by MH Law | March 3, 2025 | Case Spotlight
Overview
In the case of Muhammad Fawaid Daud v Airod Sdn Bhd [2024] MELRU 836, the Claimant began working for the Company in 1988 as an engineer, earning RM1,300 per month. Later, he became a permanent employee. In 2000, the Company changed his job to a one-year fixed-term contract as General Manager. After that, the Company kept renewing his contract every year for 20 years without any breaks.
By 2020, the Claimant was a Senior General Manager earning RM20,307 per month. On December 21, 2020, the Company said his contract would end on December 31, 2020, and his job would be over after 32 years of service.
Issues & Findings
Claimant’s Complaint
The Claimant said the yearly contracts were fake and were just a trick to hide that he was a permanent employee. He believed ending his contract was unfair and the same as firing him. He asked to be given his job back with full pay and benefits.
Company’s Defense
The Company said the contracts were real and explained that managerial jobs only had fixed-term contracts. They claimed the Claimant knew this and agreed to it. They also said his job ended naturally when his last contract expired.
Industrial Court's Findings:
The Court agreed with the Claimant. It found that the yearly contracts were just a way to hide his permanent job. Renewing his contracts automatically for 20 years made him expect to stay with the Company permanently. The Court said the Company’s actions were unfair and went against labor rules.
Key Takeaways
Use Fixed-Term Contracts Properly
Employers should only use fixed-term contracts for temporary or specific purposes, like covering a project, maternity leave, or seasonal work. If the role is ongoing and essential, consider offering permanent employment to avoid legal disputes.
Ensure Transparency
Clearly explain the nature and duration of the fixed-term contract to employees. Let them know if there’s no guarantee of renewal to manage expectations.
Avoid Long-Term Renewals
Automatically renewing fixed-term contracts for years without a break can lead to legal risks. Long-term renewal may create a “legitimate expectation” of permanent employment. Instead, review and reassess the contract’s purpose after each term.
Align Contracts with Behavior
How a company treats an employee matters. If an employee is given the same responsibilities and benefits as permanent staff, the courts may view the role as permanent, regardless of the contract wording.
Seek Legal Advice
Regularly review employment policies with legal experts to ensure compliance with labor laws. This helps avoid pitfalls and demonstrates good faith in employee management.
By using fair and transparent practices, employers can protect their interests while maintaining trust with employees.
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