The question often arises as to whether an employee on a fixed term contract is in reality, a permanent employee. Employers may hire employees on a fixed term basis when there is a genuine need to do so. Upon the expiry of the contract, the employment naturally ends by itself and this is not considered a dismissal.
However, when there are successive renewals of a fixed term contract over a prolonged period, a dispute can arise when the contract is not renewed. The employee will usually argue that they are in principle a permanent employee, and therefore the non-renewal amounts to an unfair dismissal.
The Court of Appeal in A Gilbert D’Cruz v Sapuraacergy Sdn Bhd & Anor  MLJU 2010 recently dealt with this issue.
- The Employee started his employment with the Company on a fixed term contract which stipulated the contract may be extended upon discretion.
- The said contract was renewed 4 times before its expiry, followed by 3 further renewals, where the period of employment was backdated.
- When the Employee’s contract was not renewed, the Employee claimed unfair dismissal as he viewed himself as a permanent employee.
- The Industrial Court held that the contract was a genuine fixed term contract and dismissed the complaint of unfair dismissal.
- The High Court upheld the Industrial Court award on judicial review.
- Dissatisfied, the Employee appealed to the Court of Appeal.
Court of Appeal’s Findings
The Court of Appeal reversed the High Court’s order and quashed the Industrial Court’s award:
- The Employee is a permanent employee of the Company and the contract of employment is not a genuine fixed term contract. The Employee’s contract of employment was renewed continuously and consecutively for 7 years.
- The renewal was done automatically by the Company without the need of the Employee to make any application. Although the period of renewal was not uniform, it was backdated and had successive effect.
- There was also a period of time of about 45 months where the Employee was allowed to continue his employment with no contract. To allow the Employee to continue working in the absence of a contract for such a long period shows that the Company had treated the Employee as its permanent employee, and there was no intention to comply with the fixed term contract.
- This was fortified by the Company’s top management emails which indicated an intention to convert the Employee into a permanent position. The emails showed that the Company required the Employee’s services and acknowledged that the Employee’s nature of employment was not temporary or project based. It was also not disputed that the Employee was not hired for one specific project but was involved in all the Company’s projects, locally and overseas.
- The matter was remitted back to the Industrial Court for an assessment of damages.
The Court of Appeal referred to the Federal Court case of Ahmad Zahri Mitzi Abdul Hamid v AIMS Cyberjaya Sdn Bhd  6 CLJ 557, which provided further guidance on when a fixed term employment contract will be found to be in reality a permanent contract.
The Court of Appeal’s decision reiterates the position that the courts can often look beyond the wordings of the fixed term contract to construe whether it is a permanent employment in disguise. Here, the conduct of the Company in managing the employment (eg: repeated, automatic renewals over a long period, and allowing the Employee to work without a contract for 45 months) led to it being construed as a permanent employment. E-mails between the Company’s management also fortified the impression that the Employee was never meant to be on a temporary or project-based employment.
An employer should be mindful not to place employees on fixed term contracts just because it seems like a good approach for risk mitigation. Evaluating whether the job is suitable for a fixed term (eg: temporary, or for a specific project) must be done before putting employees on a fixed term contract. Otherwise, the eventual non-renewal of the contract could cause hefty financial exposure at the Industrial Court if an unfair dismissal claim is filed.
This article was written by Donovan Cheah and Sue Lin Teh (Pupil-in-Chambers). Donovan has been named as a Recommended Lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018, 2019, 2020 and 2021, 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.