How Do You Tell If Someone is an Employee?
The Industrial Court in the recent case of Bu Yoon Lian v Meng Sin Corner (Award No. 1183 of 2021) reiterated the significance of the ‘control test’ or ‘contract of service test’ in determining whether an individual is an employee (i.e.: “workman”). Interpreting “workman” is a crucial as it will determine whether an individual may claim unfair dismissal.
- The company ran a traditional coffee shop known as “Meng Sin Corner” (“Company”) and it rented out stalls to hawkers who sell various kinds of food.
- The Claimant claimed that she was engaged as a Manager of the Company and that she was paid a monthly salary of RM3,100. She alleged she was to collect payments at the counter and opening the shop for business daily. The Claimant also collected monthly rent from stall owners and instructed them.
- The Company’s position was that the Claimant was a shareholder of the Company who was paid an allowance of RM3,100 a month to help run the coffee shop and manage cash payments.
- The relationship broke down and the Claimant sold her shares to the current sole shareholder of the Company. The Claimant handed over the keys to the coffee shop, left the premises and did not show up for work after that.
- The Claimant claimed that she was dismissed without just cause or excuse under Section 20 of the Industrial Relations Act 1967 (“the IRA”).
The main issue considered by the Industrial Court was whether the Claimant was a ‘workman’ within the definition Section 2 of the IRA, i.e. whether there was a contract of service between the Company and the Claimant.
The Industrial Court applied the “control test”:
- Determining the control exercised by the alleged employer, which is an important factor although it may not be the sole criterion.
- Ascertaining the terms between parties, whether in writing or inferred by conduct, to determine the Claimant’s duties and functions. This determination is a question of fact which goes to the nature, degree and extent of control, including but not limited to the conduct of the parties at all material times.
- Concluding based on the features of the engagement identified if the contract was a contract of service (employment relationship) or contract for services (no employment relationship).
The Industrial Court concluded that the Claimant was not a workman and no employment relationship existed:
- The Claimant did not request for an employment contract even after working for a year;
- The Claimant attended shareholder meetings and did not have to answer to the other shareholders of the Company;
- The Claimant had full authority and control over business decisions. For example, she changed the detergent used to mop the coffee shop floor even though it was objected to by the current sole shareholder.
- The Claimant could run the coffee shop without interference and imposed her own rules to be abided by the stall tenants.
- The Claimant informed the stall tenants that the Company belonged to her.
The Industrial Court therefore found that the Claimant was not an employee but a shareholder of the Company. The Company did not intend to create any employment relationship with the Claimant, and the conduct of parties showed that the Claimant was fully in control of the coffee shop. There was no evidence adduced to show any control exercised by the Company over the Claimant in her duties and responsibilities.
By statutory definition, only a workman (or employee) engaged under a contract of service may bring a claim of unfair dismissal under the IRA. An independent contractor engaged under a contract for services is not a workman and does not have the same legal rights.
In determining and what constitutes a contract of service, the Industrial Court will look beneath appearances to uncover the reality of whether there was an employer-employee relationship, or if the relationship was something else, e.g. a business partnership. Where there is no contract in writing, the courts will infer the terms which governed the relationship, from the conduct of parties.
While control is not the sole criterion in determining whether someone is an employee, this control test remains an important factor. Evidence of how parties behave or conduct themselves is crucial as this will be relied on by courts to show the degree and extent of control exercised by the parties in their relationship. The courts are less likely to categorise a claimant as an employee where he or she has freedom or authority over how his or her work is done.
Businesses engaging individuals on an independent contractor basis or on a non-employment related basis should look beyond their written agreements, and assess how they conduct themselves in practice. If an independent contractor is treated interchangeably with employees, granted the same rights and benefits, and imposed with the same duties and obligations, an employment relationship could unintentionally arise.
This article was written by Donovan Cheah and Adelyn Fang (Legal Manager). Donovan has been named as a recommended lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018, 2019 and 2020, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.
Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory. Have a question? Please contact us.