Contract of Service or Contract for Services? (Part 2)

By Richard Wee, Janessa Kok and Oh Jia Ling

(First published here)

In our previous article (“The Difference Between Contract of Service and Contract for Services”)(Part 1), we commented on the differences between a Contract of Service and a Contract for Services. In this second article of the same series, we will apply the principles discussed in Part 1 in a few hypothetical situations to determine the type of contract together with our analyses and reasons.

A person works on Saturday, Sunday and Monday from 9am to 5pm, has a fixed lunch hour and Employee Provident Fund (EPF) is provided. Is this a contract of service or contract for services?

In this scenario, it is very likely that the person is engaged in a contract of service. The individual has fixed working days, fixed working hours and specific time for lunch break. The individual also does not have the freedom to function outside the scope of which he is given.

It appears to us that the employer has complete control over the employee in terms of job scope, working hours and so on. Furthermore, the fact that he is provided with EPF contributions would more likely lean towards a contract of service.

A person is a 100m runner for a sports club called Pantas Lari. Every day, he will train from 6am to 8am and 5pm to 7pm. From 11am to 1pm, he will go to the gym. And from 2pm to 4pm he will go for psychological training. He is not provided EPF but SOCSO and an allowance will be given. After running for a tournament, he gets to keep 60% of the prize money while the remaining 40% will go to the club. Is this a contract of service or contract for services?

In this scenario, it is more likely that the individual is engaged in a contract for services. While it remains unclear as to whether or not his training schedule is fixed and the Control Test[1] cannot be applied, another element to take into consideration is that fact that he is given an allowance as well as 60% of the prize money. There is also an absence of fixed salary being paid and zero deduction of EPF is made/provided.

Therefore, it can be speculated that if he does not run for any tournament, his only source of earnings from the sports club would be the fixed allowance. Based on the context given, the individual is under a contract for services, ie. to run for the club on a tournament basis.

A person works for MWK Properties to sell houses. He has to be in the office from Monday to Sunday. He is given flexible working hours but he must clock in to the office every day. He has to meet people to sign agreements but he cannot claim for travelling expenses. Whenever he sells a property, he will get 3% of commission and this will cover his travel expenses as well as his remuneration. He is given a basic allowance of RM500 but not EPF and SOCSO. Is this a contract of service or contract for services?

In this scenario, it is more likely that the person is engaged in a contract for services. While the individual is required to clock in to the office on a daily basis, he is nonetheless given flexible working hours. In other words, MWK Properties does not have any control over the specific time the individual decides to clock in to the office. Furthermore, nothing suggests that the employer controls and/or interferes with how the individual meets the (potential) buyers to sign the agreement.

Another important element to pay attention to is the fact that the individual is merely given a fixed allowance without any EPF and SOCSO contribution/deduction. In the event he successfully sells a property, he will be entitled to a 3% commission.

According to Gopal Sri Ram JCA in Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor [1996] 4 CLJ 687 ‘the more control that is being exercised over the individual by the employer, the more likely the worker is an employee of the company’. As such, it is less likely that the person is an employee of the company.

Footnote: Kindly take note that these scenarios above are merely hypothetical, fictitious and in no way related to any real event whatsoever. Our comments above are merely general commentary without access to detailed and specific evidence. Should you require further comments on your employment contract, kindly contact your preferred solicitors and present all relevant evidences to gain advice from the said solicitor. Thank you.

Part 1: The difference between contract of service and contract for services.

[1] Hoh Kiang Ngan v Mahkamah Perusahaan Malaysia & Anor [1996] 4 CLJ 687


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