15/05/2020
Why is it important to sign an employment agreement?
An Employment Agreement is also known as Contract of Service (in legal sense). It is a legally binding agreement whereby an employer agrees to hire an employee thereby, establishing an employment relationship between both of them.
A contract of service may be brought into existence by way of an ex*****on of a written agreement, orally or may also be implied from the conducts of the employer and employee. Nevertheless, it is advisable to prepare a written employment agreement setting out the details terms and conditions of employment relations because the terms and conditions will provide security, clarity and safeguard interests of both the employer and employee.
Of course, this is not to say that oral agreements are unenforceable but should any disputes arise. Oral Agreement shall need substantial work to prove its existence and content transpired.
The Employers and employees should also be aware that even if a term of an employment agreement is not written down, it can still be binding upon the employer and employee as it can be considered as an ‘implied term’.
The rights of employees fall those who are earning below RM2000 per month, or those who are working in certain services such as manual labour or as a domestic servant fall under the categories of employees under the Employment Act 1956 are governed by the Act and its regulations. The Employment Act 1955 protects the rights of these employees. For example, the right to be paid within 7 days after the end of the salary period, termination benefits, paid maternity leaves etc. Even-though the rights of these employees are protected by the Act, it is necessary to have a written employment agreement if the parties agree to a term and condition which is more favorable that those prescribed by the Act.
But, pursuant to Section 7 of the Act, any terms and conditions in an employment agreement which is less favourable than the relevant law in the Act is null and void. The relevant provision in the Act will prevail over that particular term in the employment agreement which is less favourable.
Meanwhile, employees who do not fall under the categories of employees as defined in the Employment Act 1955, ie. those who are earning more than RM2000 and not engaging in manual labour services, their rights will be governed by the terms and conditions in their employment agreement. An employment agreement becomes even more important for these employees because it determines the responsibilities of employers and employees (parties), termination, confidentiality, benefits, holidays etc .For example, if an employee is terminated, whether he will receive any compensation is depended on the existence of such term in the employment agreement.
However, consider in a situation where there is no written employment agreement spelling out the dismissal of termination of employment and an employee is dismissed unfairly. This is where the common laws and rules comes in and assist employees. These Employees without a written Employment Agreement may file a representation to the Director general of industrial relations (“DGIR”) to seek for redress pursuant to Section 20. So even though employees outside the scope of EA are not protected by the Act, there are still applicable laws, like IRA, to protect certain rights of employees even if it is silent in the written agreement.
A written employment agreement may not eliminate all the risks in an employment relationship but it will certainly reduce it. Therefore, it is important to have a written employment agreement so that the in the event that conflicts arise, the agreement can assist in dissolving the conflicts. Employers and employees should not let the formalities of an agreement intimidate them from signing a written employment agreement, they should always seek professional advice in preparing or reviewing an employment agreement. It might save employees and employers from some problems in the long run.
