by virtue of a sale or ot er disposition or by operation of law;

t e employee s all be entitled to, and t e employer s all give to t e employee, notice of
termination of service, and t e lengt of suc notice s all be not less t an t at provided under

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Contract of Employment: Contract of Service, Contract for Service & Termination

subsection (2)(a), (b) or (c ), as t e case may be, regardless of anyt ing to t e contrary
contained in t e contract of service.

(4) Suc notice s all be written and may be given at any time, and t e day on w ic t e notice
is given s all be included in t e period of t e notice.

.2,*04)0'(c

An employee may resign by giving notice of resignation or termination to t e employer to

terminate t e contract of service. An employer may also dismiss an employee by giving
notice of termination to suc employee. In bot situation, t e lengt of notice s all be t e
same pursuant to t e contract of service.

u ere t e period of notice of termination is not specified in t e contract of service, t e notice

period s all be as follows :

×c less t an 2 years of service - minimum 4 weeks

×c 2 years or more but less t an 5 years of service - minimum 6 weeks
×c 5 years of service or more - minimum 8 weeks

u ere t e contract of service as expired or work being completed, t e contract may also be
terminated. uritten notice being given by eit er party may also terminates a contract of
service.

½
cSeton 13: termn ton wthot note

(1) Eit er party to a contract of service may terminate suc contract of service wit out notice
or, if notice as already been given in accordance wit section 12, wit out waiting for t e
expiry of t at notice, by paying to t e ot er party an indemnity of a sum equal to t e amount
of wages w ic would ave accrued to t e employee during t e term of suc notice or during
t e unexpired term of suc notice.

(2) Eit er party to a contract of service may terminate suc contract of service wit out notice
in t e event of any wilful breac by t e ot er party of a condition of t e contract of service.

.2,*04)0'(c
A contract of service can also be terminated wit out notice :
-c by paying to t e ot er party or indemnity in lieu of notice
-c if t ere is a willful breac by t e ot er party of a term or condition of t e contract of
service

u ere you are a female employee and your employer is found guilty of terminating you
during your maternity leave, your employer s all be liable, on convictio n to a fine not
exceeding RM2,000.

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Contract of Employment: Contract of Service, Contract for Service & Termination

½
Seton 14: termn ton of ontr t for spe l re sons

(1) An employer may, on t e grounds of misconduct inconsistent wit t e fulfilment of t e

express or implied conditions of is service, after due inquiry --

Èc (a) dismiss wit out notice t e employee;

Èc (b) downgrade t e employee; or
Èc (c) impose any ot er lesser punis ment as e deems just and fit, and w ere a
punis ment of suspension wit out wages is imposed, it s all not exceed a period of
two weeks.

(2) For t e purposes of an inquiry under subsection (1), t e employer may suspend t e
employee from work for a period not exceeding two weeks but s all pay im not less t an
alf is wages for suc period:

àrovided t at if inquiry does not disclose any misconduct on t e part of t e employee t e

employer s all fort wit restore to t e employee t e full amount of wages so wit eld.

(3) An employee may terminate is contract of service wit is employer wit out notice
w ere e or is dependants are immediately t reatened by danger to t e person by violence or
disease suc as suc employee did not by is contract of service undertake to run.

.2,*04)0'(c

u ere an employee is found guilty of misconduct by an employer, t e employer may take t e

following actions :

×c Dismiss wit out notice t e employee

×c downgrade t e employee
×c impose any ot er lesser punis ment as t e employer considers just and fit

½v
cSeton 15: when ontr t s eeme to e roken y employer n employee

(1) An employer s all be deemed to ave broken is contract of service wit t e employee if
e fails to pay wages in accordance wit àart III.

(2) An employee s all be deemed to ave broken is contract of service wit t e employer if
e as been continuously absent from work for more t an two consecutive working days
wit out prior leave from is employer, unless e as a reasonable excuse for suc absence
and as informed or attempted to inform is employer of suc excuse prior to or at t e earliest
opportunity during suc absence.

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Contract of Employment: Contract of Service, Contract for Service & Termination

.2,*04)0'(c

An employee as t e rig t to terminate t e contract of service, w ere an employer fails to pay

wages wit in seven days after t e wages period.

u ere a contract of service is considered broken, an employer can dismiss an employee. A

contract of service is considered to ave been broken w en an employee as been absent from
work for more t an 2 consecutive working days wit out prior leave from t e employer or
wit out informing or attempting to inform t e employer at t e earliest opportunity during
suc absence wit reasonable excuse.

  c

Courts ave applied t e tests of control, integration and multiple or mixed. T e control test
simply asks t e question can t e employer tell t e employee w at to do? In ot er words, is t e
employee under t e control of t e employer?

T e integration test asks to w at extent is t e employee¶s work integrated into t e business.

Someone broug t in on contract to repair or maintain plant or premises may not be integrated
in any way into normal operations.

T e multiple or mixed test asks a series of questions suc as are t ere wages, sick pay and
oliday pay? If t ere are, w o pays t em? Are àAYE and àRSI deducted? Does t e worker
s are in t e company¶s profits and losses? u o provides t e tools and equipment for t e job?
Is t e employer entitled to exclusive service from t e employee? A court¶s interpretation will
not necessarily depend upon w at it says in t e contract ± labels will t emselves not
determine t e matter, t e courts will decide. In s ort, is t is a case of genuine self-
employment or an attempt by an employer to avoid protective legislation?

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Èc ttp://www.leesweeseng.com/newsletter05.asp
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