EMPLOYMENT AND INDUSTRIAL LAW (BBUI3103)

BACHELOR OF HUMAN RESOURCE MANAGEMENTS

SEPTEMBER 2017

BBUI3103

EMPLOYMENT AND INDUSTRIAL LAW

MATRICULATION NO : 931118055046001
IDENTITY CARD NO. : 931118055046
TELEPHONE NO. : 013-6167517
E-MAIL : jamunaranisathasivam@gmail.com
LEARNING CENTRE : OPEN UNIVERSITY MALAYSIA
(SEREMBAN)

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TABLE OF CONTENTS

TITLE PAGES
1.0 Introduction On The Meaning Of
1.1 Contract Of Service and
2-3
1.2 Contract For Service
2.0 Control Test 4
3.0 Integration Test/Organizational Test 5

4.0 The Multiple Test/Mixed Test 6-7

5.0 Mutuality Of Obligation Test 8-9
.
6.0 View On The Most Practical Test For Organization 10-11
Supported With Two Justification (Multiple Test)
7.0 The Meaning Of Arbitration And 12-15
7.1 Labour Court
7.2 Industrial Court
8.0 Summary 16
9.0 References 17

1.0 INTRODUCTION
1.1 CONTRACT OF SERVICE

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A contract of service is an agreement in which the relationship between the

employer and employee is established on a contractual basis and consists of rights
and responsibilities. The agreement can be found in writing, verbal, expressed or
implied. It can be found in the form of a letter of appointment or an internship
agreement. When valid contract has been formed, and if any of the parties reject the
performance or breach the terms of the contract that have been mutually agreed upon,
the other innocent party can overturn the contract to claim damages.

In the context of Malaysian employment law, the Employment Act 1955 (EA1955) and
the Industrial Relations Act 1967 (IRA1967) illustrate that the employer and employee
relationship based on a conventional contractual relationship as provided for in the
common law. EA1955 identifies such a contractual relationship as a contract of
service, while IRA1967 identifies it as a contract of employment. However, both the
terminologies convey the similar meaning.

Section 2 (1) of the Malaysian Employment Act 1955 (EA 1955) gives a shallow
meaning and difference of a contract of service and a contract for service. "CONTRACT
OF SERVICE" means any agreement, whether oral or in writing and whether express or
implied, whereby one individual decides to hire another as an employee and that other
agrees to oblige his employer as an employee and comprises an traineeship contract. But
when we revise Regulation 8 of the Employment Regulation 1957 which states:
"Employer to provide certified copy of particulars under regulation 5(b)" of
specifics of terms and conditions of employment.

Whereas S.2 OF THE INDUSTRIAL RELATIONS ACT 1967(IRA1967) gives a

nebulous definition of contract of service; ‘‘Contract of service’’ means any agreement
that is entered into orally, in writing, expressly or impliedly, where a individual
agrees to hire another as an employee and the other individual agrees to oblige the
employer as an employee.

1.2 CONTRACT FOR SERVICES

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The contract for service is a legally binding agreement with an independent contractor
which gave no privileges as seen in a “contract of service”. Anyone who carries out
specific service under a contract is not consider as an employee and therefore, many
responsibilities enforced on employers by legislation can be evaded. The obligation to
pay workers working for the contractor lies with the contractor, and he is solely
accountable for his workers while on the company premises.

However, given the fact that the modern environment is moving away from the old-
fashioned notion of fortified employment to more flexible work arrangements, inferring
the employment relationship has become more difficult. The commitment of an
individuals on permanent term and part-time contracts is becoming the standard in the
employment ground. Numerous of tests can be applied to identify the contractual
relationship including:
1. The Control Test
2. The Integration Test
3. The Multiple Test
4. The Mutuality of Obligation Test

2.0 CONTROL TEST

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This test instigated from a judgment in 1880 in the case of. Yewens v Noakes 1880 6
QBD530 by Lord Justice Bramwell. The judge specified that the word ‘control’ as
whether the master controlled or had the right to control not only what the worker did but
also the manner in which he did it. The control test therefore faced criticism as an
outmoded test for two core reasons. Firstly, we have a more skilled workers than nearly
130 years ago, and many employees are expected to work without precise guidelines,
using their skill and knowledge. Secondly, an independent contractor could be told in
detail what to do if hired for a specific project.

In the Malaysian case of Cyhe Hin Co(Perak) V PP (1960), all the sawmill workers
made claims that the company did not make contributions to the EPF in accordance with
the Employees Provident Fund Ordinance 1951. In order to decide whether a company
has to contribute to the EPF, the court has to decide in advance whether the workers are
employees. If they are employees, then they are bound by the EPF Ordinance. The court
used the control test to decide the position of the staffs who made the claims. As a result,
the court decided that all the saws belonged to the company. So, the company did not
have control over the staffs because the staffs worked at a factory. However, the company
had the right to discard any wood that was wrongly sawn and also the right to terminate
the staffs mutually. Based on this, the court decided that the staffs were not employees as
per the contract of service. Thus, the company did not have any obligation to make
contributions to the EPF.

In the case of Bata Shoes Co (Malaysia) v Lembaga KWSP (1967), the plaintiff
company appointed a manager to manage the company. The company also requisite him
to employ workers. The terms of the contract were to be decided upon by the manager.
The foremost question was whether there is an existed employer-employee relationship
between the plaintiff company and the workers hired by the manager. The court decided
relationship did not exist. The manager was an employee of the company as the plaintiff
company had control over him. The others were in fact employees of the manager and not
the company.
3.0 INTEGRATION TEST

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The ‘integration test’ is a standard to differentiate whether or not a worker is

incorporated in the organization or if the work is part and portion of the company. The
integration also known as the organizational test. In this test the courts pursue if the
work done by the individual is a basic part of the organization. However, under a contract
for service, the individual's job is done for the organization, is not incorporated into the
business but is only an addition to it.

In the case of Stevenson v MacDonald (1952) 1 TLR 101 the judge, Lord Denning,
specified that ‘A person is an employee if that person is a basic part of the business.’
The integration test is useful than the control test because it overcomes the problem of
skillful individuals having control over their own work. Yet, it does not help us in the
example of the electrician. If the company is carrying out a restoration project,
completing the rewiring is a significant part of the complete process. If there is no other
electrician, the person who has been appointed could be seen as a ‘vital part of the
businesses’ (under Lord Denning’s ruling). This does not necessarily mean that he has
become an employee.

The integration test was engaged by Wan Sulaiman FJ in Employees Provident Fund
Board v MS Ally & Co Ltd.5 (1975). In this case, the Federal Court found that
working assistants who conducted and managed the business of M S Ally & Co Ltd and
were rewarded by a share of the profits were employees of M S Ally as, inter alia, there
was an abundance of control over the working assistants. Judge Sulaiman said that,
‘there are appropriate controls and the person interpreting assistance forms a part of the
organization and the work done is a vital part and not just an addition to the business.
They are employees of the company. Therefore, under the KWSP Ordinance 1951, the
contract entered into is a contract of service and not contract for services.’’

4.0 THE MULTIPLE TEST

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The multiple test is a more realistic test used to determine whether a service is an
employment contract of service or whether it is a commercial contract for service. This
test has shown the courts that it is unlikely to focus on one specific aspect of the working
relationship and to use that to decide whether or not there is an employment relationship.
By looking at the whole terms of the contract whether there are implied terms which
could be read into the said contract to establish it being in consistent with that of a
contract of service, since for an employment contract implied terms could be read into it.

In the case of Morren v Swinton Pendlebury Borough Council (1965), the factors
looked into by the courts include:
 Number of work hours
 Normal work hours
 Geographical limitation of work
 Skills and perception of society regarding the worker
 Methods of appointment and termination
 Types of wages
 Rights of ownership over the tools of trade
 Tax situation
In this case, the court considered all the factors concurrently and not separately.

This is illustrated in the following case of Ready Mixed Concrete v Minister of

Pensions (1968) ER 433. Ready Mixed Concrete (South East) Ltd (“RMC”) was in
the business of making and selling ready mixed concrete. RMC hired an independent
transport contractor to distribute the concrete to clients but that contract was terminated
and RMC introduced a scheme whereby concrete was distributed by owner-drivers
engaged under written contracts. The owner-drivers entered into a hire purchase
agreement with Ready mix Finance Ltd to buy a lorry but the mixing equipment on the
lorry was the company's property. In 1965 the company requested the Minister of Social
Security for the fortitude of the employment status of Mr. Latimer. Mr. Latimer’s written
contractual terms were incorporated but other facts were found.

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Thus, the Minister decided that Mr. Latimer was employed under a contract of service
but, on appeal to the High Court, MacKenna J said that Mr. Latimer was a “small
business man” and not a servant. Clarification in his judgment, MacKenna J said “A
contract of service exists if these 3 conditions are satisfied’’:

i. The servant agrees that, in consideration of a wage or other remuneration, he will

provide his own work and skill in the performance of some service for his master.
ii. He reach agreement, expressly or impliedly, that in the recital of that service he
will be subject to the other’s control in an adequate degree to make that other
master.
iii. The other provisions of the contract are consistent with its being a contract of
service.
The court found that the first two conditions were met. However, the third condition was
not met because there were factors inconsistent with a contract of employment, and on
that basis it was held that Mr. Latimer was self-employed.

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5.0 MUTUALITY OF OBLIGATION TEST

Mutuality of obligation test essentially looks at the relationship between the employer
and the employee. There are two points of mutuality to consider. Firstly, is there an
obligation to offer work (and an obligation to carry out that work)? Secondly, is there a
potential of forthcoming work (both [employer] and [employee])? This test absolutely
helps us to understand the meaning of an employee more clearly, but there are still some
complications.

The case Carmichael v National Power (2000) IRLR 43 helped us to inspect mutuality
of obligation test further. In this case Mrs. Carmichael and her colleague worked for part
time at a power station as visitor guides. There was some communication between the
ladies and National Power that the ladies depend on a contract of employment. The
relationship between the ladies and National Power was labelled as a ‘station guide on a
casual as-required basis.’ National Power had no obligation to offer them work and the
guides were free to accept or decline any work that was offered to them. It was also noted
that on 17 occasions, Mrs. Carmichael and her colleague was unable to work on 8
occasions. On none of these events had National Power taken any disciplinary action.
Therefore, the employment committee agreed that there was no employment relationship.
Eventually, the Court of Appeal overturned this decision. National Power appealed
against this decision and the House of Lords found in favour of the employer so the
relationship in this case was not one of the employer and employee.

A decision that seems to contrast with this is case of Cornwall County Council v Prater
(2006) EWCA Civ 102 by inspecting mutuality of obligation test. Prater was a teacher
working with children who were incapable to attend school. She worked under a
sequences of contracts, with no obligation to take a further contract once one had been
accomplished and the Council were under no obligation to offer her any forthcoming
contracts. There were some disruptions between contracts, but both parties accepted that
they would not be seen to break her continuity of employment if she were found to be an
employee. The Court of Appeal held that Prater was working under a sequences of

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contracts of employment and that they added together to give her adequate service to
ensue employment rights. They distinguished this case from Carmichael by stating that
the Carmichael case was determining whether there was an ‘umbrella’ contract that
amounted to employment rather than concentrating on the real status of Carmichael when
she was working. In the case of Prater, the focus was on her status when she was
actually working, and it was found that this status amounted to employment. In that
extent, the relationship has been in place might also be applicable.

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6.0 THE MOST PRACTICAL TEST

In my opinion, the most practical test for an organization are MULTIPLE TEST. This is
because the MULTIPLE TEST provides a broader meaning to the concepts used in the
integration and control tests. As time advanced the courts also enthused from using one
decisive factor to distinguish the employment status of an employee to a more flexible
test such as the multiple test. The courts will look at all the factors in the employment
relationship.The multiple test also known as the economic reality test. This test also
considers several factors in order to determine whether there is an employer and
employee relationship.

To define the employment status of the worker, the courts formed a series of tests which
assisted them in determining the status. The control test as used by the courts is important
in determining the control in the employment of a worker, the integration test which
looks at how important the worker is in the business to stand out. The control and the
integration test later was merged together to form the multiple test where all the factors
are considered in making the decision of whom an employee is.

The multiple test resultant from the case of Ready Mixed Concrete (South East) Ltd v
Ministry of Pensions and National Insurance 1968 by Justice McKenna. RMC
employed several lorry drivers, and the company discharged the drivers and allowed them
to purchase their Lorries. However, the contract between the defendant and the plaintiff
applied that they were independent contractors. As the courts looked at the terms of the
contract such as when the plaintiff was wearing the defendants' uniforms and the plaintiff
could find someone else to drive the lorry when he could not. Then the courts decided
that the plaintiffs were self-employed. Nevertheless, Mackenna J outlined 3
requirements for a contract of service to exist;

 The employer agrees to provide work in return for remuneration

 The employee agrees to control of the employer on him or her and

 The other terms of the contract are consistent with it being one of service.

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The suppleness of the multiple test has proved beneficial in cases such Lee v Lee Air
Farming ltd, where directors are worried. Mr. Lee had formed a company; Lee's Air
Farming Limited and held nearly all its shares. He was the managing director, but by
profession a pilot. The company was formed to conduct an aerial topdressing business.
He allotted himself as the chief pilot for the company. Thus, he became in upshot as both
employer and worker. In the Court of Appeal of New Zealand, North J said: "These
powers were moreover substituted to him for life and therefore, the company has no
power of management whatsoever. Factual, the contract of employment was between
himself and the company, but on him lay the duty both of giving orders and obeying them
It was then held that the relationship of employer-employee was not existed and when
Lee died on the aircraft, it was held that the widow could claim under workman’s
reimbursement.’’

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7.0 THE MEANING OF ARBITRATION

According to common law, Arbitration is a process whereby both sides to a dispute
agree to let a third party, the arbitrator, decide. The arbitrator could be a lawyer, or a
professional in the field of the dispute. He or she will make a decision conferring to the
law and the decision is legally binding without resorting to the courts of law. An
arbitration proceeding is usually held in private and it mixes both the adversarial and
inquisitorial methods.

Dispute can be resolute by any method that the parties would like to accept. At the early
stage, they may resolve the matter among themselves. If this fails, then the related
departments of the Ministry of Human Resources may be referred to, for examples the
Industrial Relations Department or Labour Department, liable on the natural of dispute.
These two mechanisms are called arbitration.

7.1 LABOUR COURT

Labour Court is an arbitrator that has been empowered under the Employment Act 1955.
The Labor Court is an administrative tribunal primarily established to resolve disputes
between employers and employees relating to breaches of the terms of employment
contract, including the payment of wages and other issues arising under the Employment
Act and its subsidiary regulations. The decisions of a Labor Court are not final and may
be appealed to the High Court. Any employee who wishes to bring the dispute to the
Labor Court must lodge a complaint to the Director General of Labor within 60 days
from the date of the act giving rise to the claim.

The Labour Court also is a quasi-judicial system that serves as an alternative to civil
claims. Its objective is to make available a labour justice system that is fair, simple, swift
and economical to resolve workers' demands regarding wages and other financial benefits
that can be claimed by them. For example, Labour cases must be concluded within one to
three months, depending on the complexity of the issues and legislation involved. To
achieve this, postponement of labour cases set for trial by any party is discouraged and
labour solved through detailed explanation by an officer via telephone calls to the parties
involved. Labour case handling procedures also simpler compared with the trial

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procedure in a civil court. There are not many forms to be filled. Then, the complainant
does not have to pay any fees when filing a labour case. In addition, delays in labour
cases are avoided by the trial officer so that the parties in dispute do not have to engage a
lawyer, thus indirectly saving costs.
Powers of Director-General under the Employment Act 1955.

A. S.69(1) of the Employment Act 1955 offers for the power of the Director-General to
investigate and decide upon any employer-employee disputes as concerns to wages or
any other payments under the contract of service under this Act or the Wages Council
Act 1947. The powers of the Director-General under section 69(1) (a) can outspread
to employees whose wages per month exceed RM2,000 but does not exceed RM5,000
a month.

B. Beneath Section 69C, the Director-General can inquire and decide on any claim
concerning any indemnity to the employer for termination by the employee without
notice or vice versa.

C. In Section 69(3), the Director-General can investigate, confirm or set aside any
decisions by the employer if it causes damage to the employee. This power can only
enforced if there are complaints from the employee.

D. Section 72 of EA1955 permits the Director-General to combine complaints when

they are common in nature and ensue to a decision on the joint complaints.

E. Section 76 of EA 1955 permits the Director-General to refer any points of law to the
High Court if it is considered that it is essential to do so.

F. Section 69(4) of EA 1955 stated that whichever party that failed to abide by the
decisions of the Director-General shall be considered to have committed an offence
and if convicted shall accountable for a fine not exceeding RM10,000. Moreover,
non-compliance with the Director-General’s orders shall be enforceable by either the
Sessions Court or Magistrates Court, whichever is relevant according to Section 75 of
EA 1955.

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APPEAL AGAINST THE DECISION OF THE LABOUR COURT

The party disappointed with the decision of the Labour Court can appeal to the High
Court within 14 days of receiving the decision.

7.2 INDUSTRIAL COURT

The Industrial Court is an arbitration tribunal. The Industrial Court is constituted and
endowed by the Industrial Relations Act 1967. The purpose of the Industrial Court is to
arbitrate disputes between employers and employees ascending from assumed unjustified
dismissals in which the employee seeks to claim for reinstatement or damages. An award
by the Industrial Court will be enforceable in the same way as a court order. Decisions
from the Industrial Court can be suppressed by way of an application for certiorari to the
High Court.

Trade dispute can be defined as any dispute between an employer and his workmen
which is associated with the employment or no employment or the terms of employment
or the conditions of work of any such workmen under Section 2 of the Industrial
Relations Act 1967 ( IRA1967).

The discretion of the minister is referring to the dispute for an arbitration process at the
Industrial Court under Section 20(3) and Section 26(1) and (2) of the IRA. When direct
negotiations between the parties in dispute are not resolved, any party can then report the
dispute to the Director General for Industrial Relations (DGIR). Once a report is
acknowledged, it is the DGIR’s duty is to deliberate the dispute and take required steps
to endorse a swift settlement of the matter. Under Section 18 of the Act the vital steps is
carried out by the Director General in his role as conciliator of trade disputes is restricted.
Under Section 18(5) of the Act, if all attempts are vain, and he is sure there is no option
of the trade dispute being settled, he must inform the Human Resource Minister
accordingly in the form of a full report regarding the dispute. The Human Resource
Minister then can use his discretion whether or not to refer the dispute to the Industrial
Court for adjudication. The minister may either refer a trade dispute to the Industrial
Court, under Section 26(1) and Section 26(2) of the IRA or refer a matter to the
Industrial Court for adjudication under Section 20 of the IRA.

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For example, in the case of Minister of Labour Malaysia v. Lie Seng Fatt, Hashim
Y.A. Sani SCJ said that “with reference to Minister’s discretion under s. 20(3) of the
IRA Act, to say that it is unconstrained discretion is a contradiction term.
Unconstrained discretion is another name for arbitrariness.” The Supreme Court in
Minister of Labour Malaysia v. Lie Seng Fatt stated: “The Minister’s discretion under
S. 20(3) is wide but not unlimited. As stated earlier, so long as he exercises his discretion
without inadequate motive, the exercise of discretion must not be hindered with by the
Court unless he had misdirected himself in law or had taken into account inappropriate
matters against the object of the statute. Otherwise he had a complete discretion to refuse
to refer a complaint which is clearly troublesome.”

It is also considered by the Malaysian judiciary that this dismissal clause will not give
outright protection to the Industrial Court from judicial review because the court’s
jurisdiction is conversed on them by statute. Therefore, it is necessary to ensure the
function of the Industrial Court is proper and just as they exercise their duty. This can be
supported by the case of Sabah Banking Employees Union v. Sabah Commercial
Banks Association, where Judge Abdul Hamid mentioned that: “It is crucial to the
Court’s constitutional and common law role as the guarantors of due process and
the reasonable administration of law.”

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8.0 SUMMARY
In conclusion, it is ostensible that the cases provide only guidance and do not recognize
firm rules when considering the question about the employment status of an individual.
All factors must be measured by using several test developed by the court to identify the
degree of formalities in the relationship between the employee and the self-employed.
When questions of employment status arise, the legal philosophies must be applied to the
facts of the case, and all factors must be taken into contemplation.

To define the employment position of the worker the courts created a series of tests which
helped them in determining the status. The control test used by the courts is vital in
determining the control in employment of a worker, the integration test which looks at
how significant the worker is in the business to stand out. Then, the control and the
integration test was combined together to form the multiple test where all the factors are
considered into making the decision of who an employee is. The multiple test permits the
courts the utmost flexibility when considering all pertinent aspects when deciding
whether a person is an employee. Yet, it would seem that the law in this area is in need of
better clarification, mainly in the agency cases, where application of the related principles
and the possibility of an implied contract arising has led to some astonishing results. It
should be noted that mutuality of obligations are crucial requirements in a contract of
employment. There will be no finding of a contract of service without mutuality of
obligation. Mutuality of obligation refers to the requirement of an employer to provide
work and pay for it, together with the obligation of the employee to individually do the
work. An "obligation" is a legal requirement that someone does something in the future.

Finally, arbitration is a method of resolving disputes between two or more parties by

inviting a third party to get involved in order to solve the dispute without resorting to the
courts of law. The main reason for the difference is to determine who is entitled to
employment and statutory rights. The industrial court and labour court is an arbitration
tribunal and is not regarded as a civil Court.
4358WORDS

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9.0 REFERENCES

1. Asmah Laili Yeon, Che Thalbi Md Ismail, Khadijah Mohamed, Asiah Bidin,
Nazruzila Razniza Mohd Nadzri (2013). BBUI 3103 Employment & Industrial Law.
Accessed from
http://lms.oum.edu.my/myvle/modules/c-content/c_Plesson.php?cid=BBUI3103
2. Attorney General’s Chamber of Malaysia Portal (no date). Contract “...” Service –
“of” or “for”? Accessed from http://www.agc.gov.my/index.php?
option=com_content&view=article&id=711%3Acontract--service--of-or-for
3. Labour Ordinance Sarawak (Act A1237) (1952). Accessed from
http://www.omsandbox.com/minwages/wp-content/uploads/2013/07/Ordinan-Buruh-
Sarawak1.pdf
4. Law of Malaysia: Act 177 - Industrial Relations Act 1967. Accessed from
http://www.agc.gov.my/Akta/Vol.%204/Act%20177.pdf
5. Law of Malaysia: Act 265 - Employment Act 1955. Accessed from
http://jtksm.mohr.gov.my/images/pdf/akta/akta_kerja_1955_bi.pdf
6. https://www.lawteacher.net/free-law-essays/employment-law/tests-identifying-a-

contract-of-employment-employment-law-essay.php

7. http://www.mom.gov.sg/employment-practices/contract-of-service
8. Lee, S. S. (2007). Do’s and Dont’s in Drafting Employment Contracts. [Slide]
Accessed from www.leesweeseng.com/upload/employmentLaw.ppt
9. Nygh, P. E. & Butt, P. (1998). Butterworths Concise Australian Legal Dictionary. As
mentioned in Attorney General’s Chamber of Malaysia Portal (no date). Contract “...”
Service – “of” or “for”? Accessed from AGC Portal:
http://www.agc.gov.my/index.php?
option=com_content&view=article&id=711%3Acontract--service--of-or-for
10. Sabah Labour Ordinance (1950). Accessed from
http://www.lawnet.sabah.gov.my/Lawnet/SabahLawsDeclaredFederal/LabourLawCap
67.pdf

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