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Contract of Employment: Contract of Service, Contract for Service & Termination
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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.
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Contract of Employment: Contract of Service, Contract for Service & Termination
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T e key rig ts and responsibilities of employee status under a contract of service are:
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 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.
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
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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.
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 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
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.
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.
&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
4 44 . 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.
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Contract of Employment: Contract of Service, Contract for Service & Termination
Ôeson
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.
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Contract of Employment: Contract of Service, Contract for Service & Termination
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Contract of Employment: Contract of Service, Contract for Service & Termination
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Contract of Employment: Contract of Service, Contract for Service & Termination
In
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#4 a4 $4 [1952] 1 TYR
101, a case on copyrig t, Denning YJ said t at:
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"¶
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.
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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.
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onom Re lty or
ntreprener Test
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¶.
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Contract of Employment: Contract of Service, Contract for Service & Termination
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Contract of Employment: Contract of Service, Contract for Service & Termination
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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
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Contract of Employment: Contract of Service, Contract for Service & Termination
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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.
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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.
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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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.
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.
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.
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Contract of Employment: Contract of Service, Contract for Service & Termination
(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:
(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 ;
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
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.
(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
(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:
(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
(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
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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 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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Contract of Employment: Contract of Service, Contract for Service & Termination
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Retrieved from
Èc ttp://www.contractorcalculator.co.uk/difference_contract_for_services_of_services_i
r35.aspx
Èc www.paypers op.com/faq/,'()*+,). tml
Èc ttp://www.siptu.ie/YourRig ts/T|FGuideToYabourYaw/ContractofEmployment/Con
tractOfServiceandContractForService/
Èc ttp://www. bp.usm.my/aziz/Contract%20of%20Service. tm
Èc ttp://www.vanuatu.usp.ac.fj/Courses/la317_labour_law/YA317_topic2. tml
Èc ttp://www.leesweeseng.com/newsletter05.asp
Èc ttp://www.swarb.co.uk/lisc/Emplm19601969.p p
Èc ttp://www.lawyerment.com.my/library/doc/empl/fr/
Èc ttp://www.ipsofactoj.com/arc ive/1990/àart06/arc1990(6)-015. tm
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