Can We Include a Probationary Period in a Fixed Term Contract?

A fixed-term contract is a common tool for project-based roles, seasonal work, or temporary needs. A question that frequently arises for employers is whether it is legally sound to include a probationary period within such contracts. This article addresses this specific issue, examining the legal framework and drawing upon decided case laws from the Industrial Court and High Court of Malaysia to provide clarity for employers.

Wait, What’s the Difference?

A probationary “period”, typically lasting three to six months, serves as a trial for employers to assess an employee's suitability and performance before confirming them. Despite being on this "trial run," probationers are legally recognized as employees and are entitled to the full rights and protections under Malaysian law.

A fixed term “contract”, on the other hand, is for a specified duration employment agreement with a definite start and end date. The employment relationship is intended to conclude automatically upon the expiry of the contract, a concept known as "effluxion of time." This is a key distinction, as generally, there is no "dismissal" when a genuine fixed-term contract expires.

Can They Co-Exist?

YES! While it might seem counterintuitive to include a probationary period within a fixed-term contract, it is a common practice that employers adopt in Malaysia. The Industrial Relations and higher Courts have also consistently recognised probationary periods within a fixed term contract as a standard industrial practice, and even provided clear guidance on its legal standing, as follows:

Clarity 1: Does a Probationary Clause in a Fixed-Term Contract Create a Risk of Permanent Employment?

A case that addresses this is Malayan Banking Berhad v Mahkamah Perusahaan Malaysia & Anor [2016] MLRHU 1. In this case, an employee on a twelve (12) month fixed-term contract with a six (6) month probationary period was terminated before her contract expired. The court's ruling clarified that the inclusion of a probationary period did not alter the fundamental nature of the employment as a fixed-term contract. It held that the employee's claim for back wages was limited to the unexpired term of the contract, as her employment would have ended regardless upon the contract's expiry. 

This decision confirms that the probationary period only serves as a mechanism for assessment within the fixed term itself.

Clarity 2: Can employers proceed with non-confirmation of employment if the employee fails the probationary assessment?

A case that addresses this is Tan Eng Lai v Malayan Banking Berhad [1992] 2 ILR 788. The Industrial Court here ruled that an employer has the right to terminate a probationer (who is on a fixed term basis) for unsatisfactory performance ie non-confirmation of employment at the end of probationary period, however this termination must be made with "just cause or excuse." In this case, the court found that the bank had failed to provide the employee with adequate warning and a sufficient opportunity to improve. The court's decision confirms that even within a fixed-term contract, the principles of natural justice and fairness apply to the termination of a probationer.

In conclusion, the practice of including a probationary period in a fixed-term contract is common in Malaysia and is recognised by Industrial Relations Courts. It provides employers with a mechanism for performance assessment. However, it is essential for HR practitioners to be aware that the termination of a probationer, even on a fixed-term contract, is subject to the principles of just cause and a fair procedure, failing which the employer may be liable for back wages for the unexpired portion of the contract.

From Theory to Practice

Knowing the law is only part of the equation — applying it correctly in real workplace situations is where many managers struggle. We cover topics like probation management, fixed-term arrangements, and fair termination processes in our Public Course: The HR Toolkit for People Managers, designed for leaders and HR practitioners who want both legal compliance and practical skills.

Planning to revise your employment contracts or need a professional review of your current ones? 

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