COUNSEL by Marcus van Geyzel
Following last week’s introduction, this is the first in a three-part weekly series on employment law. This week’s focus is on hiring employees.
Many employers see the key to optimizing productivity and success as having employees with the appropriate qualifications, personality, and ultimately the practical application to get the job done well. Often, when a company finds the right candidate, employment documentation is seen as a mere administrative formality.
However, even the sweetest of relationships, can be soured by time and circumstances. By the time things go wrong, it is too late for an employer who realises he is insufficiently protected by a shoddily-prepared employment contract. This article highlights some key issues an employer should bear in mind when hiring employees.
Pre-hiring considerations
Even before an employee is hired, there are some issues to be considered when going through the hiring process, which generally encompasses advertising, conducting interviews, and making a hiring decision.
There are no strict rules regarding job criteria. Employers can specify criteria such as gender, minimum academic qualifications, and even physical attributes or abilities, provided they are relevant to the job. For example, it seems reasonable to specify that a driver be male, or that an executive have certain degree-level qualifications. The key is to ensure the criteria are relevant to the job, and do not expose the employer to the risk of being accused of being unfairly discriminatory. The Malaysian market has yet to mature in this area, and hence the law has not had to develop to meet any specific needs.
One of the most advanced jurisdictions in this respect is Germany, where there have been recent changes in their Federal Data Protection Act to address the collection of personal data on prospective employees. Employers are permitted to collect personal data of applicants that is publicly accessible. However, the new law differentiates data which is only available in private social networks (such as Facebook), and disallows employers from collecting data from such networks. The new rule excludes social networks which are purpose-built for professional networking and hiring (such as LinkedIn). Additionally, even with publicly-available information, an employer must only collect personal data that is relevant to the position being applied for. It is widely anticipated that these rules will be replicated by other jurisdictions, and is an indication of the line that needs to be drawn when it comes to background checks.
Documenting the employment relationship
The first point of meaningful contact between an employer and employee is usually the interview. Besides the standard evaluation process, all employers should use the interview as an opportunity to make clear the scope of the role that the applicant is applying for. Basic information such as the volume of work involved, and requirements in terms of reporting structures, timelines, and key performance indicators, should be communicated. The purpose of relaying this information is to establish a clear communication of expectations from the start, which may assist in any future disputes.
Once a decision has been made to hire an applicant, a company will issue a letter of offer of employment, which the applicant is invited to accept. This is where the practice of Malaysian employers differ, as there are several options when it comes to documenting an employment relationship.
- Letter of Offer: This is a basic letter, approximately three pages in length, which in its most basic form would set out information such as position, salary, leave, and termination.
- Employment Contract: There are several ways this is documented. Some employers set it out like a full commercial contract, particularly for the most senior roles. Others use a letter format, giving it the appearance of a very lengthy letter of offer. An employment contract generally includes additional information such as various employee benefits, bonus calculations, performance review processes, and confidentiality clauses.
- Employee Handbook: Larger corporations would have a standard employee handbook (or manual) in place, sometimes with all-inclusive terms and conditions, or with different handbooks for different classes of employees. These can be very comprehensive, and would even include sections on the corporate ethos and work culture. This obviously may not be suitable for employers who tailor employment terms and conditions for specific individuals or smaller classes of employees.
At the end of the day, the line differentiating the above documents may not be very clear, and what is important is not the type of document being put in place, but its contents. It may seem common sense that an employer should not stop at the basic letter of offer stage, but many do. Employers who choose not to document the detailed employment terms and conditions often say that the terms and conditions would be based on the “standard practice” of the company. This is a common mistake, which has caused losses to many employers when there is a dispute on what an employee is entitled to. A recent example is that of the retirement age.
Earlier this year, in Malaysia, an employee succeeded in a claim for unfair dismissal against an employer who retired the employee, who had turned 55. There was no retirement clause in the employment letter, but the employer said it was normal for private sector employees to retire at 55. Over the years, there have been several cases where the retirement age was not specified in a (usually) basic employment letter, and the courts have very consistently stated that the non-existence of such a clause obviously does not mean an employer has to employ an employee forever. If there is a clear and consistent practice by the company, and the employer is not discriminating against the employee, the court will not interfere. Despite this, it is an unnecessarily precarious position to be in, and one which an employer can decisively conclude by including a simple sentence setting out the retirement age. Industrial disputes are decided on specific facts, and the employee above won the case partly because there was no clear practice within the company, and he was hired when he was 54.
Employment terms obviously depend on the individual employer, employee, job scope, and industry. It is impossible to provide a definitive list of must-have clauses here. The most common provisions which should be included in most employment contracts are the job description (position, brief description of role, and basic salary and statutory deductions), term (probation, retirement, or fixed term), termination (who can terminate, and how), leave entitlements (annual, emergency, medical, and unpaid), additional remuneration (allowances, bonuses), targets, performance reviews, confidentiality, and any other benefits. Depending on the position and industry, it may also be common to include reasonably restrictive provisions on the employee working with a competitor, or in the same industry, for a period of time following termination.
As an employer, if there is some element of the employment relationship which you may wish to enforce or rely on in future, you must ensure that it is properly documented from the very beginning of the employment relationship. The best way to avoid a messy dispute is to get things done right, from the start.
Marcus van Geyzel is a senior associate in the corporate and commercial division of Mah-Kamariyah & Philip Koh, Advocates & Solicitors. Following last week’s introduction, this is the first in a three-week focus on employment law.
This article appeared in Forum page of The Edge Malaysia, September 26 – October 1, 2010.
Posted on October 1, 2010
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