Home 2011: 3 Parasites of workers’ sweat and toil

Parasites of workers’ sweat and toil

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More employers are now turning to labour outsourcing agents for workers, prompting Charles Hector to call for a restoration of a proper employer-employee relationship.


Workers’ rights in Malaysia are slowly being eroded by a government that places more importance on the well being of companies and corporations, rather than workers, be it local or foreign. One such phenomenon is the rise in the practice of workers being supplied to employers by outsourcing agents and companies, whereby the supplied workers do not enter into an employment relationship with employers that own and control the workplace.

One wonders whether the usage of the term ‘outsourced’ was intentional as it is so easily taken to be all right as the practice of outsourcing work is now a common occurrence accepted generally. In Malaysia, for instance, most of the banks have already outsourced internet banking, phone banking and even cheque processing and clearance to other companies.

The material difference between outsourced work and outsourcing agents/companies is that the latter are dealing with human workers – not specific types of work. On the request of companies and owners that have factories, plantations, agricultural undertakings and other workplaces, outsourcing agents supply human workers, who then work at these workplaces without allegedly entering into any working relationship with the employers that own the place where they work. For the work done by these outsourced workers, the workplace owners would pay these outsourcing agents who in turn will pay the outsourced workers after of course keeping a portion for themselves. The more hours the workers toil, the more these outsourcing companies earn.

Private employment agencies and ‘outsourcing’ of labour companies

Private employment agencies and/or ‘head hunters’, who also do get workers and supply them to companies and owners of workplaces, are very different in that once the workers are accepted at the workplace, an employment relationship is entered into with the employers. The employment agencies get paid by the workers and/or the employers a certain fee, known as a placement fee. Private employment agencies are governed by the Private Employment Agencies Act 1981, and the fee that can be charged is also fixed. For a local placement, the fee is 20 per cent of the initial month’s pay, and for an overseas placement it is 25 per cent.

In contrast, ‘outsourcing’ agents and companies parasite on the fruits of the sweat and toil of these workers indefinitely. These workers at the workplace, doing usually the same work as all other workers in the factory, would also be naturally discriminated not only with regard to wages and other employment benefits guaranteed by Malaysian law, but also be deprived of the right to be members of unions that exist at these workplace. The negotiating power of the other workers and the local unions will thus be weakened when it comes to collective agreements.

Malaysian workers are also now victims of ‘outsourcing’ agents

For a long time, many Malaysians, apart from unions such as the MTUC, have not paid much attention to this development, which seeks to avoid employment relationship. It is an affront to justice, as it involves only foreign migrant workers. Today, many local workers, including those from Sabah and Sarawak, are also falling into this sub-class of workers,

Some companies have stopped direct employment preferring to get even local workers through outsourcing agents and companies in an attempt to avoid employment relationships.

Employment Act 1955 – historical victory for workers in Malaysia

In 1955, the then British administration saw fit to do away with all these kinds of bad employment practices and other forms of precarious employment, including indentured labour, bonded labour, the kanggani system, forced labour, ‘slavery’, the middle man (or ‘contractor for labour’) and this was a good thing for workers. The Employment Act 1955 also clearly established four very important principles in employment relationships in Malaysia:

  • Job security, including security of tenure until retirement age;
  • Legally guaranteed minimum worker rights, which included working hours, fully paid rest days, annual leave, public holidays, sick and hospitalisation leave, maternity leave, overtime rates, termination and lay-off benefits, and wages.
  • Due process to deal with worker misconduct and/or termination. Termination can only be by reason of just cause or excuse, and there has to be a domestic inquiry, where the worker has a right to be heard.
  • Access to justice, including the right to lodge complaints with the Labour Department (Labour Courts), and the Industrial Relations Department (Industrial Courts).

Return of bad employment practices to the detriment of workers

Over the past few years, slowly a new employment practice crept in: outsourcing agents and companies, who supply workers to different employers – individuals, businesses or companies – to work at the workplaces of these employers. Unlike the private employment agencies, these outsourcing agents and companies do not stop at just supplying the workers, collecting their placement fees and leaving, but continue to take significant portions of wages paid to these workers by the employers.

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As an example, an employer may pay a remuneration of RM36 for the work done by a particular worker for nine hours. The outsourcing agents take RM16 and gives the workers only about RM20. The same happens with regard to overtime and Sunday or public holiday work payments. Just taking this RM16 per worker per normal day’s work, an outsourcing agent and company can make almost RM500,000 per month for 100 workers supplied. Some of these outsourcing agents and companies bring in thousands of workers and earn millions of ringgit living off the sweat and toil of workers. The employer, who does not consider these workers their own workers, would happily end up discriminating against these workers in terms of wages, work benefits and other worker rights.

Termination is also easily done, without the need for any due process. All that employers need to do is tell the outsourcing agent and company that they do not want worker A, and worker A will be taken away and another may be sent in their place. Generally, these workers only get paid for the days or hours that they work. They will not get the legally guaranteed workers’ rights, including paid rest days, paid annual leave, 10 paid public holidays per year, paid maternity leave and other benefits, and paid sick and hospitalisation leave.

Outsourcing agents’ practices are illegal

What is most disturbing is the fact that what is practised by these outsourcing agents and companies and their employers may be illegal under present laws in Malaysia, especially the laws with regard to employment.

These outsourcing agents and companies are really, what one would call ‘contractors for labour”. Our current Employment Act does not allow such ‘contractors for labour’. The current law, however, does allow for ‘sub-contractors for labour’, which is defined as “any person who contracts with a contractor or sub-contractor to supply the labour required for the execution of the whole or any part of any work which a contractor or sub-contractor has contracted to carry out for a principal or contractor, as the case may be.

The definition clearly does not include ‘contractor for labour’, and cannot legalise outsourcing agents (and/or the practices employed by them) and some employers today.

Government’s attempts to legalise outsourcing of labour companies thwarted

The Malaysian government finally came to a realisation and tried to legalise the ‘middle man’ in an employment relationship through D.R.25/2010 Employment (Amendment) Bill 2010, which was tabled in parliament in July 2010. The proposed amendments included a definition for ‘contractor for labour’ to mean a person who contracts with a principal, contractor or sub-contractor to supply the labour required for the execution of the whole or any part of any work which a contractor or sub-contractor has contracted to carry out for a principal or contractor, as the case may be.

But this time the Malaysian trade union movement and members of the public strongly protested the move and finally the government withdrew the bill in October 2010 (The Star,13 October 2010, ‘Employment Bill withdrawn’). This meant that what was acknowledged as being illegal is still illegal today.

In my opinion, the only Act that may assist matters is the Private Employment Agencies Act 1981. This means that once workers are supplied to employers, an employment relationship is created, and the employer is now responsible for all these workers, and will have to ensure that all rights and benefits recognised in law are provided to all these workers. One may want to consider this given the fact that we may now have over 200 ‘illegal’ outsourcing of labour companies in Malaysia.

Guarantee of equality in Malaysia extends also to workers

Article 8 of the Federal Constitution, which applies to all persons not just citizens, guarantees equality. This means that workers who do the same work are certainly entitled to the same wages and other work benefits as all other workers at the workplace. Note also that the Employment Act 1955 provides specifically that there should not be any discrimination based on whether one is a citizen or a foreign worker.

The past and better practice of employing foreign workers

Previously, when employers faced a shortage of workers, they needed to first seek the approval of the relevant body governing the particular sector. In the construction sector it was the Construction Industry Development Board(CIDB). The employer would have to satisfy the board that efforts have been made to get local workers and indicate the number of foreign workers that it would require to employ. Upon getting approval, the employer would start identifying and getting these foreign workers. For this purpose, they may use the services of agents in the country of origin and sometimes also agents in Malaysia. Some companies, would even go to the country of origin to conduct interviews and tests to ensure that the workers that they bring in have the necessary skills and aptitude for the work.

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The contracts of employment will then usually be signed with the workers in the country of origin and then the process begins to obtain the required work pass/visa from the Malaysian immigration authorities, and then the workers are brought into Malaysia. Malaysia also imposes a levy that employers need to pay for every worker brought in, and the workers are also required to have a clean bill of health before they are allowed into country. In some countries, such as India, the government of India also gets involved through the Protector of Emigrants (POE), and a standard employment agreement is signed by the workers before an agent of the POE, while the employer signs the agreement in front of the staff of the Indian High Commission in Malaysia.

In short, under this system there was no ‘third party’ and when the workers arrived, they came as workers of the employer, and were entitled to all the protections accorded under Malaysian law for workers.

The legality of ‘fixed term contracts’ of employment is also questionable

With the advent of migrant workers into Malaysia, what also happened was the creation of a new employment relationship. This took the form of fixed-term contracts usually for a period of at least three years only – something that was really not permissible under the existing Employment Act 1955, which generally provided for employment until retirement. Earlier termination of the employment contract was only possible by resignation of the worker, lay-off/retrenchment and termination due to closure of the employer’s business or change in the manner of operations that made some workers redundant or due to termination after due inquiry into serious misconduct committed by the worker.

The employment laws have not yet been amended to provide for ‘fixed term contracts’, including clear remedies for earlier terminations of these fixed-term contracts. Even now, the lay-off and termination benefits provided for in our Employment Act looks at length of service as a factor in the calculation of benefits, a clear indication of the intention of the Act that the employment relationship should be until retirement. As such, for effective remedies, workers under fixed-term contract may have to look at laws outside existing employment laws, like the Contract Act for effective remedies, and their access to justice may have to be the civil courts.

Domestic workers and the emergence of recruitment agents

When the demand and need for domestic workers arose, it became impractical for employers to personally do all that was required for the employment of one or two domestic workers and they had to rely on licensed recruitment agents here in Malaysia. The same was the case when there was an increase in the number of smaller employers requiring just a few workers, usually in small shops and restaurants.

July 2005 – Government allows employment through ‘outsourcing’ concept

Then, suddenly in July 2005, the government decided to allow for the employment of workers through the outsourcing concept. But it must be pointed out that the government intended for these outsourcing companies to merely supply workers to employers, and not to become the employers of these workers.

Government never wanted the ‘outsourcing companies’ to be the employers

Deputy Prime Minister Muhyiddin Yassin clearly stated that “employers are the people who should be responsible for their foreign workers. Outsourcing companies are only responsible for bringing them in. After that, employers must assume full responsibility” (New Straits Times, 21 May 2010, ‘Higher levies for foreign workers’).

Clearly, what has been practised by outsourcing agents and companies, and employers is not only illegal, but also something that clearly goes against the intention of the Malaysian government. No employer can today escape an employment relationship with its workers by simply stating that these are not my workers but are those that are supplied by some ‘outsourcing’ agent or company. As employers, they are not only obligated to ensure that all workers’ rights are recognised and respected, but they also have to fulfil all obligations that the law places on the employers.

With regard to migrant workers, employers have the additional obligations of not only providing accommodation but also providing social security protection. Such protection will not just cover the workplace but the workers’ entire stay in the country. The Workmen’s Compensation (Foreign Workers’ Compensation Scheme) (Insurance) Order 1998 provided for additional benefits for not only death and personal injury sustained in an accident which arises out of and in the course of employment but also accidents that occur outside working hours. This is also clear indication that when it comes to migrant workers, the employer’s obligation to these workers’ welfare extends well beyond the workplace and working hours.

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Poor enforcement and inadequate laws allowed injustice to continue

Poor enforcement and inadequacies in the present government’s administration are much to blame for this. All matters concerning workers and employment matters should rightly come under the Ministry of Human Resources. Today, when migrant workers claim their rights, employers can very easily just terminate them and immediately send them back to their home country. All that they need to do is go and tell the Immigration Department that they want to cancel the workers’ pass/visa, and the Immigration will do that without even talking to the migrant worker to find out whether they really want to leave before the end of their fixed-term contract or determining whether there are any outstanding labour issues, such as non-payment of wages and other claims/matters outstanding. They do not even check to determine whether there are any complaints lodged with the Labour Department, the police and/or the Human Rights Commission.

Sometimes, employers may just rush workers off to the airport and put them on board a plane back to their home country. The employers and/or their agents then go to the Immigration Department and say that the workers had gone back, and the Immigration Department happily cancels the visa/pass. A better practice would be that if workers are to be sent back especially before the expiry of their contract period, they should be personally interviewed by the Labour Department, using an interpreter. Such an interview should not be in the presence of their employer or agent and should establish that there are no outstanding unsettled claims and/or pending action, and if the Labour Officer is satisfied, he or she should issue and sign a certificate to that effect. .

Sadly, the Employment Act 1955 has no provision that makes it an offence for employers to discriminate against and/or terminate workers who have lodged complaints with the Labour Department, Industrial Relations Department, the police and/or the Malaysian Human Rights Commission. It is useless to have mechanisms for access to justice without the right laws to prevent employers from lodging complaints against workers for complaining.

Maybe the new Whistle Blowers Protection Act 2010 can be relied on, but it is best that the Employment laws are also amended to clearly prevent employers from acting against the interest of justice and making a mockery of existing laws.

Attempting to avoid the employment relationship a global phenomenon

The practice of trying to avoid the employment relationships and the duties and obligations that come with it are not just a phenomenon in Malaysia, but is happening worldwide. The international community frowns against such bad practices which affects worker rights, and even the International Labour Organisation (ILO) came up with a Resolution Concerning the Employment Relationship, and thereafter The Employment Relationship Recommendation No. 198. In 2007, ILO came out with a 75 page document entitled, “The Employment Relationship: An annotated guide to ILO Recommendation No. 198”

For a long time, it was only foreign migrant workers that were affected by the unjust practices of outsourcing agents and companies, and employers but today it also involves local Malaysian workers, many of whom are from Sabah and Sarawak. To be fair, some employers prefer to directly employ their migrant workers, which is still possible in Malaysia, but is becoming more difficult as some immigration officers are pushing them to go to the outsourcing agents/companies to get their workers.

Too many workers have been denied justice in Malaysia

This matter has never been brought to court because most affected workers then were mainly migrant workers, who were terminated and sent back would not be able to commence or even maintain action. Even if they had made complaints or commenced action, the complainants and/or the plaintiffs under the law are required to be in court for cases to proceed.

So many workers in Malaysia have been denied justice while violators of human rights and workers’ rights continue to prosper.

The government of the day and Malaysians should strive even harder to ensure justice for all in Malaysia, irrespective of whether they are citizens or foreigners, poor or rich. One thing that must be done immediately is to end the unjust practices of outsourcing agents and some bad employers.

Charles Hector, an Aliran member, is a human rights lawyer based in Pahang.

The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

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