Legal Issues in Human Resource Development

Laws and regulations forms an integral part of human resource practices because the formation of relationship between an employer and employee creates a legally binding contractual employment relationship between an employer and an employee. The International Labor Organization (2005) defines employment relationship as the relationship between a person called an employee or referred to as a worker and an employer for whom the employee performs work under certain conditions in return for remuneration (International Labor Organization, 2005). It is an agreement by which two or more persons agree to regulate their legal relationships as enforced by the law (Wadderburn, 1986). The contract of employment is regarded as the cornerstone of the employment relationship (Rubery, Ernshaw, Marchington, Cooke & Vincent, 2002) because through this relationship the nature of employer and employee legal rights and obligations are defined, interpreted and given legal cognizance (Omar, 2009; Wright & Hartin, 1997). Hence, the formation of a legally binding contractual employment relationship entail a legal obligation on both the employer and employee to comply to relevant laws and legislations that not only regulates but also facilitates the human resource practices in organizations. As noted by Swanson and Holton (2001), the practice of human resource development (HRD) is dominated by positive intentions for improving the expertise and performance of individuals, work groups and work processes, and the overall organizations. At national level, HRD is regarded as the core element in the strategic economic plans of a country (Osman-Gani, 2004). The legal framework governing the employment relationship is an important component of national policy for managing labor market change (ILO, 2005). Therefore, it is pertinent for HRD practitioners to know and observe the laws and regulations related to the HRD practice so that the positive intentions of unleashing human potentials and organizational competitiveness as well as effort to enhance nation competitiveness can be lawfully, rightfully and fairly put to actions.

It is noted that many literatures written on legal issues in the functions of human resource have extensively discussed and focused on specific human resource scope or the more traditional human resource functions such as recruitment and selection, compensation and benefits, industrial relations, and even in performance management, but little attention were given on legal issues in the field of human resource development (Clardy, 2003). On similar note, in Malaysia, many literatures can be found focusing on legal issues governing the Malaysian industrial relations system that centres on the regulation of employer-employee relations and also employer-union relation (Ayadurai, 2001). Little attention was given on the legal ramification that may arise from HRD activities and practices.

This however does not mean that the field of human resource development are free from laws and legal regulations (Clardy, 2003). Neither does it imply that it is suffice to focus on the laws and regulations governing industrial relations related matters. In Malaysia, the review and writings on legal issues in the field of human resource has not gain prominence partly because most of the functions related to the human resource development field such as training and development, organizational development or employee career development falls within the ambit of the management prerogatives under Section 13 of the Industrial Relations Act, thereby leaving these matter to be addressed by organizations. Furthermore, the regulation of employer-employee relations and also employer-union relation were dealt as part of the industrial relations functions. In reality, as the field of HRD plays a central role in developing human potential and organizational growth and effectiveness (Chalofsky, 1992), the legal framework that governs the human resources development function in organizations is said to be pervasive and subtle (Clardy, 2003). Similarly in Malaysia, the field of human resource development are also laden with legal issues and these legal issues may be linked to the more traditional human resource functions such as recruitment and selections or industrial relation arising as a consequence of actions or decisions taken involving HRD related functions. For instance, an organizational development intervention strategy such as corporate reengineering that changes the job functions of employees or leads to staff reductions have legal ramifications that affects the core of the employment terms and conditions between the employer and employee. There also legal issues linked directly to HRD related practices like those related to employee training and development which requires compliance to the Human Resource Development Fund (HRDF) Act, ______. Hence, it is important to look into legal issues beyond the realm of the industrial relations field in today’s world when HRD functions and activities has gained prominence in order to move Malaysia towards the new economic model.

In view of the above, this chapter will provide a review of the legal framework governing the human resource development field from Malaysian perspectives. First this chapter will review the notion of the employment relationship, the basic foundation of laws and regulations governing the HRD field in Malaysia, and the governing bodies involved in regulating the HRD related regulatory requirements. Next this chapter will review the relevant legal issues governing the three primary functions of human resource development field namely training and development, career development and organizational development. These three areas are chosen as they represent the three major areas of human resource development as indicated in the earlier chapters of this book and in literatures (Werner & DeSimone, 2008). Next this chapter will also discuss pertinent human resource related legal issues to be considered to ensure HRD activities can function and take place effectively. In this section, attention will be given to discussing issues related fair employment practices such as employee legal rights, workplace health and safety, harassment free workplace with specific emphasis on sexual harassment and issues related to migrant workers. Finally this chapter concludes with a discussion of the implications of the legal issues in HRD for practitioners and for scholars. Greater emphasis will be given on legal aspects relating to HRD practice in the private sector in this chapter.

Basic regulatory framework governing the HRD field in Malaysia

The legal rules that make the rule of law in Malaysia are based on a set of written and unwritten laws. The Federal Constitution, Federal and State laws referred as the statutes forms part of the written laws. The Federal Constitution is the most supreme law in Malaysia and this is well recognized by the courts. Lord Denning in the case of Surinder Singh Kanda v The Government of the Federation of Malaya (1962)1 MLJ 169, a case involving the dismissal of a Police Inspector, stated, in tandem with Article 4(1), that the Federal Constitution is the supreme law of the Federation (which includes East and Peninsular Malaysia). It outlines, among others, the basic fundamental rights of an individual (Sheridan & Groves, 1987). The second important source of law, i.e. the Federal laws is laws enacted by the Parliament or any Act of Parliament and the State laws are laws enacted by the State Legislatures (Article 160, FC).

Meanwhile, the unwritten law is based on the English common law and custom or usage having the force of law in Malaysia (Art. 160 of the FC). These unwritten laws are given legal cognizance through judicial decisions made by the courts that are vested with judicial powers under Article 121 of the Federal Constitution (Jayakumar 1976; Sheridan & Groves, 1987). Section 3(1) of the Civil Law Act, 1956 (Act 67) states that the Court shall apply the Common law and rules of equity that are administered in England on the 7th April 1956 (for Peninsular Malaysia) subject to local circumstances.

Following the above legal make-up, the employment relationships in Malaysia are governed by the Federal Constitution, Federal laws and also unwritten laws by virtue of Article 160 of the FC which are given force by court decisions. Unlike most other contractual relationships between two parties, the rights of employees that arise from the employment relationship are safeguarded by the most supreme law of this country. The right to employment or livelihood has been equated to the right to life provided in Article 5 of the FC. In the case of Tan Tek Seng v Suruhanjaya Perkhidmatan Pendidikan, 1996, Justice Gopal Sri Ram assert:

‘ The right to life include right to livelihood. The right to livelihood therefore cannot hang on to the fancies of individuals in authority. The employment is not a bounty from them nor can its survival be at their mercy. Income is the foundation of many fundamental rights and when work is the sole source of income, the right to work becomes as much fundamental ’ (Tan Tek Seng v Suruhanjaya Perkhidmatan Pendidikan, 1996, p.2….)

In a recent article, Justice Gopal Sri Ram (2007) state that the Malaysian courts have accepted that the right to earn a livelihood is a constitutionally guaranteed right and at the very least, the Federal Constitution guarantees five rights of a workman namely: (i) protection of livelihood; (ii) the right to work in a reasonably safe environment; (iii) the right to unionize; (iv) the right to fair wage; and (v) the right of reinstatement. In addition to these rights, the Article 6 of the Federal Constitution also protects employees from any forms of forced labor including slavery. These signify, any HRD related initiatives, activities or strategies should take into account of these rights safeguarded under the Federal Constitution.

In addition to the above, the employment relationship is governed by two main legislations (Acts of Parliament): namely the Employment Act, 1955 and the Industrial Relations Act, 1967. These two laws are supplemented by a third one, i.e. the Trade Unions Act, 1959.

The Employment Act 1955 (EA)

The Employment Act is one of the important piece of labor legislation. It sets the minimum terms and conditions of employment which every employer is legally obliged to comply (Omar, 2009). Some of the terms stipulated in the EA comprise of

However, the Employment Act is not applicable to every employee who enters into an employment contract with an employer The Act only covers all employees in Peninsular Malaysia whose wages do not exceed RM1,500.00 per month irrespective of his occupation or employees who engaged in a certain occupation such as manual labor or persons engaged in the operation or maintenance of any vehicle used for transportation of passengers or goods, persons engaged in (but is not a certified officer) any locally registered vessel or a domestic servant are (First Schedule of the Employment Act).`

For employees who earn more than MYR1,500.00 or persons who do not engage in the activities specified by the Employment Act, their terms and conditions of employment are covered under the employment contract and negotiated individually based on the market demand or is covered under the collective agreement (for unionized company). In addition, employees in the public sector including statutory body are also excluded from the application of the Employment Act (Employment (exclusion) Order 1976 PU(A) 374/76). The employment relationships in the public sector are governed by the Federal Constitution and the General Order.

The Industrial Relations Act regulates the relations between employer and employee and their trade unions, stipulates provisions to help prevent and settle trade disputes and regulates the termination of employment. The major concern of the Act is to settle any trade dispute between an employer and an employee which is connected with the employment and non-employment or the terms and conditions of employment (s 2, Industrial Relations Act). This Act is regarded as a piece of legislation that is concerned with equity and good conscience than legal technicalities (D’Cruz, 1999). Unlike the Employment Act, the Industrial Relations Act does not restrict an employee on the basis of his wages from seeking redress and justice. The Industrial Relations Act is widely used by employees to seek redress for unfair dismissal under Section 20 of the IRA. Besides that, the IRA st

The Trade Unions Act governs matters relating to trade unions. It defines trade unions, regulates their composition and membership, lay out union rights, power and responsibilities, registration of trade unions, and regulates the funds and accounts if a registered trade union.

For instance, Article 5 deals with the fundamental of liberty of a person under Article 5, 9, 10, 13. The learned judge, Justice Gopal Sri Ram has even interpreted Article 5 to indicate that employment forms a fundamental right of an individual.

Generally the legal system in Malaysia is founded under the English Common law system

This section will discuss the sources of law governing the HRD filed namely the Federal Constitution (Note: I still need to check of the relevance or any provision governing HRD in the FC), other main Acts of Parliament such as the Human Resource Development Act, 1992, the National Skills Development Act 2006, the Employment Act 1950, the Industrial Relations Act 1967 (IRA), and the Trade Union Act 1959, and other relevant Acts such as Occupational Health and Safety Act 1994. This section will indicate some differences in the regulatory framework of the HRD functions involving the public and the private sectors in Malaysia. Besides, the Acts of Parliament, this section will also discuss the courts decision as the source of regulatory framework in the HRD field and also the Code of Practice on Industrial Harmony 1975. This section will also discuss the governing body i.e. the Ministry of Human Resource Malaysia involved in regulating the HRD functions.

The nature of employment relationship

Employment relationship involves an exchange relationship which is regarded as contractual (Koh & Lay, 2000). According to Simon (1951), a person (employee) enters into an employment contract with an organization (employer) when the former agrees to accept the authority of the latter and the latter agrees to pay the former a stated wage. Both the EA and IRA also see the employment relationship to be contractual in nature (Ayadurai, ______)..For the most part of employment laws, the right and obligations of employees arises and can be invoked only when an employment relationship exist between the employee and the employer. Hence, the rights and obligations in an employment relationship emerges with the formation of the contractual obligation between the employer and employee. In Malaysia, the contract of employment, which denotes the employer-employee relationship, is referred as the ‘contract of service’ in the EA, while the IRA, refers it as the ‘contract of employment’. The EA defines contract of service as:

any agreement, whether oral or in writing and whether express or implied whereby one person agrees to employ another as an employee and that other agrees to serve his employer as an employee and includes apprenticeship contract. (s 2, Employment Act).

Meanwhile the IRA defines contract of employment as:

any agreement, whether oral or in writing and whether express or implied, whereby one person agrees to employ another as a workman and that other agrees to serve his employer as a workman (s 2, Industrial Relations Act).

Apart from the use of different terms to refer to the employment relationship, both these Acts used different terms in reference of a worker. The Employment Act uses the term ‘employee’, while the Industrial Relations Act uses the term ‘workman’. Both these terms are defined differently in both Acts. The definition of ‘workman’ under the Industrial Relations Act covers a wider scope of employee compared to ‘employee’ under the Employment Act. In addition both Acts used the term employer but did not define ‘employer’ exactly in the same way. According to Ayadurai (________), the unusual way of defining these three terms, i.e. the contract of service vs. contract of employment, employee vs. workman, and employer by these Acts is basically for the same reason, i.e. to specifically elucidate that unless there is an employer, an employee/workman and a contract of service or a contract of employment as defined in the Act concerned, any other kind of relationship for providing service will not be covered within the ambit of this Act.

The definitions of employment contract provided by the Acts suggest that employment relationship may exist even if the employment contract is entered orally. In the absence of a written contract of employment, such a contract may be implied by the fact that a person is working for the employer. Besides, an employment contract may be entered for a particular period of time, which is often referred as fix-terms contracts, or can be open-ended without specifying the duration. Most employees in Malaysia have open-ended contract of employment (Maimunah, 2007). However, of late with the ever-changing business landscape, fixed-term contract has also gained popularity particularly in project based work or occupation. In addition, the Employment Act has clearly stipulated that the term ‘employee’ includes not only full-time employees but also part-time employees. The Act defines part-time employees as those whose average hour of work do not exceed 70 percent of the normal hours of work of a full-time employee employed in a similar capacity in the same enterprise.

At common law, a contract of apprenticeship does not give rise to the relationship of employer and employee. Interestingly, this is not the case in Malaysia. Both the Acts regards apprenticeship contract as an employment relationship in Malaysia. The Employment Act, 1957 defines contract of service to include apprenticeship contract. Meanwhile, the Industrial Relations Act did not explicitly include apprenticeship contract in its definition of contract of employment, but has included ‘apprentice’ in the definition of a worker under the Act (S 2, Industrial Relations Act ). An apprenticeship contract is treated as an employment contract when an employer undertakes to employ a person and train or have him trained systematically for a trade for a specific period of not less than two years (S 2, Employment Act ). Nonetheless, self-employed persons or those who enters a ‘contract for service’ instead of a ‘contract of service’ are not employees. Therefore, employment laws in Malaysia (Maimunah, 2007; Ayadurai, 1998) do not protect them.

In some jobs it may be difficult to ascertain whether employment relationship or in other words a contract of service or a contract for service exist between the employer and those who work for him. A contract for service denotes a principal-contractor relationship where the employer gets the work done by an independent or self-employed contractor (Ayadurai. 1998; Wadderburn, 1983). The Employment Act, has clearly defined who is a contractor. However, a declaration by parties that the contract is one of service or for service is not conclusive (Teng, 1997). The courts, and in Malaysia the civil court and the Industrial court play a crucial role in determining the employment status of workers based on the facts. The courts in Malaysia have relied on a number of tests to assist in determining whether contract of service and not contract for service exist between the employer and those who work for him. The earliest test adopted by the Malaysian court from the common law was the control test, also referred as the traditional test (Ayadurai, _________; Teng, 1997). In the control test, if the employer can direct a person or has control not only over what to do but also how to do, then a contract of service is deemed to exist (Ayadurai, 1998; Teng, 1997). This test however are found to be increasingly difficult to apply in modern employment relationships especially for professionals or a person of some particular skill and experience (Ayadurai, 1998; Teng, 1997). Megaw J in Amalgamated Engineering Union v Minister of Pensions and National (1963, p. 453) said that although the question of control is an important element in deciding the existence of a contract of service, it is not an absolute test. The Malaysian courts also adopt a similar view (Mat Jusoh bin Daud v Sykt Jaya Seberang Takir Sdn Bhd, 1982, p. 74). Difficulties associated with applying a simple control test has caused the courts to explore alternative approaches to distinguish between a contract of service and a contract for service.

The second test namely the integration or organization test, developed by Lord Denning, deals with the individual’s degree of involvement in the organization (Teng, 1997). The emphasis of the test is on the work of an individual being an integral part of the business and part and parcel of a business (Teng, 1997). This test was relied by the Malaysian court in the case of Employee Provident Fund Board v Ms Ally & Co Ltd (1975). This test takes into account the degree of integration into the organization. However, when the status of the employee itself is an issue to be determined, this test is unable to provide the answer. As such, this test is unable to provide a clear and candid answer to the status of an employee in the modern day employment (Ayadurai, 1998). As a result, this test has not played a large part in the evolution of law on this matter (Ayadurai, 1998). Due to its impracticalities, this test also never gained popularity in the English courts (Kelly, Holmes & Hayward, 2005).

In recognition of the difficulties in determining the existence of an employment relationship, the Malaysian courts have adopted a much more resilient test, i.e. the multiple or mixed tests (Ayadurai, 1998; Teng, 1997) to determine the existence of a contract of service or a contract for service. This test was originally developed by Lord Thankerton in the case of Short v J & W Henderson Ltd (1946, p. 429) . He cited four main indicia in determining the status of employment test namely: (i) the employer’s power of selection of his servant; (ii) the payment of wages or other remuneration; (iii) the employer’s right to control the method of doing the work; and (iv) the employer’s right of suspension or dismissal. This multiple test was adopted by the Malaysian court in the case of Bata Shoe Company (Malaya) Ltd v Employees Provident Fund Board (1967). Following the multiple tests, Lord McKenna in the case of Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance (1968, p. 524) identified three conditions for the existence of a contract of employment namely, first the employee agrees that, in consideration of a wage or other remuneration, he will provide his own work and skill in the performance of some service for his master. Secondly, the employee, expressly or impliedly, that in the performance of that service acknowledges that he will be subject to the control, in a sufficient degree, by his employer. Thirdly, the other provisions of the contract are consistent with its being a contract of service. In Malaysia, Federal Court Judge Suleiman, referred to this test in the case of Employee Provident Fund Board v M S Ally & Co Ltd (1975).

The Malaysian court acknowledges that there is no one conclusive test that can be used to determine the status of employment relationship and thus adopts a multiple test approach in determining the existence of an employment relationship. The Industrial Court in the case of American International Assurance Co Ltd and Dato’ Lam Peng Cheng & Others (1988) has outlined an extensive list of elements to be considered in determining the existence of a contract of service. The first element adopts the control test approach, i.e. to determine the extent of the employer’s right of control. This element is likely to be indicative of a contract of service where the skills used by the employees are simple or the exercise of control is large. The second element suggested adopts the integration test approach, i.e. to determine the extent of the employee is an integral part of the business. The third element looks at whether the person contracted has a chance of profit and a risk of loss. This element adopts the economic reality or entrepreneur test approach where it focuses on the inconsistency of seeking a profit from doing the work as an employee. This test was used in the case of Market Investigation Ltd v Minister of Social Security (1969, p.12). The fourth element looks at factors relating to the instrumentalia and the onus to provide them. Where the instrumentalia belong to the person who undertake to work and are complex, specialized or expensive, the contract will be a contract for service. This test was used in the case of Montreal v Montreal Locomotive Works Ltd (1946, p.515). Teng (1997) suggest two arguments on the relevancy of ownership of equipment in determining the employment relationship. Firstly, the owner of the equipment is the one who has control over the work. Secondly, if a person hires an independent contractor, he will be required to provide all the necessary equipment to perform the job.

The fifth element looks at the entitlement to exclusive service. If the person works exclusively for one employer, there is a high likelihood, although not conclusive, that he has entered into a contract of service. The sixth element considers the payment of fixed remuneration such as payment of wages, sickness pay, holiday pay and by whom the payment is made. The existence of fixed remuneration may be an indicative of employment relationship. The seventh element looks at the power of selection and appointment and the eight element looks at the power vested to suspend or dismiss the employee. Lord Thankerton suggested both these element in his multiple test approach. The ninth element considers the power to fix the place, time of work and the times which holidays are taken. The existence of this power suggests that an employment relationship exist. This element can be regarded as part of the control test. Finally, it suggests for the examination of the intention and the agreement between parties to determine the true nature of the relationship. Nevertheless, the intention of the parties should only be considered as a last resort. The whole factual circumstances have to be taken into account (Ahmad Mir & Kamal, 2003).

Even though, it may be difficult to ascertain whether employment relationship exist in certain jobs and there is no one single test that can be adopted to determine the existence of an employment relationship, it is extremely pertinent that the status of the relationship is ascertained because only employees are protected under the employment statutory legislations. There are also some statutes that only apply to employees such as the Employee Provident Fund Act 1991 which governs employee’s and employer’s contribution for employee’s retirement, and the Employees’ Social Security Act 1991 which provides certain benefits in case of death, invalidity and employment related injury. Further, employers also have duties and responsibilities towards employees that do not exist when they hire independent contractors such as being liable for any injury for damage to third party caused by their employee and duty to provide a reasonably safe system of work (Teng, 1997). Hence, it is imperative to ascertain the existence of an employment relationship so that employers and employees can exercise their rights appropriately.

Basic regulatory framework in employee training and development functions

This section will review the legal requirements for skills training and development in existence in the Acts specifically in the Human Resource Development Act (HRDA), 1992 and the National Skills Development Act (NSDA) 2006. The legal mechanism of the Human Resource Development Fund under the HRDA will be discussed. A review of mandatory training requirements under the law will be made. This section will also focus on the regulation of apprenticeship training under the NSDA.

Basic regulatory framework in career development

This section will highlight the provision stated in Section 13 of the IRA that states that it is the management prerogative to decide on matters related to the promotion of employees. However, it has been established law, based on court decisions, that this prerogatives have to be undertaken in good faith.

Basic regulatory framework in organization development

This section will review important legal implications in organization organizational development initiatives that may result in changes to the working conditions and these changes may have legal implications. For instance, a change that affects fundamental terms and conditions or employment has to be made with employees consent as these may amount to a fundamental breach of employment. Employees, in this instance, may claim constructive dismissal against the employer. Besides, business reorganization or reengineering initiatives may result to job redundancy or retrenchment of employees. Hence the legal issues relating to termination of employment, specifically on the grounds of redundancy will be discussed.

Fair employment practices in HRD functions and activities.

This section will discuss employee legal rights provided under the law, employer and employee responsibility related to workplace health and safety. A review on employer duty of care will be made in this section. Specific attention will be given to employer duty of care to provide a harassment free workplace with specific emphasis on sexual harassment. The laws related to sexual harassment at workplace will be discussed. Finally, legal issues related to migrant workers will also be discussed.