Employer and Employee Relationship

Contract of Service Contract for Service

S.2 of EA - “Contract of service” means any agreement, An agreement whereby a person is engaged as an
whether oral or in writing and whether express or independent contractor, such as a self-employed person
implied, whereby one person agrees to employ another or vendor engaged for a fee to carry out an assignment or
a project for the company.
as an employee and that other agrees to serve his
employer as an employee and includes an
apprenticeship contract.
S.2 of Industrial Relations Act - “Contract of
employment” means any agreement, whether oral or in
writing and whether express or implied, whereby one
person agrees to employ another as a workman and that
other agrees to serve his employer as a workman.

A contract of service is an agreement (whether orally or A contract for services, refers to a relationship similar to
in writing) binding on parties who are commonly an agency. Generally, a person engaged via a contract
referred to as “employer” and “employee”. For example, for services is not an employee rather an independent
a customer service consultant working in a contractor, such as a self-employed person or vendor,
telecommunications company. However, it is still who is engaged for a fee to carry out an assignment or
important to look at the terms of the contract to project. For example, a property agent who helps to sell
determine the type of contract. your house.
Sometime difficult to distinguish as mentioned by Lord Denning in Stevenson, Jordan & Harrison Ltd v
Macdonald & Evans Ltd “it is often easy to recognise a contract of service when you see it, but difficult to say
wherein the difference lies”. It is important to determine an individual’s legal position. Only employee under
Contract of Service can invoke jurisdiction of the industrial court in the event where his rights under the statute has
been violated by employer. If not the claimant can only seek remedy in Civil Courts.
Has an employer – employee rship. Employee does Has a client-contractor type of rship. Contractor carries
business for the employer. out business on their own account.
The tools and facilities to complete the work are The tools and facilities are provided in th contractual
provided by the employer. terms, but usually these are provided by the contractor
himself.
Covered by the Employment Act 1955 and Industrial Not covered by the Employment Act 1955 just Industrial
Relations Act 1967 Relations Act 1967
Employer need to contribute EPF and comply with No statutory requirement to subject the payments of fees
relevant statutory benefits such as annual leave, sick or retainer to independent contractor to the deduction of
leave and etc for its employees income tax or contribution to the EPF or SOCSO
 Control Test
The first test used in 19th century.
Based on concept of master and
servant. It requires employer to
exercise detailed control over the
employee, in terms of assigning the
work and how its carried out.
Yewens v Noakes
“A Servant is a person subject to the
command of his master as to the
manner in which he shall do his work.
If an employer has a large degree of
control over employee in terms of what
to do and how to do it, then contract of
employment exist. A smaller degree of
control would amount to self–
employment.
Chye Hin Co (Perak) Ltd v PP
Facts: All the sawmill workers made
claims that the company did not make
EPF contributions according to EPFO
1951.
Issue: Whether the four sawmill
workers were severally employed by
the appellant company under a contract
of service or whether they were
contracting independently with the
company to saw wood for the
company?
Held: Court applied control test to the
workers. All saws belong to the
company, workers worked at factory.
So the company had no control over
the workers. The sawmill workers were
Organizational/Integral Test
Refers to the fact that
employees are an essential
group for an organisation.
This test is not necessarily
sufficient to determine the
status of the relationship.
Stevenson, Jordan &
Harrison Ltd v Macdonald &
Evans Ltd
The test was whether the work
being performed under the
contract is integral to the
operation of the business
structure as a whole, or it is
only works on the side of the
main business.
In this case, it was stated that
an employee is a person who is
integrated with others in the
work place or business even
though the employer does not
necessarily exercise a detailed
control over what the employee
does.
Court will examine how
integrated the employees are in
the company. The greater the
person is integrated in the
company, the greater
possibility that this person is an
employee.
Cassidy v Ministry of Health
Facts: A resident surgeon of a
hospital negligently performed
an operation on the plantiff.
Issue: Whether the surgeon
was an employee of the
hospital?
Held: As per Lord Denning, if
the work done is an integral
part of business, then the
person is an employee under
contract of service. If work
done is an accessory to main
business, then it’s a contract
for service.
Multiple Control Test
The most modern approach.
A three-fold test; a contract of service
requires:
- duty to give personal service
- existence of a sufficient degree of
control
- terms of contract being consistent with
service
Factors to identify the status of a working
relationship:
* Degree of control
* Hours of work
* Mode of remuneration
* Provision of equipment
* Entitlement to annual leave
If the evidence shows the existence of an
employment contract or if such
consideration indicates the presence of a
determining factor, the worker concerned
will be deemed to be an employee.
Ready Mixed Concrete (South East)
Ltd v MPNI
Facts: The appellant company’s liability
for social security contributions of their
worker arose only if they had contracts of
service. The worker who drove ready
mixed concrete lorries, who bought his
lorry on hire purchase from the company
was found to be employed under a
contract for service, not a contract of
service.
In this case, each driver of the company
must buy his own vehicle and paint it in
the company’s colours. They must wear
the company’s uniform as well and must
be available for work when needed. Their
salary was paid based on mileage rate for
the work that has been performed for the
not employed by the company under a
contract of service. Thus company did
not need to make EPF contributions.
Bata Shoe Co (Malaysia) v
Employees Provident Fund Board
FACTS: The plaintiff company
appointed a shop manager to hire
salesmen to assist them in managing
the shops.
ISSUE: Whether the salesman are
employees of plaintiff?
RATIONALE: The shop manager was
an employee of the company as the
plaintiff company had control over
him. The salesmen were employees of
the manager and not the company bcs
the plaintiff had no control over the
salesmen.
HELD: The salesmen are not
employees of the plaintiff. And there
was no contract of service between
them.
company.
MacKenna J: “A contract of service
exists if these three conditions are
fulfilled.
- The servant agrees that, in
consideration of a wage or other
remuneration, he will provide his own
work and skill in the performance of
some service for his master. 
- He agrees, expressly or impliedly, that
in the performance of that service he will
be subject to the other’s control in a
sufficient degree.
- The other provisions of the contract are
consistent with its being a contract of
service.”
Held: The drivers are independent
contractors and not employees as they
were operating at their own financial risk.
Kirwan v Dart Industries and Leahy
followed the above case and it was held
that Ms Kirwan was an employee of
Leahys and not Dart Industries after
considering:
- Extent of control over the task,
- Manner the task was carried out,
- Means used to carry it out, and where it
is carried out,
- Whether person was in business of his
own account, or of an integral part of the
business
Short v J W Henderson Ltd Lord
Thankerton pointed out four indicators to
examine the degree of control exercised
on an individual: the power to appoint,
the power to dismiss, the payment of
wages, as relevant to the establishment of
existence or the contract of service.