5 “Bear Traps” in Your Contract of Employment

When you receive a job offer, do read all the terms and conditions contained within thoroughly, and make sure that you understand everything before you sign. Some contracts can be poorly-drafted whilst others may deliberately contain terms which are unfair to the employee. These unfair contract terms can potentially cause you a lot of difficulty later on in the course of your employment, and some come at a very high cost. This is why they are referred to as “bear traps”. Have you seen a bear caught in a trap? Watch some videos on it, and you will associate the imagery.

Here are five such terms you should pay particular attention to, and why.

1. Unilateral variation of contract

What is it?
The employer may insert a clause like this in the employment contract: “The Company reserves the right to review, revise, amend, and/or alter the terms and conditions of this contract without prior notice / by giving one month’s notice to the employee.”

Did you know that the terms of your employment contract cannot be altered or revised by your employer without your consent as an employee? And your consent must be wilful, it cannot be forced or coerced out of you by your employer. If your employer varies the terms and conditions of your contract without consulting you, it is called a unilateral variation of the employment contract.

The only circumstances in which a unilateral variation of employment contract is allowed is where the employee is demoted with a salary reduction after due inquiry, which is permitted under his employment contract or by virtue of S.14(c) of the Employment Act 1955.

What are the effects?
A unilateral variation of contract, where the interest of the employer outweighs the interest of the employee, can cause hardship of varying degrees to the employee. In addition to work-related hassles, it may also cause the employee emotional and mental stress, depression and humiliation.

If your employer forces you to accept a unilateral variation of contract that causes you to suffer a detriment, for example one involving a downward revision of your salary or allowances, or cancellation of your contractual benefits, or any addition of terms or conditions that causes you hardship or downgrades your position, he will have committed a breach of contract. It may raise grounds for you to claim constructive dismissal.

A recent Industrial Court case in which a unilateral variation of contract by the employer was held to be valid grounds for a complaint of constructive dismissal is Nur Ezlina Ismail v. UMW Toyota Motor Sdn Bhd [2020] 2 LNS 0569 [IC].

What can you do?
Firstly, you will need to make your objection known to your employer, preferably both verbally and in writing. Give the employer time to remedy the breach. Should they refuse to, write to them again, this time to state that you consider yourself having been constructively dismissed. You may then proceed to lodge a complaint to the Industrial Relations (IR) Department nearest to your workplace, under S.20 of the Industrial Relations Act 1967.

2. L.A.D clauses

What is it?
A Liquidated Ascertained Damages (L.A.D.) clause is sometimes included in fixed-term contracts. Fixed-term contracts of employment are those with a finite duration, as opposed to permanent employment. The L.A.D. clause usually contains an undertaking by the employee that in the event the employee resigns before the expiry of the contract, the employee must compensate the employer a certain amount.

An example of an L.A.D. clause would be as follows: “During the probationary period, the employee is required to serve one (1) month’s notice and pay to the Company salary in lieu for the remaining contract period. Upon confirmation of employment, three (3) months’ notice and also salary in lieu of notice for the remaining contract period.”

What are the effects?
On first read, it looks like the employee will have to pay an indemnity to the employer for short notice, the sum of which is equivalent to the salary he would have earned should he serve the full length of notice. Read again. The employee is to pay to the employer a sum equivalent to his salary for the remaining contract period, even if he has served his notice period in full!

Thus, if the employee is on a two-year fixed term contract, and his salary is RM5,000.00 per month, and he resigns after just 6 months in employment, he will have to compensate his employer RM5,000.00*18 months = RM90,000.00!

Is this L.A.D. clause even lawful? Yes, it is actually lawful. The employee will be legally-bound to pay the compensation because he entered into the employment contract on his own free will. The employer can sue him in the civil courts for default in payment.

What can you do?
Now can you see the bear trap? Seek professional help in going through your job offers and contracts before you sign on any of them, to avoid falling prey to one.

If you are already caught in one, lawyer up. This is not a matter for the Labour Office or the Industrial Relations Department, unfortunately.

3. “Automatic termination”

Does it really exist?
Many employers state in their contracts of service, or as matter of practice, that an employee is deemed to be “automatically terminated” or have “self-terminated” after two consecutive days of absence without permission.
S.15(2) Employment Act 1955 states that: “An employee shall be deemed to have broken his contract of service with the employer if he has been continuously absent from work for more than two consecutive working days without prior leave from his employer…” So being absent from work without permission for more than two consecutive working days is merely a breach, not an automatic termination.

“Automatic termination” is a figment of many employers’ imagination, a mythical creature of convenience to eliminate an employee from service. It is not recognised by law.

What is the effect?
If you have been absent from work without permission, for whatever reason, your employer must carry out due inquiry on your case and give you a chance to be heard. Such breach of contract can be remedied. If your employer wishes to give you a second chance, he may do so by allowing you to continue working after giving you a warning (that warning is necessary because you have been a naughty bear. I mean employee). Now, can your employer terminate your service instead? After following due process and following fair procedure, he may do so, BUT if you are summarily dismissed without due inquiry, you can claim unfair dismissal.

This is also applicable if you are a non-EA employee.

What can you do if your employer decides to unleash his mythical creature on you?
You may then proceed to lodge a complaint to the IR Department nearest to your workplace.

4. Premature termination of a fixed-term contract

What is it?
Earlier we talked about employees on fixed-term contract who wishes to resign before the expiry of their contract and the repercussions of L.A.D. clauses contained in then. So, what if the employer decides to dismiss a fixed-term contract employee before his time is up? Will the law protect the employee then?

It sure will. When an employer terminates the services of a fixed-term employee before his contract expires, the employer must give just cause and excuse why the employee’s services was terminated prematurely.

In short, just like with any other type of employment, the employer cannot terminate the fixed-term contract employee simpliciter.

What is the effect?
In the event of a premature termination of a fixed-term contract by the employer, the unexpired term of the contract must be compensated to the employee, except where the termination was due to a disciplinary issue, and that there was due process to find him guilty and the dismissal was a proportionate punishment.

Thus, if the employee’s salary is RM5,000.00 and he has another 18 months to go before his contract expires, his employer must compensate him RM90,000.00. If he is entitled for a contractual bonus, that too must be compensated to him. The rest? If the employee thinks that he is still short-changed, he may take his case up to the IR Department.

What can you do?
Your friendly IR Officer can assist you with your issues regarding premature termination of contract. If you have been partially-compensated, bring along proof of this, and a simple computation of what else is owing to you by your employer.

Related:

5. Forced Retirement

Where is the bear trap here?
Many people misunderstand the provision of the Minimum Retirement Age Act (MRAA) 2012, which states that the minimum retirement age of an employee is 60 years.

The operative word here is minimum. This means the employee can be retired at 61, 68, 72, but not 59, or at any age before his 60th birthday.

And how does an employee know when he is supposed to retire, does he retire right on his 60th birthday? No, he cannot do this unless his contract of service says so. An employee shall only retire in accordance to the retirement age stipulated in his contract.

So the bear traps may exist where an employee on a permanent employment (or on a fixed-term contact of more than 24 months) is forced to retire below the minimum age stated in the MRAA, or, if his contract is silent as to his retirement age, he is forced to retire at any age, even if he has passed 60.

What is the effect?
In the event the contract is silent on the retirement age, the MRAA 2012 does not automatically confer the right on the employer to retire his employees at 60. Employees are entitled to work up to the normal retirement age of employees in their category, and this is a matter to be determined by the Industrial Court based on the reasonable expectation of the employees concerning the age at which they can expect to retire.

Forced retirement is therefore unlawful and an employee who is forced to resign may lodge a complaint at the IR Department.

What can you do if you are forced to retire?
OK this can get complicated so read carefully.

If you have been forced to retire prematurely, you can make a complaint for premature retirement at the IR Department within 60 days from your last day of service with your employer. You cannot make a contemporaneous complaint of unfair dismissal until your complaint of premature retirement has been resolved. If your complaint for premature retirement is dismissed by the Director-General of Industrial Relations, you may then file a complaint for unfair dismissal to the same Department within 30 days.

Conclusion

Never underestimate the value of getting your job offer and your contract of employment vetted through by a lawyer, a HR or IR consultant, or a professional in a related field to ensure that you are aware of your legally-binding obligations as well as pitfalls in the contract. What may seem simple and straightforward (or “standard industry practice”) may prove to be costly later on.

There is really no “standard practice” when it comes to compliance with the law: what is wrong is still wrong, even if everyone is doing it.

A piece articulated so well! Now that you are fully aware of the 5 common bear traps, why not empower yourself with some negotiating tips. Watch this video brought to you by Leaderonomics Media and ace your next interview!