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

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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