Employment Contract-To What Extent It Can Be Enforced

Employment contract is a document that specify the terms and conditions of employment between an employee and an employer. Like any other types of contract, once signed, both parties are bound by it and any variation made to the contract does not have any legal effect unless agreed and signed by both parties. However, employment contract is not a commercial contract as governed by the Contracts Act 1955. If parties to a commercial contract are able to exercise all of their rights and privileges as expressly specified in the contract, an employer's right to exercise certain terms and conditions in the employment contract is limited. As an example, as much as termination clause states that either party can terminate the employment contract by giving the other party a specified number of month(s) of notice period without specifying any reason, it is very much applicable to the employee under any circumstances, while the employer's right to exercise such clause is restricted to very few incidents such as in case of pure redundancy, business take over, merger or any incident that relates to cessation of the job the employees are employed for.

When an employee serves a notice to terminate the employment contract to the employer without the need to specify the reason for termination, it is called "resignation". However, when the employer does the same to the employee (without any valid reason), it is called "unfair dismissal". In R Rama Chandran –v- The Industrial Court of Malaysia [1997] 1 CLJ 147, Edgar Joseph Jr in delivering his Decision at Federal Court refers to Lord Denning’s statement as follows: -

“I go further. Not only he must be given a fair hearing, but the decision itself must be fair and reasonable. That is the protection afforded to every servant who is employed under a contract of service. He is protected against unfair dismissal.”

I will discuss on 'unfair dismissal" in my future posting.

In R Rama Chandran, the Court says that any termination of the employment contract by the employer must be with just cause and excuse. The day where employer can hire and fire as they wish is long gone.

If the employee is governed by the Employment Act 1955, then the terms and conditions of the employment contract must not be less favourable than what is provided in the EA 1955. Section 7 of the EA 1955 provides that if the terms and conditions of the employment contract between an employer and employee is found to be less favourable to the employee than the EA 1955, then in such a situation, the relevant provision of the EA 1955 will prevail over the employment contract. As an example Section 60E of the EA provides the minimum number of days to be allocated as annual leave. Under the Act, an employee's annual leave entitlement is as follows: -

• 8 days per annum if the employment period has not reached 2 years;
• 12 days per annum if the employment period has reached 2 years but less than 5 years ;
• 16 days per annum if the employment period has reached 5 years or more

As such, if the employment contract provides annual leave of 6 days upon commencement of the employment, then the clause on annual leave is void and Section 60E of the EA 1955 will take effect.

On the other hand, when the employee is not governed by the EA 1955, then the parties are purely subjected to the terms and conditions of the employment contract that they signed and the EA 1955 will have no authority to interfere in such a contract.

In short, as far as the employment contract is concerned, it can be enforced as long as its enforcement is not in contradiction with the EA 1955 (if the employee falls within the jurisdiction of the EA 1955) and does not go against the principle of unfair dismissal.