employment contract

Case Update: Employees hired under a PEO or outsourcing service provider structure have limited legal protection

Marcus van GeyzelLeave a comment

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.

The global PEO (professional employer organisation) industry has grown significantly in the past decade. While outsourcing or manpower service providers are certainly not new, the increasing professionalism and sophistication with which these services are provided has seen their adoption grow exponentially.

PEO arrangements are particularly ubiquitous in situations where a multinational entity does not have a local presence but wants to provide services locally, or hire a small number of local employees. This structure is also very useful for businesses operating in industries where work is project-based, and they therefore do not want the commitment of taking on permanent employees, or navigating the maze of employment law obligations.

But while PEOs offer companies convenience and flexibility, what sort of protection does it offer the individuals who are employed by the PEO or service provider? The Industrial Court award in Wan Nurfaizah Wan Md Nor v Cekap Technical Services Sdn Bhd [2022] 4 ILR 282 indicates that these employees may have very limited protection under the law.

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Unpredictable implementation of amendments means full compliance with Employment Act proving problematic for Malaysian employers

Marcus van GeyzelLeave a comment

The Malaysian government this week urged all employers to ensure compliance with the revised Employment Act (“EA”). This is following the wide-ranging amendments to the EA which came into force on 1 January 2023.

While the comments from Human Resources Minister V. Sivakumar were targeted at the reportedly widespread non-compliance with the reduced 45-hour weekly working hour limit (down from 48 hours/week), it brought into focus the widely-known reality that many employers are in fact not in complete compliance with the amended EA.

However, while some irresponsible employers are being unfair to employees and blatantly delaying making changes, to some extent there may be some justification for this non-compliance when it comes to the EA in general.

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Employee poor performance: Some recent cases

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The proper management of under-performing employees is always a tricky proposition. While the law recognises poor performance as one of the reasons that would constitute “just cause” for dismissing an employee, many employers make mistakes which result in dismissed employees winning unfair dismissal claims. There have also been instances where employees have been able to walk out and claim that they have been constructively dismissed due to the employer putting them on a performance improvement plan (“PIP”).

There are many variables that will determine whether a poor performance termination was carried out fairly. It’s always useful for employers and decision-makers to review how other employers have managed under-performing employees. In this article, I briefly summarise the following recent cases related to PIPs and poor performance dismissals:

  1. Azura Norden v. Small Medium Enterprise Development Bank Malaysia Berhad (Award No. 94 of 2021).
  2. Charles Selvam Andrew Francis v. Kebabangan Petroleum Operating Company Sdn Bhd (Award No. 256 of 2021).
  3. Thomas Kuruvilla v. Malaysia Digital Economy Corporation Sdn Bhd (Award No. 151 of 2021).

These summaries will provide valuable insights on the issues the Industrial Court considers when assessing performance-related terminations.

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