Home Civil Society Voices 2012 Civil Society Voices Abolish the ‘contractor for labour’ system

Abolish the ‘contractor for labour’ system

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A joint statement endorsed by 90 local and international civil society groups has been sent to the Prime Minister demanding that the government withdraw the 2012 amendments to the Employment Act 1955.


We, the undersigned 90 trade unions, civil society groups and organisations object to the actions of the government of Malaysia in destroying the direct employment relationship between the principal, as employer, and their workers, as employees, with the latest amendments to the Employment Act 1955.

The Malaysian Trade Union Congress (MTUC) , which not only represents the about 800000 unionised workers but also the over 12 million workers in Malaysia, have strongly and consistently opposed the proposed amendments since it was first tabled in Parliament vide Bill No: D.R.25/2010 in July 2010, which the government later withdrew.

The government re-introduced the Bill with minor changes in June 2011 vide Bill No: D.R.15/2011. MTUC came out even more strongly and also picketed at Parliament House on 3 October 2011 and in spite of strong resistance from many quarters, including on the Dewan Rakyat floor, the controversial Bill was passed on 6 October 201 and finally came into effect on 1 April 2012.

We would like to address just one of several aspects of the new amendments that is the main bone of contention, i.e. the introduction of the new provision for the definition of “contractor for labour”.

With the amendment, the contractor for labour will be the third party (or the middleman) who will come in between the now direct employment relationship between the owner-operator of trade or business (defined as the ‘principal’) and their worker-employee.


The Employment Act 1955 was introduced before independence (Merdeka) by the British administration, effectively abolishing indentured labour, bonded labour and the kanggani system in Malaya. (collectively then known as the ‘contract system’).

The Act also established two very important principles of law which are considered sacrosanct to this day. They are security of tenure – ensuring permanence of employment and the proprietary right to the job – where termination of workers, shall be only with just cause and excuse and by due process.

The employment scenario in the country began to change in the early 1990s. In 1992 the government allowed migrant workers for the construction and plantation sector. In 2000, it was extended to the manufacturing and service (hotel and restaurants) sectors, and in 2002, it was extended to all sectors.

Originally migrant workers were employed directly by the principal employer but this started to change in 2005, when the Cabinet Committee on Foreign Workers in its meeting on 5 July 2005 agreed to the recruitment of foreign workers through outsourcing companies (now known as ‘Contractor for Labour’ in the amended Act). The issuance of these outsourcing licences was strangely done by the Ministry of Home Affairs, not the Ministry of Human Resources. There are today about 277 registered labour outsourcing companies in the country today (The Star, 23 February 2010).

This establishment of the outsourcing companies allowed for the re-emergence of the old ‘contract system’. It opened doors resulting in a direct assault on the basic foundation of labour rights, the undermining of the dignity of labour, the perpetuation of the establishment and operation of dehumanised and bonded labour. The practice, which started with migrant workers, was then extended to local workers.

These outsourcing companies recruited local workers and migrant workers, some on fixed-term contracts, with terms and conditions usually less favourable than that of workers directly employed by principals.

The incidence of principals using workers supplied by outsourcing companies is growing. The principal company pays the outsource company an agreed sum of money for the number of workers supplied, whether they are local or migrant workers.

The principal company effectively is able to avoid the employer’s duty and obligation to ensure their workers’ rights and welfare are protected. This practice also saved the principal company’s money that would have ordinarily been expended for workers like medical costs, insurance, bonus, wage increments, retirement benefits, transport and accommodation, service awards, and several other benefits. It also allows them to evade statutory contributions to the Employees Provident Fund and for social security schemes. The principal company also evades all obligations and safeguards in law when workers are hired or terminated, including domestic inquiries, lay-offs and termination benefits. If the principal wants to now get rid of workers, it now merely has to inform the outsourcing company.

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To convert the workforce from permanent employees to short-term contract employees and now outsourced workers, most principals either retrenched their workers, used “voluntary separation schemes” or other methods, or simply terminated their employees substituting them now with workers supplied by the outsourcing companies.

Reason for the amendment

These outsourcing companies have been allowed to operate outside the law with no law regulating them. Even though they were labour suppliers, they were not created under and/or regulated by the Private Employment Agencies Act 1981, which would have also ensured these labour suppliers would only provide workers and not become employers of workers supplied.

The recent amendment to the Employment Act is to give these outsourcing companies statutory recognition under the Employment Act, and at the same time institutionalise and legitimise employment through the outsourcing companies, which now legally will be legally known as the ‘contractor for labour’.

A primary reason for the creation of the ‘contractor for labour’ and the introduction of labour outsourcing is to stifle workers and trade unions’ capacity to demand and negotiate better rights and benefits. The MTUC Memorandum to the HR Minister dated 7 October 2008 refers to an interview with Ishak Mohamed, the Enforcement Director of the Immigration Department, that was published in New Straits Times, 20 July 2008, where he, amongst others, said, ‘…outsourcing is good as it will attract foreign direct investment. Investors do not want unions to be formed in their establishments. Through outsourcing, it would be difficult for unions to be formed as (the) outsourcing company, and not the factory, would be the employer…’ This is indicative of the intention of the government.

Sub-class of workers

The creation of this new sub-class of workers, who are not considered employees of the principal, also jeopardises the existing employment relationship between the principal and their current worker-employees; likewise the relationship with their trade unions. Today, this new sub-class of workers, made up of both local and migrant workers, is found in most workplaces, including even government-linked companies; in some factories they currently make up about 50 per cent of the total workforce. Trade unions are being weakened, and their bargaining powers for better rights and benefits for workers is slowly eroding by the increasing presence of workers who are not employees of the principal, and also by the loss of security of tenure created by short-term contracts.

‘Contractor for labour’ is actually outsourcing of labour which is very different from outsourcing of work. Outsourcing of work is when the principal employer outsources some specified work or operations which are not their core operation, to another company, which carries out the work for the principal using their own employees under their own control and supervision. For example, in several manufacturing companies, cleaning, turf work/gardening, canteen and security services are examples of outsourced work. This outsourcing of work is legal, and the workers of those who are doing outsourced work are protected by the Employment Act.

Contrary to the principle that workers doing core operation work should be employees of the principal, the amendment to the Act now allows the ‘contractor for labour’ to supply workers to perform the core operation under the control and supervision of the principal’s supervisory staff and managers. The ‘contractor for labour’ merely collects the salary of the labour supplied and apportions a part to himself and pays his workers usually less than what the workers who are under the direct employment of the principal are paid, though they do the same work. The principle of equal pay for equal work is thus breached.

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The principal, who is considered not the employer of the workers supplied, absolves himself of all liabilities and employer’s obligations with regard to these workers supplied by ‘contractor for labour’ who are working for the principal’s benefit,

Employment (Exemption) Order 2012

The Minister of Human Resources, in an attempt to placate the MTUC, trade unions, civil society groups and workers issued an exemption order, effective 1 April 2012, which, amongst others, stated:

“…Any person who enters into contract for service with a principal to supply employees required by the principal for the execution of the whole or any part of any work for the principal in any industry, establishment or undertakings other than the agriculture undertakings, is exempted from sections 31, 33A, 69 and 73 of the Act…”

However, the words used in the said exemption order – which by the way also did not include the amendment in section 2, which was the very amendment that gave statutory recognition to the ‘contractor for labour’ and its practices – only further affirms the contractor for labour and their practices. The exempted sections referred to in the said Order merely dealt with ancillary matters like registration of employees when supplied to principal and priority of debt. The exemption order also would deny access to justice for workers now being supplied by these ‘contractor for labour’ in all the exempted sectors.

MTUC and all groups that opposed the amendments were not appeased by this exemption order, and continue their objections to the ‘contractor for labour’.


We strongly object to the ‘contractor of labour’ system. All workers that work under the control and supervision of the principal must be the employees of the said principal not some third party. The Malaysian government’s action is in breach of article 8 of the Federal Constitution. In 1998, Malaysia also ratified the ILO Declarations on Fundamental Principles and Rights at Work but this amendment is in contravention of the said Declaration. Further, it also is in contravention of the ILO’s Decent Work Agenda which Malaysia has committed to.

The International Trade Union Confederation (ITUC), many trade unions and civil society groups, also opposed, and still oppose this amendment. The Malaysian Bar also recently passed unanimously a resolution on 10 March 2012, amongst others, calling for the maintenance of the existing two-party employment relationship, and for labour suppliers and/or contractors of labour to never be or continue to be employers of workers after they (the workers) are supplied, accepted and start working at the workplaces of principals.

The contractor for labour and their practices should not be allowed in any sectors including the plantation and agricultural sector.


We, therefore, demand the repeal of all amendments to the Employment Act 1955, in particular the amendments to section 2, 31, 33A, 69, 73 brought about by the Employment (Amendment) Act 2012 [ACT A1419] relating to the ‘contractor for labour’ and their practices, and, pending repeal, an immediate stop to the operation of the amendments.

We call for the abolition of the ‘contractors for labour’ and their practices and for all workers currently supplied by these third party labour suppliers (‘contractors for labour’) and who are still not direct employees of the principal employer to be immediately made employees of the principal and accorded the same benefits and treatment as accorded to all other employees without discrimination, including the right to form/join trade unions or afford protection and entitlement to the benefits accorded through their respective Collective Agreements.

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We call for the abolition of precarious employment, and for the retention of a just two-party employment relationship between principals and workers, and for the respect of workers and trade unions’ rights.

Charles Hector
Pranom Somwong
Bruno Pereira

For and on behalf,

  1. ALIRAN (Aliran Kesedaran Negara), Malaysia
  2. Amalgamated Union of Employees in Government Clerical and Allied Services (AUEGCAS )
  3. Amalgamated Union Employees Tenaga Nasional Berhad (AUETNB )
  4. Anak Muda Sarawak (AMS)
  5. Asian Migrants Center (AMC)
  6. Asia Monitor Resource Centre (AMRC)
  7. Asia Pacific Forum on Women , Law and Development (APWLD)
  8. Asian Network for the Rights of Occupational and Environmental Victims (ANROEV)
  9. Association for Community Development -ACD, Bangladesh
  10. BASF Asia Pacific Network
  11. BASF-PETRONAS Malaysia
  12. Burma Campaign Malaysia (BCM)
  13. Burma Partnership
  14. Centre For Reflection And Action On Labour Rights (Cereal Guadalajara), Mexico
  15. Center for Indonesian Migrant Workers-CIMW
  16. Center for Migrant Advocacy, Philippines (CMA-Phils)
  17. Centre des travailleurs et travailleurs immigrants / Immigrant Workers’ Centre (Montréal, Québec)
  18. Centre d’appui aux Philippines – Centre for Philippine Concerns (Montréal, Québec)
  19. Christian Development Alternative (CDA)-Bangladesh
  20. Clean Clothes Campaign
  21. Communication Workers Union Victoria, Australia
  22. Community Action Network (CAN), Malaysia
  23. Democratic Party for a New Society (DPNS), Burma
  24. Dignity International
  25. Ecumenical Institute for Labor Education and Research (EILER), Philippines
  26. Electronic Industry Employees Union Western Region Peninsular Malaysia (EIEUWRPM)
  27. FAIR (Italy)
  28. Families Against Corporate Killers, UK
  29. Federation Independent of Trade Union (GSBI) Indonesia
  30. FSPMI ( Federasi Serikat Pekerja Metal Indonesia)
  31. Future In Our Hands, Norway
  32. Garment and Allied Workers Union, India
  33. Hsinchu Catholic Diocese Migrants and Immigrants Service Center (HMISC), Taiwan
  34. Institute for Occupational Health and Safety Development (IOHSAD),
  35. International Metalworkers’ Federation (IMF)
  36. International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF)
  37. Jaringan Rakyat Tertindas (JERIT), Malaysia
  38. Kesatuan Pekerja-Pekerja Polyplastics Asia Pacific (KPPAP)
  39. Kesatuan Sekerja Industri Elektronik Wilayah Selatan
  40. Kesatuan Sekerja NUTEAIW Isuzu Hicom (M) Sdn Bhd, Pekan, Pahang, Malaysia
  41. Kesatuan Industri Elektronik Wilayah Timur Semenanjung Malaysia
  42. Konfederasi Serikat Nasional (National Union Confederation)[KSN] , Indonesia.
  43. Labour Behind the Label, UK
  44. Lal Zenda Coal Mines Majdoor Union (LZCMMU), India
  45. Lembaga Informasi Perburuhan Sedane-Sedane Labour Resource Centre Bogor-Indonesia
  46. LHRLA – Lawyers for Human Rights & Legal Aid (Pakistan)
  47. MADPET (Malaysians Against Death Penalty and Torture)
  48. Malayan Nurses Union(MNU)
  49. MTUC (Malaysian Trade Union Congress)
  50. Migrant CARE, Indonesia
  51. Migrant Forum in Asia (MFA)
  52. Migrante International
  53. National Domestic Workers Movement- AP Region
  54. National Hazards Campaign of UK
  55. NLD-LA (National League for Democracy-Liberated Areas), Malaysia
  56. National Union of Banking Employees (NUBE)
  57. National Union of Petroleum & Chemicals Industrial Workers (NUPCIW), Malaysia
  58. National Union of Transport Equipment and Allied Industries Workers (NUTEAIW), Malaysia
  59. Network of Action for Migrants in Malaysia (NAMM)
  60. Occupational and Environmental Health Network of India (OEHNI)
  61. Pakistan Rural Workers Social Welfare Organization (PRWSWO)
  62. Paper & Paper Products Manufacturing Employees Union(Reg No 444), Malaysia
  63. Parti Rakyat Malaysia (PRM)
  64. Perak Women for Women Society (PWW)
  65. Persatuan Masyarakat Selangor dan Wilayah Persekutuan (PERMAS)
  66. Persatuan Sahabat Wanita, Selangor (PSWS)
  67. PINAY – The Filipino Women’s Organization in Quebec
  68. Public Services International, Malaysian Affiliates National Coordinating Committee
  69. Pusat Komunikasi Masyarakat (KOMAS)
  70. RightOnCanada.ca, Canada
  71. Sarawak Medical Services Union (SMSU)
  72. Solidarity of Cavite Workers, Philippines
  73. Tenaga National Berhad Junior Officers Union (TNBJOU)
  74. Tenaganita, Malaysia
  75. Thai Committee for Refugees Foundation (TCR)
  76. Thai Labour Campaign, Thailand
  77. The Live And Livelihood Foundation, Bangladesh
  78. The Women’s Caucus (Southeast Asia Women’s Caucus on ASEAN)
  79. Think Centre – Singapore
  80. United Filipinos In Hong Kong (UNIFIL-MIGRANTE-HK)
  81. United Students Against Sweatshops, US
  82. University of Malaya General Staff Union (UMGSU)
  83. WARBE Development Foundation, Bangladesh
  84. Women’s Legal and Human Rights Bureau, Inc.(WLB),Philippines
  85. WOREC Nepal
  86. Workers Assistance Center, Inc., Philippines
  87. Workers Hub For Change (WH4C)
  88. Yayasan LINTAS NUSA Batam-Indonesia
  89. Yokohama Action Research (Japan)
  90. Clean Clothes Campaign, the Netherlands
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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