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Contract of Service

What is a contract of service?

Under the Employment Act 1955 "Contract of service" is defined as:

“contract of service” means any agreement, whether oral or in writing and whether express or implied, whereby one person agrees to employ another as an employee and that the other agrees to serve his employer as his employee and includes an apprenticeship contract;

From the definition, it looks like a contract of service can be in writing, oral, express or implied. But when we look at Regulation 8 of the Employment Regulation 1957 which states:

"Employer to furnish certified copy of particulars under regulation 5(b);"

Regulation 5(b) states as follow:

"Details of terms and conditions of employment:

    1. Name of employee and NRIC No.
    2. Occupation or appointment;
    3. wage rates (excluding other allowances);
    4. Other allowances payable and rates;
    5. Rates for overtime work;
    6. Other benefits;
    7. Agreed normal hour of work per day;
    8. Agreed period of notice for termination of employment or wages in lieu;
    9. No. of days of holidays and annual leave;
    10. Wage period. "

A contract of service is in fact should be in writing. As such, it is always advisable for an employer to give a detailed contract of employment or a letter of appointment with the following basic terms and conditions:

    1. Name of employee and NRIC No.
    2. Occupation or appointment;
    3. wage rates (excluding other allowances);
    4. Other allowances payable and rates;
    5. Rates for overtime work;
    6. Other benefits;
    7. Agreed normal hour of work per day;
    8. Agreed period of notice for termination of employment or wages in lieu;
    9. No. of days of holidays;
    10. Annual leave;
    11. Sick leave;
    12. Maternity benefits;
    13. EPF/SOCSO contributions;
    14. Transfer;
    15. Retirement age;
    16. Period of probation;
    17. Company rules and regulations (to be given separately)

Attention should be paid to items No. 14 and 15 on Transfer and Retirement age respectively. The law pertaining to these two items are as follows:

"12(3) Notwithstanding anything contained in subsection (2), where the termination of service of the employee is attributable wholly or mainly to the fact that:

(e) the employee has refused to accept his transfer to any other place of employment, unless his contract of service requires him to accept such transfer; or

the employee shall be entitled to, and the employer shall give to the employee, notice of termination of service,.........."

"4. Termination.

(1) Subject to paragraph(2),(3) and (4), an employee shall be entitled to termination benefits payment where his contract of service is terminated for any reason whatsoever otherwise than -

(a) by an employer, upon the employee attaining the age of retirement if the contract of service contains a stipulation in that behalf;"

For employers, the retirement age clause is important because of the financial implication. The employers may be faced with the choice of continuing to employ old employees or to pay hefty termination benefits if they choose to terminate the service of such employees. This is especially difficult to employers who are not doing too well in their business. The law says termination benefit need not be paid if there is a stipulation of retirement age.

Knowing this danger, some employers may be tempted to issue fresh contract of service containing such clauses on transfer and retirement age to existing employees. As such, employees should not simply accept the new contract until they have sought legal advice or have consulted the Labour Office.