Tips on Drafting a Contract of Employment - Part I

Now that the interview is over and you have selected the candidate, it is now time to draft the Contract of Employment. Remember, just because a candidate has been selected for the job does not necessarily mean that the candidate has accepted the offer. It will all be subject to the Contract of Employment.

Some Contracts of Employment are so comprehensive that the successful candidate will have to take some time to go through the terms and conditions. I know of a person who had to engage a lawyer to go through his Contract of Employment as the job carried a very heavy responsibility but at the same time had a very good salary package. The terms and conditions in a Contract of Employment are negotiable. However, it is up to the individual if he or she wishes to negotiate with the Employer. There are instances where a person just accepts the Contract of Employment as given. This may be due to the fact that the person has been unemployed for quite some time and he or she is just thankful that he or she has finally secured a job. I believe that the employer has a duty to go through the Contract of Employment with the successful candidate to ensure that there is no misunderstanding on the salary, benefits and duties expected of the employee. We do not want this to be an obstacle to the Company’s productivity.

Types of Contract

Basically, there are 2 types of contract. One is the Contract for Service while the other is the Contract of Service. We will briefly discuss these 2 types of contract.

1. Contract for Service

A Contract for Service is when a person has been engaged to carry out a specific task for a certain period of time or until the task is completed. An employer and employee relationship does not exist in a Contract for Service. The person or entity that is entering into the contract is an independent contractor. An independent contractor is required to carry out the duties as specified in the Contract for Service. An independent contractor does not submit itself fully to the Company’s directions or orders as an employee would in an employer and employee relationship. In other words, the company’s requirement is for the independent contractor to achieve and obtain the end result rather than telling or directing the independent contractor how to go about doing the job.

Story: Producing a Play called “The Proposal”

Sometime in 1992, I was asked to produce a play called “The Proposal” at my university in Australia. The director of the Play was a former Malaysian who was a well known actor, director and personality in the arts and theatres in Kuala Lumpur back in the 70s and 80s. At that time he was living in Australia. He asked if I would be kind enough to produce the Play for him. I had never produced a play so I decided to take up the challenge and agreed.

We had an audition where we chose the actors and actresses for the Play. The actors and actresses were paid next to nothing because the Play was produced to raise funds for the university’s drama club. Nevertheless, it was all done professionally as if the Play was done on a big commercial scale. We even recruited personnel to help us to sell tickets, put up the posters and usher. They were volunteers but everyone took their jobs seriously.

I was politely informed by the director of the Play of some of the ground rules as to my role as the Producer. The director informed me that I was not to interfere with the artistic and acting work of the actors and actresses. By all means, I was allowed to watch but I was not to tell them what to do. Fair enough, I thought. I was also informed that I was not to interfere with the preparation of the props for the Play. I was to get the props done but I was not to tell the carpenters or helpers how to do their job. I was also not allowed to tell the stage hands where and when to place the props as that was the job of the director. Looking back, if this had been a company, or in this case a production company, the actors, actresses, carpenters, helpers and director would all be independent contractors. All of them were given specific roles (forgive me for the pun!) to play and there was to be no interference by the Producer as to how they were to carry out their duties.

The Play was a success. After it was completed, the stage hands and helpers had to rush off to attend classes (after all we were all university students!). They were to come back later to remove the props. However, we were informed by the university staff that they needed the lecture hall where the Play was staged in 15 minutes as there was going to be a lecture given there. There was no one to help us. The director of the Play and I started removing the props on our own. The actors and actresses who were there did not lift a finger to help us. The only reason I could think of was that probably the actors and actresses felt that it was not their job to remove the props, so why should they bother?

What I observed from this experience is this, you cannot expect an independent contractor (in this case the actors, etc) to do more than their specific duties. Of course, one can always argue that they ought to go beyond their specific duties as it is done for the good of the Company or in our case, for the good of the Play. But if you put yourself in their shoes, why should they? The Play was completed and they were not permanent actors with the production company, so why should they do more than what was expected of them? After all, they were independent contractors and they had completed their jobs, therefore it was time to move on!

The Contract for Service is very specific. As an employer you need to be precise about the duties of the independent contractor. Unlike a permanent contract of employment, a Contract for Service does not have a saving clause in the contract that says “….and any other duties which the employer may instruct from time to time”. If the actors were permanent employees and we had this clause in the contract, we could have gotten the actors to assist us in removing the props.

(i) Some drafting tips on Contract for Service

(a) Be specific about the work or duties of the independent contractor

As stated earlier because the person is an independent contractor, the duties or work in the contact for service must be specific. How do you determine the duties of the independent contractor? The first thing is to ask ourselves what is our objective in engaging this person? In other words, what do we want to achieve by engaging this independent contractor?

An example would be if you need the independent contractor to set up the computer system in your office, then you need to list out the list of things (ie: the details) that the independent contractor must achieve. For example, you need the computer network to be shared by everyone in the office, setting up a server, setting up of e-mail accounts, etc. You need to go through the details carefully to avoid any misunderstanding with the independent contractor in carrying out his or her work. An example of a misunderstanding here would be if you want the independent contractor to set up and install a computer accounting software for the company, this would be something different from the intended contract. The independent contractor may say this is not his or her agreed scope of work and you may need to pay extra for this additional work. Remember, your authority over the independent contractor is limited. Therefore, you cannot instruct him or her to “do any other work as may be assigned from time to time”. Some employers may say that they will make it general in the contract for service such as “designing and installing a computer system in the office”. Therefore, this hopefully will cover everything under the sun. Will it? I do not think so. A clause of this nature will be too ambiguous and the parties will be arguing for a long time and it will not benefit anyone. Therefore, I am of the view that you need to be specific when drafting the scope of work or duties.

(b) Duration of the Contract for Service

The duration is a fixed term. The Contract may expire at a given duration or when the work is completed. A Contract for Service is not renewable. If you need to have the independent contractor continue working on a certain project, you will need to draw up a new Contract for Service. However, you should also be aware that if you draw up a Contract for Service consecutively one after the other upon the expiration, this may be construed as permanent employment by the authorities.

(c) Payment

When it comes to Contract for Service, I prefer to use the word payment rather than salary. At the end of the day, that will be what the independent contractor will be receiving - payment rather than salary. However, there is nothing to stop you from paying the independent contractor in stages. However, make sure the mode of payment is stated and agreed upon in the contract. Payments in stages are normally marked by milestones. For example, when setting up the computer network, a payment will be made and then setting up the server will entitle the contractor to another payment and so on.

(d) Statutory or required contributions

In Malaysia, there are statutory contributions such as EPF and SOCSO for employees of a company that must be paid every month. However, in a Contract for Service, the independent contractor is responsible for all payments required by the statutory bodies in respect of his or her services to the company or whoever engaged them.

(e) Form of Contract for Service

There are companies that prepare a Contract for Service on their letterheads. I am of the view that a Contract for Service would be more appropriate if it is done in a form of an Agreement like we see in a tenancy agreement where the parties and the terms and conditions are clearly stated. If it is prepared on a company’s letterhead, the contract may be construed as a Contract of Service.

2. Contract of Service

Contract of Service is used when you are employing a person in your company to perform duties in the company. Unlike a Contract for Service, an employer will have authority over the employee in performing his or her duties in the company. The employer can direct the employee to perform the duties as the employer deems fit.

(i) Some tips on drafting a Contract of Service

(a) Inserting the “catch all” clause in the Scope of Work or duties

Unlike in a Contract for Service, an employer can insert a “catch all” clause in the Contract of Service. Usually, an employer will list out the duties of the employee and then end it with the “catch all” clause that states “….and any other work or duties that may be assigned or instructed by the Employer from time to time”. For example, an Accounts Clerk is hired to perform duties relating to accounting work in the office but may be asked or directed by the Employer to perform administrative duties in the office as well from time to time. Whatever work given by the Employer under the “catch all” must be reasonable and related to the work in the office. For example, it would be unreasonable to get the Account’s Clerk to wash the director’s car and then to pick up his or her children from school! I am of the view that an Employee has the right to reject the work or duty assigned by the Employer if it is deemed degrading or has no bearing or relation whatsoever to the work or duties of the Employee in the office or in the Company.

INTERVIEWING TECHNIQUES

Now that you have the potential candidates, it is time for the interview. To me, the interview sets out to do the following things:-
(i) It is to assess the candidate. In other words, meeting the person and seeing whether the person’s character will fit into the organization. It is always nice to have a pleasant and cheerful person around. It "brightens" up the office and brings a lot of positive energy (yes, I do believe in feng-shui!) to the office. Sometimes, all it takes is just for one person to create disharmony in the office. This will become a real challenge when one staff member after another starts leaving because they can’t work with that one person.
(ii) It is to see how the person interacts. You can tell a lot by just seeing how the candidates answer the questions. I have seen candidates talking non-stop as if they have not been given a chance to speak for a long time. Some candidates like to boast about his or her past achievements. I have also seen candidates bad mouthing their ex-bosses or criticizing their former employers. To me, these candidates are definitely out of my radar screen. Any candidate that speaks negatively about their former employers or bosses will have the potential to say the same about you or your company when he or she leaves.

HOW DO I START THE INTERVIEW?
For starters, you may want the candidate to fill-up the application form. Unless, your organization is a large organization or the job requires special skill, I am of the view that the application form should be short and simple. As most of the applicants will have their resume prepared, there is no need for duplicity in the application form.
There are a number of ways to begin an interview. Some interviewers like the candidate to speak first to see how much the candidate will reveal of himself or herself. On the other hand, there are interviewers who like to begin by introducing the candidate to the company. In other words, what the company does and hopes to achieve. By laying the foundation, the interview proper will then begin. Personally, I prefer the interviewer to introduce the company to the candidate before the candidate speaks about himself or herself. Some people would say that is not a good idea as this will give the candidate an opportunity to provide tailored answers, giving the impression that they are suitable for the position by highlighting their skills and qualities according to the Company’s requirements. I would strongly disagree with such comments. If anything, the candidate will be in a better position to know what is expected of them.