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LAST week’s article “Promoted to trouble: An employee’s 7-years of perseverance” (The Daily Express, 10th November 2025:

https://www.dailyexpress.com.my/read/6368/promoted-to-trouble-an-employee-s-7-years-of-perseverance/) was on an employee’s long journey perseverance of challenging a fixed term contract in court. 

This week will be a continuation of last week’s article but this time we will look further at the legal position of such contracts.  

Fixed term employment contracts are employment contracts for a specified duration, for example, for a year or two. 

Businesses commonly use a fixed term contract for seasonal or temporary work assignments or for a specific project. 

The courts recognises such business needs for genuine fixed term contracts. In Han Chiang High School Penang Han Chiang Associated Chinese Schools Association v. National Union of Teachers In Independent Schools, W. M’sia [1988] 2 ILR 611, the court observed:

“... Such genuine fixed-term contracts for temporary, one-off jobs are an important part of the range of employment relationships. Some such jobs are found in seasonal work, work to fill gaps caused by temporary absence of permanent staff, training, and the performance of specific tasks such as research ...”

However, the same Industrial Court above also recognised that there are situations where a fixed term contract might not be genuine. It stated:

“... it would be an obvious loophole if any employer could evade the statutory protection by making a series of contracts of finite duration with his workmen. In other words, employers could engage their workmen on a succession of fixed-term contracts of, say, three months’ duration each and simply fail to re-engage particular workmen whom they wanted to get rid of, without having to face a claim for reinstatement ... “

This legal instrument, designed for flexibility, is often at the center of disputes that question the very nature of an employment relationship. 

Is an employee on a fixed term contract genuinely temporary, or are they a permanent employee in disguise, “cloaked” in a series of finite contracts to deny them the security of tenure? 

The line between a “genuine” contract and a “non-genuine” or “sham” is a battleground where employer flexibility clashes directly with an employee’s right to security of tenure. 

The Industrial Courts have been tasked with scrutinising such contracts when there are “unfair dismissal” claims by employees. 

Their long-held position, as articulated in the landmark case of Han Chiang High School Penang Han Chiang Associated Chinese above, is that while the law recognises the need for “genuine fixed-term contracts for temporary, one-off jobs,” it must also guard against the “obvious loophole” of employers using “a succession of fixed-term contracts... to evade the statutory protection”.

Beyond the work permit-Contracts of foreign workers/expats 

For decades, the legal landscape of foreign employment in Malaysia operated on a clear, if rebuttable, presumption: a fixed term contract for a foreign employee was considered genuine. 

The logic seemed simple. Since an expatriate or foreign worker’s right to work is tied to an employment pass issued for a specific duration, the contract governing that work was naturally seen as fixed and temporary. 

This presumption provided employers with a significant degree of certainty. 

When the work permit expired, the employment relationship could be concluded by a simple “non-renewal,” bypassing the stringent legal requirements of proving “just cause and excuse” needed to terminate a permanent employee.

All this changed about five years back with the Federal Court’s (Highest Court in Malaysia) landmark decision in Ahmad Zahri Mirza Abdul Hamid v. AIMS Cyberjaya Sdn Bhd [2020] 6 CLJ 557. 

In a ruling that sent “shockwaves” through industrial jurisprudence, the apex court declared that an employee’s status as a foreigner and their need for a work permit are irrelevant in determining whether their fixed-term contract is genuine (for a detailed analysis of this case refer to: “A Colossal Change in The Legal Position of Fixed Term Employment Contracts of Foreigners”, John Mark, [2020] 6 Current Law Journal xxxi: https://bulletin.cljprime.com/?CLJBulletin;2020;32;b;).

The claimant, Ahmad Zahri Mirza, a Singaporean, began working with AIMS Data Centre 2 Sdn Bhd (‘ADC’) in 2009. His yearly contract was automatically renewed without any application from him. 

In 2011, following a consolidation, his employment was moved to AIMS Cyberjaya, another company within the same group. 

Again, his contract was automatically renewed. In 2013, the company terminated his employment, citing the expiry of his contract. The Industrial Court and High Court both found that Zahri was, in reality, a permanent employee and his dismissal was without just cause.

The Court of Appeal, however, reversed this, favouring the employer. The Federal Court, in its final decision, sided with the employee, answering two critical legal questions:

1. Is a work permit a material consideration? The Court ruled No. It held, the requirement of a work permit is not a factor in deciding if a fixed-term contract is genuine.
2. Is a successively renewed contract (without application or breaks) actually permanent employment? The Court ruled Yes, holding that in this case, the fixed term contract was not a genuine one.

This decision effectively tears down the “expat/foreign worker exception,” granting foreign employees the same right to security of tenure as their local counterparts if their employment relationship is, in substance, a permanent one. For employers, this means an increase in potential legal liability. For foreign employees, it signifies a powerful affirmation of their rights. 

In scrutinising whether a fixed-term contact is “genuine” or “non-genuine” the e Court in Ahmad Zahri Mirza Abdul Hamid v. AIMS Cyberjaya Sdn Bhd [2020] 6 CLJ 557 propounded a three prong test:

1. The intention of the parties.
2. Employer’s subsequent conduct during the course of employment.
3. Nature of the employer’s business and nature of the work which an employee is engaged to perform.

Take away

The law on fixed term contracts focuses on “substance over form.” 

The Industrial Court, in discharging its duty to act “according to equity, good conscience and the substantial merit of the case” will not accept a contract’s label at face value. 

Fixed term contacts are open to scrutiny by the Industrial Courts. In deciding whether a fixed term employment contract is a “genuine” and a “non-genuine” or “sham”, the court will use the three prong test above as propounded in Ahmad Zahri Mirza Abdul. 

Hence, it is advisable for business to hire employees on a fixed term employment contract only when there is a genuine business need.