Case Update: Factors considered by the Industrial Court in determining the identity of the employer in a multi-jurisdictional employment relationship

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In this Case Update series, I share summaries of recent Malaysian court decisions to explore the current approach taken by the courts when deciding on employment-related issues. You can find all the posts in the series by clicking here, including case updates on other legal areas by TheMalaysianLawyer co-founder Lee Shih.

In this era of the multinational corporation, it is common for employees to be carrying out most (or even all) of their work in one jurisdiction, while technically being employed by an employer entity in another jurisdiction. This could either be because the employer does not have a local entity, or because the employee was initially employed by an entity in one jurisdiction but was subsequently assigned to a post in another jurisdiction, or for a host of other commercial reasons.

We therefore see increasingly complicated employment relationships — the core employment contract being supplemented by assignments, secondments, or some other similar arrangements both formal or otherwise — which in time can lead to confusion over who the actual employer entity is, and more importantly, which jurisdiction the employer is in. Some of these arrangements can get even more convoluted with the introduction of other structures such as third party employment or payroll service providers or local host entities.

Identifying the correct employer entity becomes important when an employee seeks recourse at the Industrial Court. It is not as straightforward as determining which entity pays the employee’s salary, or owns the office the employee spends most of his time in. Once it is determined that the employer entity is in another jurisdiction, can the Industrial Court hear the matter?

The relevant factors were recently considered by the Industrial Court in two cases — Lars Kruse Thomsen v. Hot-Can Sdn Bhd (Award No. 1629 of 2017), and John Brian Chesson v. Baker Hughes (Malaysia) Sdn Bhd (Award No. 119 of 2018).

Brief background in Lars Kruse Thomsen

The employee in Lars Kruse Thomsen alleged that he had been employed by Hot-Can Sdn Bhd (“Hot-Can Malaysia”) as a Chief Commercial Officer (CCO) and had not been paid since April 2013. After some communication, the employee walked out claiming constructive dismissal, on the basis of the non-payment of his salaries.

Hot-Can Malaysia contended that throughout the trial, the employee had been referring to an Independent Service Provider (“ISP”) Agreement with Hot-Can PLC, a UK company (“Hot-Can UK”). Therefore, Hot-Can Malaysia stated that any dispute relating to the alleged constructive dismissal or unpaid salaries is between the employee and his employer, Hot-Can UK.

However, the employee’s counsel contended that the employee also had employment relationship with Hot-Can Malaysia. The employee had a work permit with Hot-Can Malaysia, and the employee argued that Hot-Can Malaysia cannot, after having applied for and obtained a work permit for him, now claim that there was no genuine need for it.

The employee also relied on other evidence which he claimed pointed towards an employment relationship with Hot-Can Malaysia, including evidence that —

  • work e-mails named him as Group CCO, and had both the UK and Malaysian addresses;
  • his call cards had both the UK and Malaysian addresses;
  • he had an employee number with Hot-Can Malaysia, shown on his pay-slip;
  • his pay-slip showed his salary in Malaysian Ringgit and had Hot-Can Malaysia’s company stamp and was signed off by the Finance Manager;
  • he had annual and medical leave entitlements (which should not be the case if he was an independent contractor with the UK company;
  • his salary was paid in Malaysia; and
  • he was issued a security access tag with his name on it and the name of Hot-Can Malaysia.

The sole issue for the court to decide was whether Hot-Can Malaysia was the employer.

Court findings in Lars Kruse Thomsen

The Industrial Court stated that the crux of the matter was the question of employer- employee relationship, ie Hot-Can Malaysia’s contention that the employee was engaged by Hot-Can UK.

The Court here cited the case of Aniza Yaacob & 763 Ors v. Mostek Malaysia Sdn Bhd & 2 Ors [1987] 1 LNS 127, where the High Court upheld the decision of the Industrial Court in refusing to exercise jurisdiction when the employer is outside jurisdiction. The court in Aniza Yaacob stated: The Industrial Court has no extra territorial jurisdiction, the Court being a creature of statute and therefore being entirely a Malaysian Act, it does not extend to the United States of America or any foreign country.”

The Group CEO of Hot-Can UK gave evidence that —

  • the employee was engaged as the CCO by Hot-Can UK by way of the ISP Agreement;
  • the employee’s job as CCO was to do global marketing for ‘Hot-Can’ products;
  • Hot-Can Malaysia is a manufacturing subsidiary of Hot-Can UK, and Hot-Can UK purchases its products from Hot-Can Malaysia;
  • a majority of Hot-Can UK’s personnel operate from Hot-Can Malaysia’s premises;
  • as Hot-Can Malaysia was purely a manufacturing company, it would not make sense to have a marketing position within the company;
  • the employee did not have to reside in Malaysia to perform his duties as his sales were international, but preferred to live in Malaysia with his family, and therefore asked the company to arrange a Malaysian employment pass for him;
  • because the employee chose to be in Malaysia, he requested his salary be paid by Hot-Can Malaysia as Hot-Can UK does not have a Malaysian bank account;
  • no statutory contributions or deductions for EPF or income tax were made from the employee’s salary, and such payments would have been necessary if the employee was in fact employed by Hot-Can Malaysia.

The Court also reviewed the ISP Agreement, which was clearly between Hot-Can UK and the employee, and set out that his main duty as the CCO was to do global marketing of Hot-Can products. The Court, citing the case of Berjaya Times Square Sdn Bhd v. Twingems Sdn Bhd & Anor & Another Case (No. 2) [2012] 1 LNS 166, stated that “it is trite law that parties are bound by the terms of the written agreement entered between them and shall not introduce or bring extrinsic evidence to vary or contract the clear terms of the agreement”.

The employee was unable to provide any evidence to show the scope of duties he had been performing for Hot-Can Malaysia.

The Court noted that the employee’s own business card introduces himself as the CCO of Hot-Can UK, with the London office and fax numbers.

The Court further noted several emails between the employee and Hot-Can UK attempting to settle the dispute. Although the settlement did not materialise, it was clear that Hot-Can Malaysia was not involved in the discussions, which the Court said clearly showed that the employee acknowledged that Hot-Can UK was his employer.

Thus, the Court concluded that there was no employer-employee relationship between Hot-Can Malaysia and the employee, and the claim was dismissed.

Brief background in John Brian Chesson

The employee in John Brian Chesson entered into an employment contract on 12 May 2012 (“IPRL Contract”) with International Professional Resources (US) Limited (“IPRL”), a company incorporated in the United Arab Emirates. He was then assigned (via an Assignment Agreement dated 12 May 2012) to Baker Hughes (Malaysia) Sdn Bhd (“BH Malaysia”).

In line with the Assignment Agreement, and to facilitate obtaining a Malaysian employment pass, the employee entered into a two-year employment contract with BH Malaysia (“Local Contract”).

IPRL subsequently terminated his employment on 3 October 2013 due to alleged poor performance, which therefore resulted in his contract with BH Malaysia also being terminated.

The employee brought an unfair dismissal claim against BH Malaysia. BH Malaysia objected, contending that the action was wrongly brought against it, as it was not the employer.

Before deciding on the substantive issue of the dismissal, the Court had to decide whether BH Malaysia was the employer. The Court cited the case of Hyder Consulting Sdn Bhd v. Chan Yau Liang [2008] 1 ILR 387 C (Award No. 138 of 2008), where the Industrial Court held as follows: “The first and main issue here is the question as who was the claimant’s employer. Was the employer a foreign company or a local company. If it is decided that the employer was a local company then only the court can proceed to determine whether the claimant’s dismissal was with just cause or excuse. If it is otherwise, the court is not seized with the jurisdiction to hear the dispute.”

Court findings in John Brian Chesson

The Industrial Court examined the relevant clauses in the IPRL Contract, the Assignment Contract and the Local Contract to determine whether IPRL or BH Malaysia was in fact the employer.

The IPRL Contract stated that the employee was employed “as an internationally mobile employee” with the Baker Hughes group, and would be “assigned to work wherever [his] services may be required”. The contract further stated that “each such assignment will be governed by a separate Assignment Agreement to be read in conjunction with [the IPRL Contract]”. The document also clearly stated: “You shall at all times during an assignment be and remain an employee solely of [IPRL] and shall comply with all lawful instructions of [IPRL].”

The Assignment Agreement clearly describes itself as “an addendum to Your Contract of Employment with IPRL (‘the Employer’)”. The document also stated that it may be necessary for the employee to enter into local employment contract with BH Malaysia, and that “in such an event, the local contract will also be an addendum to Your Contract of Employment with the Employer”.

The Court concluded that, based on the reading of the documents —

  • it was clear that the Assignment Agreement and Local Contract are to be added or supplementary to the IPRL Contract, and do not stand alone as separate contracts; and
  • the IPRL Contract clearly stated that the employee would at all times remain an employee solely of IPRL.

The employee claimed that —

  • he was not paid by IPRL, and that his salary and benefits were actually paid from and captured in the accounts of BJ Services (M) Sdn Bhd (“BJ Services”); and
  • that BH Malaysia via BJ Services had reported to the Inland Revenue Board Malaysia the total remuneration including the amount of income tax borne by BH Malaysia; and
  • the EA form did not name IPRL as the employer.

BH Malaysia explained that BJ Services was stated as the employees’s employer in the 2012 and 2013 EA forms because all assignees in Malaysia are required to submit tax returns for the remuneration earned in Malaysia by law, and that this filing had to be done by a local company. As the employee was at the time assigned to perform tasks which were under BJ Services, BJ Services was named as the employer in the EA form.

BH Malaysia’s counsel also submitted that, pursuant to the Assignment Agreement, any remuneration received by the employee under the Local Contract would be deducted from the remuneration under the IPRL Contract. Essentially, the employee’s salary was capped at the amount payable under the IPRL Contract, and he does not receive any extra remuneration pursuant to the Local Contract, which was only for immigration purposes. The Court agreed with this submission and the evidence put forward which clearly showed that IPRL had paid the employee’s salaries and benefits and then back-charged BJ Services for payments made to the employee.

However, the Court pointed out that payment of salary was not a true indicator of who the real employer was, as any arrangements for payment of salary between an employer and the assignee company do not impact or alter the employer-employee relationship” and cited the following cases to illustrate this point:

  • In Comex Services Asia Pacific Region, Miri v. Grame Ashley Power [1987] 2 ILR 34 (Award No. 224 of 1987), the court held that the claimant remained an employee of Comex SA although he was assigned to work for Comex (Malaysia) Sdn Bhd. Regarding the issue of the position of an employee who goes on secondment to another company, the court in Comex said (quoting from The Law of Industrial Disputes, vol. 1, Third Edition by O.P. Malhotra, p. 246): “[…] so long as the contract is not terminated, a new contract is not made and the employee continues to be in the employment of the original employer even if the employer orders the employee to do certain work for another person. The employee still continues to be in his employment. The only thing that happens in such cases is that the employee carries out the orders of the master; hence he has a right to claim his wages from the employer and not from the third party to whom his services are lent or hired. It may be that such third party may pay his wages during the time he has hired his services, but that is because of his agreement with his real employer. However, that does not have the effect of transferring of service of the employee to the other employer. The hirer may exercise control and direction in doing of the thing for which he has hired the employee or even the manner in which it is to be done. But if the employee fails to carry out his direction, he cannot dismiss him and can only complain to the actual employer. The right of dismissal vested in the Employer(s).”
  • In Geoffrey Alan William v. The University of Nottingham in Malaysia Sdn Bhd [2014] 3 ILR 99 (Award No. 491 of 2014), the Industrial Court held: The payment of salary is not a true indicator of who is the real employer. As a secondee, the claimant was paid by the UK University which was reimbursed by the Malaysian University. Under the new contract, the Malaysian University had offered to pay him in ringgit. But this was merely an agreement the Malaysian University had with the UK University, it did not have the effect of transferring the service of the Claimant to the Malaysian University. This is because the claimant’s substantive contract with the UK University had not been terminated.”

BH Malaysia further contended that the employee continued to report to his superiors, who were IPRL employees, during the course of his assignment.

The Industrial Court went on to state: “Over and above all that has been mentioned and discussed, it is pertinent for this court to view the terms of the contract of employment in order to ascertain the bargain between the parties to a contract, in this case, the contract was in writing, therefore, the intention of the parties was to be ascertained by the actual words used and this court must give effect to the plain meaning of the words used in the contract.” The Court reiterated the governing law clause of the IPRL Contract, which read: “This Contract of Employment is governed by and shall be construed in accordance with the laws of the Dubai International Financial Centre, Dubai, United Arab Emirates. In the event of any dispute as to the intent meaning or effect of this Contract of Employment the parties hereto acknowledge the exclusive jurisdiction of the Dubai International Financial Centre, Dubai, United Arab Emirates. Under the terms of this agreement You agree that You will not seek to enforce any employment or benefits rights under the laws of any other jurisdiction. If You seek to enforce any employment or benefits rights under the laws of any other jurisdiction, You may be liable for any damages to the Company. These damages include but are not limited to attorney’s fees and other costs that may be incurred by the Company as a result of having to defend Your claims.”

The Court cited the case of PRG-Schultz International Pte Ltd v. Ker Su Chon (Permohonan Semakan Kehakiman No. R1-25-316-2007), where the High Court quashed an Industrial Court award. The High Court decision was further affirmed by the Court of Appeal in Rayuan Sivil No. W-02-646-2010, Ker Su Chon v. PRG-Schultz International Pte Ltd. The High Court Judge held: “in so far as the [employment contract] is concerned, it is clear that […] the Respondent agreed to submit to the jurisdiction of the courts of Singapore […]. The fact that payment of the Respondent’s salary was in the Malaysian currency and EPF payments were made does not ipso facto make her contract of employment subject to the laws of Malaysia when that was not what the parties had bargained for and which is expressly provided in the said contract. The Industrial Court has failed to consider that the Respondent’s contract of employment is central to her claim and therefore the Industrial Court ought to have looked at the contract to determine whether it has jurisdiction to hear the dispute. The issue of the Industrial Court’s jurisdiction to hear the dispute between the Applicant and the Respondent ought to be determined by the terms of the employment contract which forms the basis for the Respondent’s claim against the Applicant and not only on the fact of the Applicant’s registration in Malaysia or that payment of the Respondent’s salary was in the Malaysian currency and EPF payments made by the Applicant for the Respondent. Further there is the fact that the parties entered into the contract in Singapore.”

The Industrial Court applied the above principles to this case, and said that “the plain meanings of the words in this clause are clear and unambiguous” and “the claimant had admitted that he had entered into the said IPRL Contract and therefore he had indeed agreed to the terms and conditions thereof”. Therefore the Court held that the fact that the employee’s tax returns were submitted by BJ Services, and even if payment of his salaries were done by BH Malaysia, does not ipso facto exclusively mean that his contract of employment was subject to the laws of Malaysia.

The Court also held that the Assignment Agreement and the Local Contract clearly showed the intention of the parties that the employee’s employer would at all times continue to be IPRL, and that “it is therefore not equitable for the claimant to now make a turnabout and claim that IPRL and [BH Malaysia] were his joint employers”.

The Industrial Court therefore concluded that the employee’s employer was IPRL, and that the Court therefore had no jurisdiction to hear the dismissal claim, which was accordingly dismissed.

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