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Fixed term employment contracts are widely used across Asia, but the legal treatment of such arrangements differs significantly between jurisdictions. These differences can create compliance and workforce planning challenges for multinational employers that rely on fixed term engagements for flexibility, project-based work or cost management across their regional operations. This article provides a comparative overview of the key legal principles governing fixed term employment contracts in Singapore, Malaysia, Indonesia, Mainland China and the Philippines.
1. Is fixed/limited term employment recognised?
Singapore
Yes, fixed/limited term employment contracts are recognised. Employees may also be employed on a full time or part time basis.
Malaysia
Yes, fixed/limited term employment contracts are recognised. Employees may also be employed on a full time, part time or casual basis.
Indonesia
Yes, fixed/limited term employment contracts are recognised. Employees may also be employed on a full time or part time basis.
Mainland China
Yes, fixed/limited term employment contracts are recognised. Employees may also be employed on a full time or part time basis.
Philippines
Yes, fixed/limited term employment contracts are recognised. Employees may also be employed on a full time, part time, project, seasonal or casual basis.
2. Are there any limits on renewing fixed term contracts or their duration?
Singapore
There are no limits on the number of fixed term contract renewals or their duration.
That said, fixed term contracts should not be used to substitute permanent employment and avoid unfair dismissal protection. There are deemed permanent employment risks associated with continuous renewals of fixed term employment, particularly where the employee has been employed for an extended period of time under fixed term contracts that have been repeatedly and automatically renewed over the years.
Malaysia
There are no limits on the number of fixed term contract renewals or their duration.
That said, fixed term contracts should not be used to substitute permanent employment and avoid unfair dismissal protection. There are deemed permanent employment risks associated with continuous renewals of fixed term employment, particularly where the employee has been employed for an extended period of time under fixed term contracts that have been repeatedly and automatically renewed over the years.
Indonesia
Fixed term employment contracts may be based on a time period or on completion of certain work.
Fixed term employment contracts that are based on a time period may be used in respect of work that is:
- estimated to be completed within five years;
- seasonal in nature; or
- related to a new product, a new activity or an additional product that is still in the experimental phase.
Fixed term employment contracts that are based on a time period may last up to a maximum duration of five years (including any extension(s)). There is no limit on the number of extensions, as long as the total period, including any extension(s), does not exceed five years.
Fixed term employment contracts that are based on the completion of work may be used in respect of work that may be carried out and completed once (ie, work that is not ongoing in nature) or work that is temporary in nature. Such contracts must specify the scope of work (ie, the type and location of the work) and the expected period required to complete the work.
If the work is not completed within the expected completion time, the fixed term employment contracts may be extended until the work is completed. That said, the extension must not be for a prolonged period. Otherwise, the fixed term employment contract may be deemed a permanent employment contract.
As a general guidance, the total term should be kept to five years or shorter (noting that five years is the maximum duration for fixed term employment contracts that are based on a time period).
Mainland China
A permanent employment contract is required in the following situations:
- the employee has worked for the employer for at least ten consecutive years (unless the employee proposes a fixed term employment contract); and
- the employee has already entered into two consecutive fixed term employment contracts with the employer, and the employee requests a permanent employment contract.
If a permanent employment contract is required but the parties cannot agree to the terms, then the terms cannot be less favourable than those contained in the previous fixed term contract that the employee was on.
Failure to agree on the terms of a permanent employment contract does not excuse an employer from entering into a permanent employment contract with an employee.
Philippines
There are no limits on the number of fixed term contract renewals or their duration.
However, the fixed term and the extensions/renewals must be reasonable. If the employer's hiring on a fixed term basis is premised on a temporary need, it will be difficult to justify a prolonged period.
Repeated hiring on a fixed term employment basis (especially for the same position with the same tasks) or repeated extensions/renewals of the original fixed term employment contract may be seen as indication that the fixed term arrangement is being used to circumvent the law on regular employment and security of tenure.
3. Are there any special rules that apply to the termination of fixed term employment contracts?
Singapore
No special rules apply to termination of fixed term employment contracts, save that the contract will automatically terminate upon expiry of the fixed term (or if expressly stated, upon completion of the specified piece of work).
Malaysia
No special rules apply to termination of fixed term employment contracts, save that the contract will automatically terminate upon expiry of the fixed term (or if expressly stated, upon completion of the specified piece of work).
Note that the use of fixed term contracts also carries the risk that an employee who is terminated prior to the expiration of the fixed term may attempt to claim salary and benefits for the unexpired portion of the fixed term
Indonesia
Under the Government Regulations No. 35 of 2021 (GR 35), employers must register all fixed term employment contracts with the Ministry of Manpower. The registration must be done online within three working days of both parties signing the contract, or in person with the relevant Manpower Office within seven days of both parties signing the contract.
If either party to a fixed term employment contract terminates the contract prior to the end of its term, or if the contract ends for any reason other than the exceptions referred to below, then the party that terminates the contract must pay compensation to the other party.
The compensation is equivalent to the amount of salary that the employee would have been entitled to receive from the point of termination until the end of the term of the contract. The exceptions are where:
- the employee dies;
- the fixed employment contract expires;
- a court ruling and/or an Industrial Relations Court (IRC) orders the termination of the contract; or
- certain circumstances as are prescribed in the employment contract, the company regulations or the collective agreement apply which result in the termination of employment.
Apart from the above compensation, GR 35 provides that additional compensation is payable by the employer upon the:
- expiry of the contract term;
- expiry of each extension of the contract; and
- early termination of the contract, irrespective of who terminates the fixed term employment contract.
The additional compensation is only payable to Indonesian employees on fixed term employment contracts who have completed at least one month's service.
Foreign employees are not entitled to additional compensation. The additional compensation is calculated at one month's salary per year of service (or part thereof).
Mainland China
An employer is required to pay severance compensation to an employee upon the expiration of the employee’s fixed term employment contract, unless the employer offered to renew the contract based on the same terms or terms more favourable to the employee and the employee refused to accept the renewal.
Labour dispatch agencies must employ workers on fixed term employment contracts with a duration of at least two years.
Philippines
No special rules apply to termination of fixed term employment contracts, save that the contract will automatically terminate upon expiry of the fixed term.
Note that the use of fixed term contracts also carries the risk that an employee who is terminated prior to the expiration of the fixed term may attempt to claim salary and benefits for the unexpired portion of the fixed term.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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