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

In this Situation Update collection, I share summaries of recent Malaysian court conclusions to examine the present solution taken by the courts when deciding on work-related concerns. You can come across all the posts in the sequence by clicking here, together with situation updates on other authorized areas by TheMalaysianLawyer co-founder Lee Shih.

The international PEO (specialist employer organisation) industry has grown drastically in the past 10 years. Though outsourcing or manpower assistance vendors are surely not new, the raising professionalism and sophistication with which these providers are provided has seen their adoption increase exponentially.

PEO arrangements are particularly ubiquitous in circumstances the place a multinational entity does not have a area existence but wants to deliver providers regionally, or retain the services of a little variety of community staff. This construction is also incredibly useful for firms running in industries exactly where perform is job-primarily based, and they for that reason do not want the motivation of having on everlasting staff members, or navigating the maze of work law obligations.

But even though PEOs provide companies ease and adaptability, what type of protection does it present the persons who are utilized by the PEO or services provider? The Industrial Court docket award in Wan Nurfaizah Wan Md Nor v Cekap Specialized Providers Sdn Bhd [2022] 4 ILR 282 suggests that these workforce might have quite confined safety beneath the legislation.

Quick info

In this case, Cekap Technological Products and services Sdn Bhd (“the Company”) was engaged by Petronas Complex Products and services Sdn Bhd (“PTSSB”) to source manpower services to PTSSB. The claimant Wan Nurfaizah (“the Claimant”) entered into a agreement of provider with the Company to give her companies to PTSSB on behalf of the Business.

After the Claimant had served PTSSB for about a calendar year, PTSSB instructed the Corporation to terminate her providers quickly thanks to inadequate do the job performance. The Organization issued a termination discover to the Claimant, and the Claimant contended that she was unfairly dismissed.

Courtroom conclusions

In summary, the Industrial Court docket concluded the adhering to:

1. The Claimant’s contract of service with the Corporation stated that it was subject to PTSSB’s specifications, and it supplied that the Corporation could terminate her work without having needing to deliver a rationale if PTSSB no for a longer time essential her products and services.
2. The Firm could not dismiss PTSSB’s guidance, as that would be in opposition to the terms and problems of the deal between the Enterprise and PTSSB, which expressly provided that if PTSSB resolved that her services have been no extended needed then the Enterprise must terminate her employment.
3. The Claimant could not be relocated to a further placement inside of the Company or for its other clientele, as the Claimant was utilized exclusively to deliver services to PTSSB.

In perspective of the above, the Court dismissed the Claimant’s situation.

Takeaways

The Industrial Court docket was really decisive in dismissing the Claimant’s claim, which on the deal with of it would seem to be antithetical to the standard placement that personnel have “security of tenure”. It also would seem odd that the Firm could just depend on the contractual provisions to dismiss the Claimant with out possessing to substantiate “just cause or excuse”.

Even so, although the conclusion in the Wan Nurfaizah circumstance appears clearcut, we ought to be cautious as having this as a blanket precedent that the court will generally choose in this fashion.

In particular, the provisions in the agreement of services amongst the Claimant and the Corporation listed here appeared to be really obviously and comprehensively drafted, which possibly proved decisive. Quite a few of the contracts (either involving the staff and the PEO, or between the PEO and the client) I have reviewed over the decades have been incredibly simplistic.

For case in point, a equivalent circumstance could perfectly be decided in a different way if the agreement between the personnel and the PEO does not clearly state that —

• the worker is currently being employed to present providers for a particular customer or challenge or
• the employee’s providers could be terminated if the shopper instructs the PEO to do so.

The Court in this situation also gave distinct excess weight to the fact that the Firm would have been in breach of its obligations less than its agreement with PTSSB if it did not dismiss the Claimant. For a former final decision on no matter whether the client in a PEO arrangement could be deemed to be the employer, see the Industrial Court docket award in Sankerpillai Selvarajoo v Framco Sdn Bhd / DHL Global Forwarding (M) Sdn Bhd (Award No. 289 of 2016).

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