We have succeeded in representing a multinational company in High Court for a criminal appeal related to Section 5 and 94(g) of the Employees’ Social Security Act 1969.

In essence, this case concerns the alleged failure to pay Social Security Organisation (SOCSO) contributions by the company for its employee as required under Section 5 of Employees’ Social Security Act 1969. It is the company’s position that the individual involved was an independent contractor and hence was not an employee under the meaning of Section 2(5) Employees Social Security Act 1969.

COURT DECISION

In arriving at the decision that there existed a contract for service (for independent contractor), the Court considered that the independent contractors did not have fixed working schedule and the service appointments were dictated by the company’s customers without the company’s involvement. The allowances provided by the company were also based on the number of services rendered by the independent contractors each month. There was no minimum payment or guaranteed payment to be paid to the independent contractors by the company and the payment depends on the number of services/jobs taken up by the independent contractors.

The Court applied the applicable tests and decided that there was no element of control of the independent contractors by the company because they had complete liberty in deciding the working time, duration, amount and the manner of conducting or completing work. The jobs can be done by other independent contractors if another independent contractor chose not to take up the jobs. The independent contractors were also not part and parcel of the company’s business.

The Subordinate Court found that SOCSO has failed to prove that a prima facie case which warrants the defence to be called.

HIGH COURT DECISION

The High Court decided that the Subordinate Court had not erred in its decision and had undertaken a maximum evaluation of all the evidence made available. The High Court affirmed the Subordinate Court’s decision that the peculiar features of engagement point towards the conclusion that the arrangement was a Contract for Service under all applicable tests, i.e. the Control Test, Independence Test, Integration Test, Economic Reality Test and Entrepreneur Test. The factors considered by the High Court include but were not limited to –

(a) the independent contractors had no fixed hours and location of work,

(b) the independent contractors had the freedom to decide when to and not to work,

(c) the independent contractors were not given minimum payment or guaranteed payment,

(d) the independent contractors registered their own companies and had side businesses,

(e) there was no exclusivity of service, and the independent contractors can have different jobs at the same time; and

(f) all spare parts and tools needed in the course of work were purchased by the independent contractors.

KEY TAKEAWAYS

The consequences for misclassifying employees as independent contractors can lead to severe impact and penalties. Companies that engage and rely on group of agents or contractors should be cautious to ensure that the contracts for service truly reflected the relationship of an independent contractor and not an employer-employee relationship under the pretext of an independent contractor.

The recent amendments to the Employment Act 1955 codified a list of elements whereby an employment relationship shall be presumed until the contrary is proven by the employer.

While the distinction between an “employee” and an “independent contractor” could be fuzzy, companies should never be.

Leonard Yeoh
Partner
T: +603 2050 1970
leonard.yeoh@taypartners.com.my

Pua Jun Wen
Senior Associate
junwen.pua@taypartners.com.my