The diversification of job descriptions and roles in tandem with the development and growth of technology and economy has given rise to an increase of flexible working arrangements or provision of services for a fixed or indefinite period of time. While at the outset, it appears that such engagements are as independent contractors, it may be that such contracts are, in reality, employment contracts instead.
Is There A Need To Differentiate Between An Employee And An Independent Contractor?
An employee enjoys the benefits and protection under the Employment Act 1955 as well as the Industrial Relations Act 1967.
An independent contractor, on the other hand, is only bound to the contract and the terms therein. He/she does not come under the protection of the Employment Act 1955 nor the Industrial Relations Act 1967.
Another significant difference is whether or not the person, if terminated, would have recourse under an unfair dismissal claim. Here, an employee would have such a recourse whereas, for an independent contractor, it would merely be a breach of the agreement in which a civil suit will have to be initiated instead.
Hence, there is a definite need to understand whether or not a person is engaged as an employee or as an independent contractor.
Does A Service Contract Automatically Mean That It Is Not An Employment Contract?
Unfortunately, that is not always the case. The title of a document does not matter in comparison to the contents of the agreement. In fact, as will be discussed below, the Courts of Malaysia have delved beyond the title and contents of the document to look at the relationship between the parties to determine whether or not the relationship is one that is an employer-employee relationship or merely an independent contractor.
The key difference between an employee and an independent contractor is the degree of control and independence that the person has in their work arrangement. That being said, it is not always easy to identify this difference.
Hence, the Courts have utilised various tests to determine whether or not a person is an employee or an independent contractor.
Some of the tests employed by the Courts include:
This refers to the control of an person by the employer, not only as to what he or she must do but also as to how and when he or she must do.
This test assesses whether the person is part and parcel of the organisation.
This test considers the question of “whose business is it”. It looks at, for example, whether the person had invested in tools and taken the chance of profit or the risk of loss
The ‘multiple’ test is a 2-stage test:
- whether there is control; and
- whether the provisions of the contract are consistent with it being an employment contract.
Similar to the economic reality test, the ‘multiple’ test may also evaluate whether the person had invested in tools and taken the chance of profit or the risk of loss.
It must be noted that there is no single determinative factor or test in determining whether or not the relationship between the parties is one that is an employer-employee relationship or an independent contractor. The Courts will consider the entire working relationship in order to arrive at such a conclusion.
Conclusion
It is therefore crucial that business and individuals properly define their working relationships so as to not be caught in a situation in which, either the company is found to have hired a full-time employee despite under the impression that it was on an independent contractor basis or the individual loses the protection under employment laws as he or she was under the wrong assumption that his or her contract was an employment contract.
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